CONFLICT OF INTEREST – BOARD MEMBER ETHICS – Article by Beth Grimm, P.L.C.

Article by Beth Grimm, P.L.C. HOA & Condo Attorney

A colleague of mine recently delivered an email newsletter that cited a case in Nevada discussing conflict of interest. A Nevada city council member was “censured” for voting in favor of a casino development for whom a long-time personal friend and campaign manager was a consultant. The council member did not recuse
himself from voting on the casino matter, but claimed it was an appropriate exercise of “free speech” even though there was a Nevada law requiring recusal in such a matter (he sounds like a lawyer!).

The court deciding the case looked back a long ways in investigating the history of recusal in the United States
to Thomas Jefferson who imposed the following rule on legislators:

“Where the private interests of a member are concerned in a bill
or question, he is to withdraw. And where such an interest has appeared, his
voice [is] disallowed . . . the laws of decency . . . denies to any man to be a
judge in his own case.”

Touche!

In the HOA and Condo world, the importance of avoiding conflicts of interest or even perceived conflicts cannot
be overstated. If a director has any interest in the decision, any friends involved when there is a contract involved, or potential financial gain, any conflict of interest, they need to disclose it and, I believe, recuse themselves from voting. Whether they should advocate a particular outcome is a fair question; there are cases where they should just shut up and sit on their hands. If they make a good argument for why their input is needed, advocating may be helpful, but otherwise, “put up and shut up” as the old saying goes!

Adopting a Code of Ethics is not a bad idea for any board. It has to be voluntary however unless the Bylaws or CC&Rs identify it as a requirement to serve on the board. Sometimes they even want to solicit business – and use the membership list to fish for clients. But even when/if they do not intentionally use their position, sometimes the delineation between the volunteer and paid work gets blurred, and that can be a real problem. Even if not real, a perceived problem may arise. Common complaints:

“The Realtor [contractor, accountant, baby sitter etc.] is using his/her position to solicit clients.”

“The tenants placed by the realtor never get disciplined.”

“The buyer blames his dissatisfaction on the board instead of the Realtor who sold him the Condo bill of goods.”

“The board president’s brother wants to do the job – he’s out of work and homeless.”

In California in an HOA or Condo Association, conflicts of interest have to be disclosed to members to avoid
being a legally actionable conflict. It’s in the Davis Stirling Act (in confusing language pointing to the Corporations Code). One way to disclose is to make sure the information appears in minutes of an open meeting. If the conflict involves compensation, the “perpetrator” should pay attention to whether that jeopardizes the volunteer status, which in turn can get in the way of the important protections the law affords a volunteer director. More often than not I hear from the board member who wants to fill the potentially conflicting roles (when they consider the possibility of losing insurance or indemnification protections), “It’s not
worth it.”

Yet I also often see a resistence to publicly disclosing any conflict or potential conflict. Whenever anyone wants to hide something, I always wonder why. Sometimes there is a good reason, but in these situations, the least honesty breeds the most distrust.

Be aware … or Be Square. Don’t go there.

(Can you tell I am taking a poetry-writing class?)

The Code of Commitment I have proposed appears in the Board Briefs I Primer available on my website and if you want an interpretation of what the disclosure law means, or any other law in the Davis Stirling Act, check out THE DAVIS STIRLING ACT IN PLAIN ENGLISH, also available in the webstore at http://www.californiacondoguru.com.

**EXTRAS**

Ethics of  Board Members – Click here to review this article

Code of Conduct – Document Example here 

Board Code Of Conduct: A Field Guide For Board Members – Document Example here 

An Example of a “Code of Conduct” approved Board Member Document –  Example here

 

 

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