Organizations welcome lawyers as board directors, and we want to provide value — but directors have duties, and our professional status has implications.
All board directors have a fundamental fiduciary duty to act in the best interests of the organization. Further, the British Columbia Societies Act s. 53 requires directors to “exercise the care, diligence, and skill that a reasonably prudent individual would exercise in comparable circumstances;” to comply with the Act, the regulations, and the society bylaws; and to act for the society’s particular purposes — without displacing common-law duties interpreted in the law of both societies and business corporations.
While successful actions for a nonprofit director’s breach of fiduciary duty are uncommon, a board member who is a lawyer will feel particularly responsible. Section 63 of the Societies Act provides that other directors have complied with their s. 53 duties if they relied upon “a written report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by that person,” or upon “a statement of fact represented... by another director... to be correct.” And in corporate law, a director may have the standard of care of a person with the knowledge and experience of that director — potentially engaging legal expertise.
As a basis for acting in the best interests of the organization, any director should:
- read all distributed materials and participate in meetings;
- ensure compliance with the organization’s constitution, bylaws, governing statute, and regulatory requirements;
- ensure accurate minutes, membership records, financial statements, and tax returns;
- monitor performance of the chief executive using best human resource practices; and
- refer the board to legal education for nonprofits (such as Pacific Legal Education for the Arts).
A director’s fiduciary duty requires loyalty to the organization, with the keystone of avoiding actual or apparent conflicts of interest. For a lawyer who is a director, this implies that usually one should not provide advice (legal services) to a board of which one is a member. The potential conflicts of interest are outlined in commentary to the LSBC Code of Professional Conduct, s. 3.4-1 (while referring to corporate directors), and in Victoria and District Cricket Association v. West Coast Cricket Organization, 2024 BCSC 65 at [91-207].
Upon appointment to a board, and in minutes of meetings, it is prudent to state that one cannot provide legal advice. Other board members may be unaware that a lawyer’s avoidance of conflicts is broader than their own duty to avoid conflicting financial transactions. Consider also that “informal” legal advice provided in the course of board discussions likely will not be privileged and will not be insured.
However, boards will benefit from our legal skills if we draft or edit standard policies and resolutions, explain uncontested legal language and potential legal processes, indicate when to consider retaining counsel, and assist in communicating with counsel (best done in the company of the board chair or executive committee).
It is not uncommon for lawyers, being risk-averse, to dissent from board decisions or even to resign from a board when other directors interpret their duties less rigorously. For example, a board, pursuant to provisions of the Societies Act, may decide to “waive” (approve) a director’s financial conflict of interest, but a lawyer may view that as contrary to the organization’s best interests. Resignation doesn’t always relieve one of potential liability, but ones’ fiduciary duty may be served by clearly (and kindly) informing the board of concerns, and by suggesting educational resources or engagement of counsel.
Directors’ liability for torts, debts, employment deductions, and taxes is beyond the scope of this brief note.