Demystifying Board Member Conflicts

“The greatest crimes do not arise from want of feeling for others, but from an over-sensibility for ourselves and an over-indulgence to our own desires.” – British Statesman Philosopher Edmund Burke.

People run for the board of directors of their association for many reasons. Some see the position as a way to get more involved with their community or to meet new people. Some join out of a sense of duty or to correct perceived problems with prior boards. Some see board membership as a networking opportunity or to get directorship or management experience. Regardless of why someone joins the board of directors, the bottom line is that once a person becomes a board member, he or she has very clear duties to the association as a whole. Keeping this duty in mind may help board members avoid conflicts of interest – or even the appearance of a conflict.
Both the HOA Act and the Condominium Act provide:
the board of directors shall act in all instances on behalf of the association and that board members have duties of care and loyalty to the association. RCW 64.38.025(1);

RCW 64.34.308(1). In Oregon, these same duties are contained in the Nonprofit Corporation Act at ORS 65.357, which is cited by both the Planned Community Act and the Condominium Act. These provisions not only define the governing authority of an association; they are an edict that the board of directors shall always act on behalf of the association, the corollary being that no board member should be acting on his or her own behalf. Acting in your own or anyone’s interest other than the association’s is the very definition of conflict of interest. Simply put, a board member must place the interests of the association above (not merely equal to) all interests, including their own.

Some board member conflicts are obvious. When a board member exploits his board membership to prevent enforcement action against him, most boards and managers have no trouble requiring the board member to recuse himself from any decisions relating to his own violations of the governing documents. But other conflicts can be more difficult to identify and therefore, harder to enforce. Even the issue of self-dealing (where a board member wants the association to hire her for some purpose) can be difficult to identify as a conflict because the board member often feels that the association benefits from the arrangement as well. In these circumstances, there is still a conflict. There is also the appearance of impropriety, which should be avoided because it causes erosion of the membership’s faith in the board.

Once a conflict is identified by either the association manager or one or more of the other board
members, it can be just as difficult for the remaining members of the board to decide what to do
about the conflict. That is why we recommend that boards adopt a board member Code of Ethics
that spells out potential conflicts and prohibits certain actions by board members with conflicts.
Adopting a Code of Ethics can easily be done under the board’s rulemaking authority. The best
time to adopt such a code is before a conflict arises because most people will agree with the set
of principles in the abstract, but may have difficulty adopting a set of rules that seems targeted at
their own behavior.

The provisions of the Codes can vary but the terms should be specific. The Code can flat out
prohibit any board member from accepting compensation from the association for any reason.
This would avoid not only actual conflicts but would also avoid perceived impropriety. On the
other side of the spectrum, the Code can require disclosure of even potential or minor conflicts to
avoid the appearance of impropriety. For example, the Code could require mere disclosure by a
board member who rents her unit when discussing changes to rental cap provisions, but require
disclosure and recusal of board members who are delinquent in paying assessments from voting
on issues relating to not only their own delinquency but all delinquencies. The Code should also
prohibit use of information to which the board has access, such as list of homeowners, for
purposes unrelated to association business so that board members cannot use such access to
solicit clients for his or her business.

Having a Code of Ethics in place not only allows the manager or other board members to point to
the violation of a concrete rule when a director starts acting in their own self-interest, it also
serves as an excellent reminder for existing board members and those seeking board positions as to the true purpose of the board – to act in all instances on behalf of the association

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