Best practices for board members and property managers.
HOA board members, as well as property managers, are bound by codes of ethics (written or unwritten) to put the interests of their respective associations ahead of their own. Conflicts of interest, or even the hint of conflicts, can create major issues for the community or property management company. We know we are supposed to avoid conflicts of interest, but to what extent? If there is a potential conflict, how should we approach it so that the community can still make the best business decisions?
Let’s first agree on the definition of a conflict of interest. Then we can review some examples and determine how best to proactively approach and address potential conflicts.
Defining conflicts of interest
Generally, a conflict of interest occurs when outside factors interfere with a person’s ability to make an impartial decision. For a community association board member (or property manager), the decision is influenced by personal or other interests, rather than just the best interests of the community. A potential or perceived conflict is just a problem waiting to happen, so it is important for us to treat real or perceived conflicts with the same level of care.
Examples of conflicts of interest
Assuming that you agree with the definition above, a conflict of interest can still exist even when there is no overt action, like receiving a kickback. Here are some examples to consider. I believe that each example creates at least the perception of a conflict, requiring disclosure and potentially other actions to mitigate any issues. Do you agree?
- Recommending a best friend’s landscaping company.
- Hiring a relative to paint the clubhouse.
- Purchasing insurance from a board member who is an insurance agent.
- Slashing the budget below effective operating levels just to reduce the dues.
- Allowing board members to violate parking deck rules with no ramifications.
- Serving on the board and also working as a contractor for the property management company.
- Using confidential homeowner information to advance a board member’s business interests.
- Accepting an expensive gift from a vendor. We’re talking Mont Blanc pen, not plastic BIC.
Proactively addressing real and perceived conflicts
Most of us on HOA boards and in the property management industry are business people. We actively search for knowledge and business contacts to help us do our jobs better. That’s a natural part of business, so it’s not surprising that our business networks could create potential conflicts of interest. Your friend, relative, or business associate may offer the best solution, but let the rest of the board make that decision. As long as those conflicts are proactively disclosed and appropriately handled, smart, conflict-free decisions can be made and the board can move on to the next topic.
If you ever think that there could be even the smallest hint of a conflict, here’s how to address it with the board:
- Communicate your concern immediately, fully disclosing the situation.
- Excuse yourself from the decision-making process or vote if required by the board.
- Ensure the decision-making process is well documented in case of future scrutiny.
Remember that the rules apply to everyone
Community covenants and ethical rules apply equally to association members, boards of directors, and property managers. Board members and property managers also have a higher, fiduciary duty to the community, meaning that you need to put the best interests of the community before all others. Avoid even the slightest perception of conflicts by proactively communicating, addressing, and resolving any issues.
Neal Bach, CPA