When homeowner association members are elected to the board, there is the possibility that, knowingly or unknowingly, a conflict of interest will develop. It is almost impossible to avoid them but how they are handled is critical. Conflicts of interest come in several sizes and blatancy. For example, hiring a personal friend to do HOA work has a small degree of conflict of interest. Accepting a "gratuity" for getting him the job is a blatant conflict of interest.
Board members sometimes get caught in self serving situations when there is a shortage of reserve funds to take care of things like painting or roofing. In those cases, some homes will get painted or roofed before others. If any of those homes belong to board members, there will always be suspicion that the board stacked the deck in its favor. This may or may not be true but the perception will be that it's true.
In cases like these, the board should distance itself as much as possible by purposefully putting their homes somewhere down the list or to hire an outside consultant to recommend the priority list.
Both techniques can be used effectively where limited resources dictate that some members will benefit over others.
Another technique for avoiding conflict of interest is for a director to abstain from voting when the outcome is self-benefitting. And it's important that the secretary records in the meeting minutes that "(fill in name) abstained 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. Technically, if you advise the Board that your brother in law, the HOA's landscape contractor, is giving you massive 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.
Disclosure can smooth over minor conflicts of interest but if there are significant implications, the disclosure should be made to all members in writing for the record. And this may raise more questions than answers. Many conflicts of interest are best avoided altogether.
One of the best ways for the Board to avoid self dealing is to deal openly.
Board meetings should be open to all members and minutes should be complete and quickly 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.
Some homeowner association developers engage in blatant conflict of interest by failing to disclose HOA responsibilities clearly in marketing material or grossly underbudgeting the HOA operation to keep HOA fees low to attract buyers. This is done to maximize profit.
These strategies are based in a conflict of interest which often comes back to haunt the developer after turnover because of disgruntled buyers. The cure lies in getting outside consultants to draw governing documents and to build adequate budgets. Arranging HOA training for prospective Board members also demonstrates the developer's good will and investment in the HOA's future success.
All are capable of feathering their own nest even when unaware of doing it. The best policy is to avoid the perception of wrong doing. Ask yourself if what you're doing could be misconstrued by outsiders. Trust is a fragile thing. Treat it like fine crystal.
