Real or perceived – does it really matter?

 

Take the Conflicts Quiz

Before I start dispensing advice, which of the following activities do you think could be perceived as a conflict of interest?

  1. Property manager receives a finder’s fee for helping a painter land an HOA contract.
  2. Community landscaping company mows board members’ lawns for free.
  3. Board member’s nephew is hired to do a construction project.
  4. Community resident is hired to do a construction project.
  5. Board member is a financial advisor and wants to invest the reserve funds.
  6. Neighborhood party sponsored by the pool company during contract bidding.

The simple answer is that all of these could be considered conflicts of interest, but it’s not always that simple. While the kickback described in #1 is pretty straightforward, what’s wrong with a pool party? Oftentimes, just the perception (or misperception) of a conflict may cause major issues between boards, residents, and property management companies. Even an innocent pool party can sway opinions away from what’s in the best interest of the community. Why take the risk and cause a bunch of potential hassle down the road?

If you have to ask…

When working with boards and property managers, I often receive questions about whether specific actions (like the ones listed above) are considered conflicts of interest. My initial response is, “If you have to ask now, assume that someone else will challenge it later on.”

If possible, drop the idea, avoid a potential landmine, and move on. If that’s not possible, then use distance and documentation to avoid any hint of impropriety. Here’s how:

  • Seek multiple bids. Procuring at least 3 viable bids allows you to compare options and pricing. Make sure you’ve adequately listed your needs or requirements so you can make an apples-to-apples comparison.
  • Provide full disclosure. If you or anyone you know would benefit directly or indirectly from a vendor relationship, let the board know immediately. As a group, the board and property manager can determine the extent of the potential conflict.
  • Excuse conflicted parties. If a potential conflict of interest does exist, that board member or property manager can be excused from the discussion and voting. Problem solved, almost.
  • Document the process. Fully explain the potential conflict and subsequent actions taken to ensure that the ultimate decision was in the best interests of the community. Store a copy of this documentation along with the bids and contract. Your nephew could really offer the best solution…

Run your association like a business

I know I say this a lot, but even more often I see examples of where board members, and even an occasional property manager, forget to place the community’s best interests ahead of their own. If this isn’t already outlined in the board and property manager codes of conduct, set a policy on how the community identifies and addresses potential conflicts of interest. Then post it on your website so current and future property managers, board members, and residents understand that conflicts of interest – whether real or perceived – are taken seriously.

Neal Bach, CPA