Legal Insight and Litigation

Avoiding Ethical Pitfalls in the Representation of Family Businesses

As all attorneys know, maintaining an ethically sound practice is one of the fundamental requirements of the legal profession. Nowhere is this requirement more pronounced than in the representation of a family-owned business, which typically presents a variety of complex dynamics for the attorney’s consideration. Dealing with multiple familial owners—as well as the emotional ties between those owners—can often place lawyers in a difficult position, especially from an ethical perspective. However, as long as careful practices are adhered to, many potential ethical pitfalls can be easily avoided.

First, a variety of possible issues can be addressed from the outset of the representation, in the form of a detailed engagement letter. Such correspondence can help to identify the actual client; outline the scope of the representation; and explain the types of problems that might arise during the course of the representation. In addition, an engagement letter can also be used to obtain the family members/owners’ informed consent to the representation, and in certain instances, can be utilized to procure waivers of potential conflicts.

Next, adhering to the terms of that engagement is, of course, equally important to ensuring that the structure of the representation has been adequately established. For example, if an attorney has only agreed to represent the organization itself, then the provision of legal advice on matters which are personal to a particular family owner is inappropriate. Making sure that these boundaries are properly established can help to eliminate confusion with respect to exactly who the attorney represents.

Finally, acknowledging the existence of an unavoidable and non-waivable conflict is also an essential to family business representation. Quite simply, there are certain situations in which such representation is an ethical impossibility, and in which each individual familial owner should retain their own independent counsel. Recognizing these scenarios is extremely important, as the failure to do so can quickly land an attorney in hot water, from the standpoint of ethical compliance.

In sum, lawyers who provide representation to family-owned businesses should be cautious in their approach, so that they can avoid potential allegations of ethical impropriety. Nevertheless, implementation of the simple methods outlined above can go a long way in preventing any such claims.