Considerations for Attorneys Serving as Directors of Corporate Clients
| Publication year | 1983 |
| Pages | 1966 |
| Citation | Vol. 12 No. 12 Pg. 1966 |
1983, December, Pg. 1966. Considerations for Attorneys Serving as Directors of Corporate Clients
Attorneys are occasionally asked to serve as directors of corporations which they represent. The decision to serve as a director of a corporate client may be based on any number of considerations. For example, many attorneys serve as directors because such service frequently provides business for their law firms. Attorneys may be concerned that clients will seek alternative counsel if an attorney refuses to serve as director, since clients may not understand the technical considerations attorneys face in this situation. Also, some clients are more likely to heed the advice of an attorney who is "at risk" as a director. This article discusses potential problem areas which should be taken into account by attorneys who are currently, or are considering becoming, directors of corporate clients.
There is considerable commentary on the practicality and ethics of lawyers serving as directors of corporate clients. Indeed, there have been proposals before the American Bar Association to add a section to the Code of Professional Responsibility which would prohibit attorneys from serving as directors of corporate clients.(fn1) Although the proposals have never been enacted, the underlying reasons are deserving of serious thought.
The first area which must be considered is the potential for an attorney-director to be unable to exercise his independent judgment as required by Canon 5 of the Code of Professional Responsibility.(fn2) Fee considerations may frequently interfere with the ability to make judgments reflecting both the best interests of the corporation and the attorney's best legal advice. One commentator suggests that any attorney serving as a director should regularly ask the following question:
If I were not a director, and did not receive any of the personal benefits flowing from my directorship (such as locked-in business for my firm or stock dividends, would my performance as a lawyer be materially different from what it is now?(fn3)
Only if the answer is consistently "yes" can the attorney be said to act truly independently. One example of an area of conflict is when an attorney-director has to give advice concerning the Board's decision to phase out a branch of the company which has been a strong client of the attorney's firm.
Another professional consideration is whether or not the attorney's standard of care in a variety of areas is greater solely due to his legal training. This is particularly evident in the securities area, which is discussed below. Moreover, an attorney-director can be faced with a conflict of loyalties. Specifically, a director has fiduciary duties to the corporation and its shareholders. An attorney-director is hired by the corporation through its Board of Directors and may feel loyal to the individual members of the Board rather than the corporation. An attorney-director engaged in regular business dealings with the officers of the corporation may have greater potential conflict than an outsider-director not engaged in...
To continue reading
Request your trial