A Board Members Fiduciary Duty

In successfully-run associations, members of the board of directors possess good communication skills, carefully plan ahead, make good judgments based on sound decision-making practices, delegate work to qualified committee or advisors, exercise initiative and independent thinking and work well together as a team.

While there are leadership success stories, there are also leadership failure stories. If a board members cannot work together and do not abide by the governing documents, state statutes and their moral obligation of fiduciary duties, these board members can send their associations into political turmoil, financial collapse and physical deterioration. It is in the breakdown of good management practices and the lack of skilled leadership that give rise to claims of breach of fiduciary duty.

According to Wikipedia, fiduciary duty is “the relationship of trust and confidence between one in a position or power, dominance or authority and another who is dependant on that person’s decision making, or exercise of authority”. Directors are expected to act in the best interests of their associations and its owners. Board members should not exploit their position of power for personal gain or advantage. Board members cannot become paralyzed in stressful situations in which the responsibility to act in the best interest of the association conflicts with personal or emotional needs.

One of the more important aspects of fiduciary duty is documenting the actions and decisions of the board to demonstrate a thoughtful, deliberative process while acting in the association’s best interests. The importance of maintaining a good set of minutes for board meetings is crucial. Critical decisions made by board members that involve potential legal liabilities for the association or the board should be paid special attention when minutes are drafted and approved. Your legal set of minutes should never detail verbatim conversations but should only reflect the business of the association. Typical minutes should include what motion was made and by whom, who seconded the motion, and the vote. Through the board meeting minutes, the board of directors has an opportunity to succinctly record its exercise of fiduciary duty.

In conclusion, fiduciary duties include:

  • Utmost care: board members are bound to a higher standard.
  • Integrity: board directors must act with fidelity and honesty.
  • Duty of full disclosure: of all material facts which influence a director’s decision.
  • Loyalty: no “personal agendas” or conflicts of interest.
  • Duty of good faith: means total truthfulness, absolute integrity, and total fidelity to the association. The duty of good faith requires board members to always act in the best interests of the association.

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