NEWS

Conflicting Interests

Author: Ryan Hodson

When people are elected to positions of power, there is always the possibility that, knowingly or unknowingly, aconflict of interest will develop. Conflicts of interest come in severalshapes and forms. 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 association has limited funds, whose buildings get done first?

If the board president decides to painther own unit first, there is an obviousconflict. Rather than be exposed to wellearned criticism, why not ask a thirdparty consultant to make the call inwriting and share it with the owners?This technique can be used in manysituations where limited resources causesome owners to benefit over others.Avoid the perception of selfdealing...get someone else to make thecall.

Another technique for avoiding conflictof interest is for a director to abstainfrom voting when the outcome isself-benefitting. And make sure thesecretary records in the meetingminutes that (fill in name) abstaineddue to a conflict of interest". That way,the written record will show no intent tosway the vote.

Disclosure is another way of avoidingconflict of interest. The idea behinddisclosure is that any possible conflictis brought to the attention of the board.If the board has no problem with it, it’sokay. But beware. Technically, if youadvise the board that your brother inlaw, the HOA’s landscape contractor, isgiving you massive kick backs toinfluence the contract, you’ve provideddisclosure. If the rest of the board wantsin on the action and makes it known,they’ve also provided disclosure. Nofoul, right? Hardly. The board fiddleswhile the owners do a slow burn.Disclosure can smooth over minorconflicts of interest but if there aresignificant implications, the disclosureshould be made to owners with writtendocumentation for the record. And thismay raise more questions than answers.Many conflicts of interest are bestavoided altogether.

One of the best ways for the board toavoid self dealing is to deal openly. Board meetings should be open to allowners and minutes should be complete newsletters should advise of upcoming events. If the board knows someone is looking over its shoulders, it’s less likely to engage in self serving activity.

Many homeowner association developers exhibit shortsighted interest in their developments. Their primary goal seems to be to make a profit and get out as fast as possible. No training or long range budget or maintenance planning is provided for the new homeowner board. Assessments 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 disgruntled buyers.

Developers should seek out experts to assist them shape the new homeowner association. Specialist attorneys can write user friendly governing documents and management consultants formulate good budget 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. Take precautions to avoid conflicting interests that can deharmonize your HOA.

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