How to Keep Your Community Association Free From Any Conflicts of Interest
Conflict of interest is a real threat to your HOA’s integrity and reputation. As a board member of a community association, you should understand what this means, and how to recognize and avoid it. In this article, we will give you some tips on how to keep your community association from possible conflicts of interest.
Understand What Conflict of Interest Means
A conflict of interest occurs when a personal or outside interest affects you or another individual’s ability to make a fair decision. For example, if an HOA board member owns a construction company, hiring that business as a vendor is a conflict of interest since the board member in question is likely biased.
Recognize Conflicts of Interest as They Arise
It is important to recognize potential conflicts of interest so that your association’s board can make impartial, ethical decisions on behalf of your community. Potential and actual conflicts of interest are quite different. Using the example we mentioned above, the fact that the board member owns a construction company is a potential conflict. If the association has business with the company, that’s an actual conflict of interest. Make sure to ask yourself if you might be affected by outside or personal influences. Do you have duties to outside interests or entities that could affect your decisions? If you answer yes to this question, you are likely dealing with a potential conflict of interest.
Know Your Fiduciary Duties
As a Board member, you have legal and fiduciary obligations to your association. You have the duty of care, which requires you to be a careful steward of your association’s resources, and you have the duty of loyalty, which requires you to be loyal to your association and its members. You also have the duty of good faith, which requires you to act in the best interest of your association and community members. To fulfill these fiduciary duties, you must avoid all conflicts of interest.
Keep the Budget Impartial
When it is time to make your association’s next yearly budget, make sure that you and the other board members keep personal interests out of the decision making. For example, let’s say a couple of new board members are elected, and they don’t like how high the community assessments are. Because of this view, they drastically cut the budget to a negligent level, so that monthly fees can be lowered. There is a clear conflict of interest in this case because these board members favored their interests to the detriment of the community. During the budget-making process, make sure to be aware of your personal biases so that you can avoid any conflicts of interest.
Avoid Exploiting Privileged Information for Personal Gain
In certain situations, boards have access to privileged and confidential information, often related to members of the community. If that information is exploited for personal financial gain, it represents a conflict of interest. Remember your duty of good faith. Always act on behalf of the best interest of your community stakeholders, and never exploit privileged information for personal gain.
Apply the Rules to Everyone Fairly
Even if you are a board member, you must follow all community guidelines. To avoid potential liabilities and conflicts of interest, apply the rules to everyone fairly. As the old saying goes, “rules are rules”!
Developer-Appointed Board Members Should Be Careful
Board members who are appointed by developers during the development phase are not exempt from the ethics surrounding conflicts of interest. They are put in a tough spot though because they owe their allegiance to the association, but many of them are influenced by their relationship with the developer. Developer-appointed board members should be held to a greater deal of scrutiny, to ensure that they are free of any conflicts.
Transparency is Key
If you have a potential conflict of interest, you must be transparent. Reveal all potential conflicts, and remove yourself from situations that may force you to act inappropriately. Abstaining in the voting process is a good practice if you have conflicting interests.
How Clark Simson Miller Can Help You Manage Your HOA
If you need professional management services for your community association, Clark Simson Miller has you covered. We offer remote management, accounting, and financial services for community associations of all sizes within the United States. To learn more about how CSM can improve your community, contact us online or give us a call at (865) 315-7505.