When people are elected to positions of power, there is always the chance they may knowingly or unknowingly engage in a conflict of interest. Conflicts of interest come in several shapes and sizes. It is almost impossible to avoid them but how they are handled is critical.
For example, when it comes time for painting or roofing and your HOA has limited funds, whose buildings get done first? If the board president decides to paint his own unit first, there is an obvious conflict. Rather than be exposed to well earned criticism, why not ask a third party consultant to make the call in writing and share it with the owners? This technique can be used in many situations where limited resources cause some owners to benefit over others. Avoid the perception of self dealing. Get someone else to make the call.
Another technique is for a director to abstain from voting when the outcome is self-benefitting. And make sure the secretary records in the meeting minutes that "[director's name] abstained from voting due to a conflict of interest." That way, the written record will show no intent to sway the vote.
Disclosure is another way of avoiding conflict of interest. The idea behind disclosure is that any possible conflict is brought to the attention of the board. But beware. If you advise the board that, for example, the HOA landscape contractor is giving you kick backs to influence the contract, you've provided disclosure. If the rest of the Board wants in on the action and makes it known, they've also provided disclosure. No foul, right? Hardly. The board fiddles while the owners burn. Disclosure can smooth over minor conflicts of interest but if there are significant implications, the disclosure should be made to owners in writing.
One of the best ways for the board to avoid self dealing is to deal openly. Board meetings should be open to all owners and minutes should be complete and quickly and easily available. Frequent newsletters should advise of upcoming events. If the board knows someone is watching, it's less likely to engage in self serving activity.
Many homeowner association developers are shortsighted. Their primary goal seems to be to make a profit and get out as fast as possible. They provide little or no training for the new homeowner board. HOA fees are often set artificially low to make sales prices more attractive. This strategy starves the HOA of funds it desperately needs to properly take care of the assets. All this can and often does can come back to haunt the developer because of inadequate money to do regular maintenance which is diagnosed as construction defects.
Instead, wise developers seek out experts to assist them shape the new homeowner association. HOA attorneys write legal and readable governing documents and management consultants formulate viable budgets and maintenance plans. This makes the whole process "arm's length" and more credible to owners. In a word, the developer should offer every possible resource to help ensure board success. With this approach, the chance for success are greatly enhanced, the owners are happier and less likely to blame (read "sue") the developer for shortcomings.
We're all capable of feathering our own nest even when we don't think we're doing it. The best policy is to avoid any perception of wrong doing. Step outside the box and ask yourself if what you're doing could be misconstrued by outsiders. Trust is a fragile thing. Treat it like fine crystal. Take precautions to avoid conflicting interests that can disharmonize your community.
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