Startup Lawyer | Should your Startup Lawyer also be a Director?
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Should your Startup Lawyer also be a Director?

Posted 13 Apr 2009

Startup founders sometimes ask their startup lawyer to serve on the board of directors. The founders may feel that their lawyer is a prime candidate for a board seat since their lawyer (a) is familiar with their startup, and (2) has dealt with a myriad of startup company issues through the lawyer’s representation of such companies.

In most states (I haven’t done a survey all 50), a startup lawyer can simultaneously represent a corporation and serve on the corporation’s board of directors. In order to do so, the lawyer must take careful steps to prevent ethical dilemmas from arising when acting as a lawyer-director. Regardless, the startup lawyer’s duties to the corporation can, and likely will on many occasions, conflict with the lawyer’s duties as a board member.

Your startup lawyer represents your startup company (board of directors). If your startup lawyer joins your board, he or she ends up indirectly advising himself or herself. It is difficult for the startup lawyer-director to provide impartial advice if he or she is both advisor and advisee.

Another negative of having your startup lawyer on your board of directors is that communications between the startup company and a lawyer who is a director may not be entitled to the attorney-client privileged communications rule. Is your lawyer providing legal or business management advice?

Thus, I recommend that founders and startup companies do not have their startup lawyer (or any other lawyer that provides counsel to the startup) sit on their board of directors.

11 Comments
  • Berislav Lopac
    Posted at 16:36h, 13 April Reply

    What if the lawyer is also an (say, angel) investor?

  • Berislav Lopac
    Posted at 11:36h, 13 April Reply

    What if the lawyer is also an (say, angel) investor?

  • Apolinaras "Apo
    Posted at 23:46h, 13 April Reply

    Another thing to think about, and please don't shoot the messenger, is something my friend, an experienced lawyer, once said to me once: "Good lawyer and good business person are not possible in one person. Lawyers are taught and do think differently than business people. Even an MBA can't cure lawyer-think. If they will try to convince you otherwise, they are full of it!".
    I worked in a law firm and I can attest to that. Every attorney who claimed their MBA made them business savvy was absolutely delusional. As an experienced business person I could not believe some of the stuff coming out of their mouths.

    Good attorneys have their very deserved place as advisors in legal matters and that is it. If I want someone to cut my hair, I go to a barber, not my accountant.

  • Apolinaras "Apo
    Posted at 18:46h, 13 April Reply

    Another thing to think about, and please don't shoot the messenger, is something my friend, an experienced lawyer, once said to me once: "Good lawyer and good business person are not possible in one person. Lawyers are taught and do think differently than business people. Even an MBA can't cure lawyer-think. If they will try to convince you otherwise, they are full of it!".
    I worked in a law firm and I can attest to that. Every attorney who claimed their MBA made them business savvy was absolutely delusional. As an experienced business person I could not believe some of the stuff coming out of their mouths.

    Good attorneys have their very deserved place as advisors in legal matters and that is it. If I want someone to cut my hair, I go to a barber, not my accountant.

  • Colleen Post
    Posted at 08:19h, 14 April Reply

    Ryan,

    Thank you for writing about this. So many entrepreneurs don't stop to think strategically about their board make up. Most are just so excited to have board members. Great advice!!

    Colleen Post

  • Colleen Post
    Posted at 03:19h, 14 April Reply

    Ryan,

    Thank you for writing about this. So many entrepreneurs don't stop to think strategically about their board make up. Most are just so excited to have board members. Great advice!!

    Colleen Post

  • Ryan Roberts
    Posted at 08:46h, 14 April Reply

    @ Berislav – While the angel investment might increase the reasons your startup lawyer can/should/desires to be on the board, I don't think that reduces the potential conflicts your lawyer might face. In fact, it actually increases the potential conflicts.

    @ Apollo – I think it's possible, just rare. I think the problem is business decisions require swift, decisive thinking and lawyers typically want to sit around and analyze every angle 100 times over before making a decision. I agree on the MBA point–I have an MA in economics and it doesn't qualify me to make predictions about the economy, etc.

  • Ryan Roberts
    Posted at 03:46h, 14 April Reply

    @ Berislav – While the angel investment might increase the reasons your startup lawyer can/should/desires to be on the board, I don't think that reduces the potential conflicts your lawyer might face. In fact, it actually increases the potential conflicts.

    @ Apollo – I think it's possible, just rare. I think the problem is business decisions require swift, decisive thinking and lawyers typically want to sit around and analyze every angle 100 times over before making a decision. I agree on the MBA point–I have an MA in economics and it doesn't qualify me to make predictions about the economy, etc.

  • Ethos Business Law » Blog Archive » Do I Really Need a Board of Directors
    Posted at 14:19h, 17 April Reply

    [...] Often times, a natural instinct is to add your friends and family or your corporate attorney.  Here is an interesting post on why not to add the company’s attorney.  I tend to agree that it is [...]

  • Thinking Strategical
    Posted at 11:46h, 29 October Reply

    You make some great points, but there is one aspect of this that I think you may be overlooking which is that companies often have in house counsel and external counsel that serve very different roles for important reasons. An in house counsel contributes more to legal strategy and an external counsel contributes to legal execution. A lawyer serving as an advisor and board member to a company has the potential to add value. Admittedly, not every company needs to be extremely mindful of legal strategy outside of CYA but the point here is that ha company might want to have a laywer wrapped up in business operations vs. an MBA type for the same sort of reasons that a company would want to have someone with a strong sales management background. Great post here and otherwise, I've enjoyed reading your blog.

  • Thinking Strategical
    Posted at 06:46h, 29 October Reply

    You make some great points, but there is one aspect of this that I think you may be overlooking which is that companies often have in house counsel and external counsel that serve very different roles for important reasons. An in house counsel contributes more to legal strategy and an external counsel contributes to legal execution. A lawyer serving as an advisor and board member to a company has the potential to add value. Admittedly, not every company needs to be extremely mindful of legal strategy outside of CYA but the point here is that ha company might want to have a laywer wrapped up in business operations vs. an MBA type for the same sort of reasons that a company would want to have someone with a strong sales management background. Great post here and otherwise, I've enjoyed reading your blog.

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