Board Relations: Avoiding Conflicts of Interest

It’s the time of year when many community associations welcome new board members. It also is a great time to review conflicts of interest and how to avoid them.

Community association board members are considered fiduciaries. Fiduciary duty is the highest standard of care imposed under law, and it occurs when one or more persons are responsible for the money or property of another. The fiduciary is expected to be honest, free from fraud, and faithful to his or her obligations.

As defined by the Oxford Dictionary, a conflict of interest is a situation in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity. Accusations of self-dealing or conflicts of interest sometimes arise during the vendor hiring process. Board members who profit financially or who have friends or family members who may profit financially from hiring a vendor risk putting their own interests before those of the community.

That vendor in question may wind up being the best fi t for the community, but there are steps that need to be taken so the hiring process is fair and equitable. To ensure the community comes first, board members should:

❚ Acknowledge when a conflict of interest may occur.

❚ Fully disclose a conflict when objectivity cannot be maintained.

❚ Document the entire disclosure in board minutes.

❚ Require conflicted board members to sit out the decision on the conflicting matter and related executive sessions that may occur.

❚ Seek multiple sealed bids and review them in their entirety before making a decision.

❚ Ensure the decision made is best for the entire association as a whole and not specific board members or even the management company. It is possible the management company also may have a conflict of interest when suggesting vendors.

❚ Always follow your association’s documents and state law. If in doubt, consult your community association attorney.

There are other situations outside of the vendor bidding process where board members may find they have a conflict of interest. For example, a board member may have privileged information from sitting on the board that they may use for personal gain, such as the financial difficulty of another resident, upcoming potential projects in the community, or being paid for their work as a volunteer.

No matter what the situation is, board members are expected to approach each decision with transparency and honesty for the betterment of the community they serve. Community association managers need to remind board members of their obligations.