Top Ten Ways to Juggle Your Many Roles without Dropping the Ball in a Closely-Held Corporation.

Nicolle Schippers, Corporate Counsel, ARAG

Attorneys in small law departments of closely-held corporations must forever stay vigilant as they attempt to balance their role as counsel - proficient advisor, skilled negotiator or zealous advocate - and corporate employee - officer, board member or director. Juggling these different roles can become daunting as the lines between counselor and corporate employee blur potentially causing confusion as to who you represent while acting in these various capacities.

As the attorney, you are responsible for ensuring that others understand your function at any given time and any limitations associated with that role. Failure to appropriately advise can not only cause problems for your company but can lead to possible ethical violations for you.

So, how can you effectively juggle your role of corporate counsel, who is responsible for advising the company, and director or board member, who makes decisions that directly impact the future of the company? The following are ten guidelines to help you succeed in your unique situation by successfully and ethically managing your roles without dropping the ball.

1. Know Your Ethics - The Model Rules of Professional Conduct (Rules) say that you can play both the role of counsel and board member/officer/director so long as there is not a material risk that the dual role will compromise your independence of professional judgment. Although this may seem cut and dry, you must remain alert, always understanding the particular role you're playing at the given time and how it can affect the company. For example, if you are attending a board or shareholder meeting during which you receive information, privilege will be waived in relation to that information because you acted as a board member and not in your attorney role. You can also now be called as a witness against the very corporation you are sworn to protect. Be aware of the Rules at all times and you can successfully play both roles. However, if there is a conflict between your role as a director, officer or board member and the interests of the corporation, the Rules state that you must cease to act in that position.
2. Identify your Client - Some attorneys for large corporations may never know the founders of their company or will never meet the owners or board members. But, counsel for closely-held corporations has the unique opportunity to be involved in the day to day management of the company and many of you have developed a close working relationship with the owners. This opportunity can create an ethical dilemma as you become more involved and possibly begin to think of management's interests as synonymous with those of the company. Although these interests may be similar, the Rules on their face are fairly obvious: your client is the corporation. You cannot concurrently represent two clients if the representation of one client will be directly adverse to the other client or if there is significant risk that the representation will be materially limited by your responsibilities to another client (ABA Model Rule of Professional Conduct 1.7). Rule 1.13 provides further guidance by telling us that although a corporate lawyer represents the corporation through its authorized constituents, they do not automatically also represent the officers, directors, employees and shareholders with whom they must advise on behalf of the corporation. But the Rules also tell us that if the interests of management are not fundamentally different from or directly adverse to the organization's, then you may be able to represent both. See guideline 5 below for more information on dual representation. What if the interests of management and the organization are fundamentally different or adverse to one another? Then you must remember who your client is -“ the corporation - and it is your duty to inform others of this. With all of these intricacies, you can now see how imperative it is that you are well versed in ethical rules including confidentiality, conflict of interest, diligence and duties owed your client.
3. Understand when you are providing Business Advice versus Legal Advice - As you are identifying your client, determine whether the "client" is consulting with you for the purpose of obtaining legal advice or is consulting for predominately another business purpose. Look at the circumstances to determine whether you are being asked to act as an attorney resulting in privileged communication or to act in another business capacity. This fundamental distinction can also become tricky as you become more ingrained in the business operations. Regardless of your involvement in business decisions, remember the Rules dictate that when management makes decisions for the company, they must be accepted by you, as the attorney, even if their utility or prudence is doubtful. Even if decisions about policy and operations entail serious risk, it is not in your "province" unless you know the company is likely to be substantially injured by an action by management that is in violation of the law or violates a legal obligation to the company. If this is the case, you must proceed as is reasonably necessary in the best interest of the corporation. See ABA Model Rule for Professional Conduct 1.13. See guideline 8 for more information.
4. Clarify Your Role - You must be clear to others that you are representing the company and any advice you give is given to them as the constituents to the company but ultimately it is for the benefit of the company and not them. This is not to say that they may not also benefit from your advice, but you must remain on alert for any misperceptions about who you represent. The misperceptions arise from constituents' belief that because your advice was beneficial to them personally, you must also be acting on their behalf. Know the role you are playing and clearly communicate that role to others and any limitations of your representation as far as they are concerned. If it is as officer, director or board member, notify all parties that you are not acting as counsel and that any information given in your presence may not be privileged. If it is as attorney, communicate to others that you represent the company and not them individually and that any discussions between you acting on behalf of the company and them may not be privileged if there is a conflict. Communicate the limitations of your various roles often and consider putting them in writing, if appropriate.
5. Dual Representation - Appropriately Disclose and Gain Consent - There are situations where management wants you to represent them and the company. Although you may agree that such representation is possible because you find the interests of management are not fundamentally different from or directly adverse to the company's -“ be wary. If you can, ask outside legal counsel for their independent opinion as to whether you can accept dual representation. If you decide to represent both parties, enter into dual representation with caution and be sure to follow Model Rules 1.7 and 1.13 by disclosing any and all potential conflicts with management, ownership and the board, if appropriate. After full disclosure, obtain written consent from both parties. For the corporation, obtain consent from an appropriate official of the organization other than the other party who is to be represented. (Model Rule 1.13). Remember, in most situations, the conflict cannot be waived. To protect yourself and the company, explain to management the ethical constraints and advise management and/or ownership to retain outside independent counsel.
6. Maintain Confidentiality inside the Corporation - Once you establish your role and communicate it to others, you must ensure certain communications from you are not shared with the wrong people. Corporate employees must be aware that information from or to you in your capacity as counsel may be privileged and should not be communicated to others inappropriately. Only persons who reasonably need to know the communication in order to act for the corporation should be given the information and it is your responsibility to ensure everyone knows of these limitations. Clearly identify privileged and/or confidential information as such. But be careful as you communicate within and outside the corporation because merely labeling the document or communication as "attorney-client privilege" may not be enough to preserve confidences. It is just as important that you educate the receiver as to what they can and cannot do with the information so they don't inadvertently waive the privilege and/or confidentiality. Also watch out for labeling every email and document as "privileged," when it in fact is not. While it is imperative that you identify privileged documents as such, overuse of the "privilege" may cause you to inadvertently lose it.
7. Establish and Implement a Corporate Data Retention Policy - It is just as important that your communication and information is safeguarded appropriately within the company. Your legal documents should not be stored on a public drive for others to see. Instead it should be stored and destroyed appropriately and in accordance with state law. To ensure your communication (including contracts, legal opinions and electronic mail) is stored in the appropriate location to maintain confidentiality, if applicable, and destroyed after the legally mandated amount of time, establish and implement a data retention policy for your corporation. A good example of a data retention policies can be found on the ACC Web site. Educate employees annually on this policy and have them sign off that they understand.
8. Know What to do if Management/Owners Business Decisions are Illegal - So what do you do if the decisions or actions are illegal and are likely to substantially injure the company? Rule 1.13 tells us you should:
   1. If appropriate, ask the decision maker to reconsider the conduct or decision.
   2. Refer the matter to a higher authority within the organization.
   3. If the higher authority insists upon the decision or conduct or fails to act and you believe the violation is reasonably certain to result in substantial injury to the organization then you may reveal the information (see Rule 1.6 and 1.13).
   4. If these actions fail, you may resign.
9. Be Able to Deal with the Pressure - Although pressure from the top is certainly not unique to closely-held corporations, it may be more prevalent. This is because the very people with whom you have helped build the company, make daily decisions, serve on the board, and who consider you as their personal advisor and confidant are the very ones who virtually control all aspects of your employment including your compensation. It can be extremely difficult to say "no," but may be ethically required. Clearly set out limitations and expectations early in the meeting, project or discussion to ensure everyone knows your role. If you continue to feel pressured, ask management/ownership to get an outside independent counsel's advice, and if the pressure elevates to the level of illegal and injurious action to the company, follow your Rules as stated above.
10. Stay on Top of the Law - It is imperative you stay on top of developing law in this area to ensure adequate and appropriate representation. The Small Law Department Listserv and other ACC resources are great sources of information to help you. You have the unique opportunity to hold various positions within your company. Although at times it may be difficult, with solid procedures and continued review of your role, you can effectively and ethically juggle these roles without dropping the ball.