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Avoiding Conflicts of Interest

Members of HOA boards of directors have a fiduciary duty and, with this responsibility, directors must act in the best interests of all HOA members and not their own interests.

 

A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one party is actually accepted by the other party. The duties of a fiduciary include loyalty and reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary.

 

A fiduciary relationship extends to every possible case in which one-side places confidence in the other and such confidence is accepted; this causes dependence by the one individual and influence by the other. In general terms, fiduciary duty is the highest standard of care imposed under law, and it occurs when one or more parties are responsible for the money or property of another. The fiduciary is expected to be honest, and faithful to their obligations.

 

Conflicts of interest can arise for board members in the performance of many of their board responsibilities; everything from the vendor hiring process to even the scheduling of landscaping projects. Since board members have a fiduciary duty, board members must ensure any potential conflicts of interest are dealt with in an appropriate way.

 

Effectively addressing potential conflicts of interest begin with:

 

  • Board members must fully disclose a conflict or a potential conflict when objectivity cannot be completely ruled out.
  • HOA board minutes should reflect the board members entire disclosure.
  • Conflicted board members should abstain/recues themselves, or even sit out the board’s decision on the conflicting matter, as well as related executive sessions that may occur.
  • Always go above and beyond to avoid the appearance of a conflict of interest. For example, seek multiple vendors and require sealed bids and perform a thorough due diligence process in the hiring of vendors. Another example to help avoid the appearance of a conflict is when projects, such as landscaping, are performed for the benefit of the membership; the board may want to place themselves last on the landscaping schedule.

 

 

William Douglas Management, providing excellent management services to HOAs and condominium associations since 1980.

 

Copyright 2018 William Douglas Management, Inc.

 

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