Ahead of the Game

While these ethical challenges are less likely to land an association in the newspapers, their impact can be similarly destructive.  Just as associations need to instill safeguards to prevent embezzlement, they also need a protocol for managing the ethical situations that arise during the course of regular day-to-day business.  Having such an emergency system in place can mean the difference between a healthy, thriving community and a divided, distrustful group of homeowners.

Because the same situations tend to arise again and again (regardless of a community’s age, location or demographics), it’s relatively easy to identify the most common ethical pitfalls.  The individuals in the examples below are fictional, but the situations are based on those often faced by associations.

                And because it’s a matter of when, not if, these situations will arise in your own community; experienced managers, volunteers and other association professionals offer advice for how your community can best handle these circumstances.

I KNOW A GUY….Conflicts of interest.

John has been a dedicated board member for several years.  He has the association’s interests at heart.  So when the association put out a request for proposal (RFP) for new landscaping services, John tried to save the association a few bucks.  John’s brother owns a landscaping company and, based on John’s knowledge of the other bids, submitted a bid far below the others.  When it came time to vote on the landscaping contracts, John’s vote and his persuasive “selling” of his brothers company to the other board members, resulted in John’s brother receiving the contract.

                Familiarity with a service provider’s work is an important consideration in any bidding situation.  But when the relationship between a board member and a service provider is a little too cozy, it creates a problem for both the association and the volunteer.  A conflict of interest is generally defined as a situation in which an individual’s duty to one leads to the disregard of duty to another.  The most common conflicts of interest arise when volunteers suggest a friend, relative or homeowner within the community for an association contract.

                In addition to blatant nepotism, it’s also a violation of fiduciary duty – specifically, duty of loyalty. Duty of loyalty requires that board members act for the association’s benefit only, without regard for any personal interest the directors may have.  Violation of any fiduciary duty could lead to legal action against the association or an individual board member.

                In the event of a potential conflict of interest, all a board member needs to do is disclose the relationship and recuse himself or herself from all votes related to the matter. 

ONE FOR THEM, ONE FOR ME….Special favors and Treatment for Board Members.

Board member Betty didn’t think anyone would mind if she had a family gathering in the condominium’s party room.  She didn’t bother paying the rental fee.  She is a board member, after all.  Meanwhile, committee member Charlie handles communication with the landscaping crew.  When planting time came around, neighbors noticed that Charlie’s personal garden resembled the common spaces quite closely.  In fact, one association member thought she saw the landscaper dropping a flat of flowers off at charlie’s house.

                Examples of self-dealing, when a board member awards a contract to his own company, are fairly easy to spot as conflicts of interest.  Less obvious, but no less worrisome are the indirect conflicts, such as when board members seek special favors or special treatment based on their board status.

                Just like a contract that goes to a board member’s spouse, these situations are also conflicts of interest.  The board members are subjugating the association’s interst to their own, and that calls into question their duty of loyalty.  It’s also just bad PR.

                So if your association is getting new patios, make sure your concrete is poured last!

CHATTY CATHYS AND EAGER EDDIES….When boards overstep their bounds.

Mary and John were hosting a few neighborhood friends for a barbeque.  Mary commented to one of her guests, privately and discreetly, that it was unfortunate one of their neighbors had fallen on hard times, and she wished them the best.  The neighbor seemed surprised by the news, but Mary, who sits on the association’s board of directors and is privy to information regarding late assessments, assured her friend that, indeed, the neighbor was suffering.  She knew it to be true.

                One of the most sensitive and challenging tasks for association volunteers is separating their association responsibilities from their personal and social life.  An off-hand comment about a neighbor’s current hardship may be well-meaning and sympathetic in nature, but also a breach of confidentiality if the news came via a closed-door discussion of delinquent assessments.

                These sorts of casual conversations pose a common, but serious ethical problem for both the board and the chatty director.  It’s a serious breach of fiduciary duty to breach the confidentiality of what is said in executive session.  If the association is damaged in any way by a disclosure, there can certainly be recourse for damages.

                For example, if the neighborhood gossip mill makes its way back to the down-on-her-luck neighbor, she could sue the association for violation of privacy.  We don’t want to scare volunteers away, but with anything, you have to realize that there are responsibilities and you have to meet those responsibilities.

By Molly Brennan

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