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Brad Watson: How to avoid conflicts of interest

Posted: July 18, 2012 1:55 a.m.
Updated: July 18, 2012 1:55 a.m.
 

Dr. HOA,
I sit on the board for my association and have previously hired vendors that have worked for our association to do work at my home. I pay for the work and do not get special treatment. I hire them because I see their work first hand at our association and I trust them. Recently a new homeowner joined the board and is accusing me of doing something wrong by hiring association vendors. Is there anything wrong with board members hiring association vendors?
­— Derrick B.

Hi Derrick,
This is an important topic that our management firm discusses regularly during our board member and homeowner training seminars regarding ethics. The scenario you present deals with whether or not a conflict of interest exists when a board member hires an association vendor to perform work at their private residence.


My professional position is that board members should avoid hiring association vendors to perform work on their home due to the perceived or potential conflict of interest and their fiduciary obligation to act in the best interest of the association.


As a volunteer for the association, it is inappropriate for a board member to personally benefit, financially or otherwise, from their service to the community.


By hiring an association vendor to perform work on their private residence, board members are exposing themselves to potential conflicts of interest and ethical allegations.


Even if a board member is diligent to ensure that they are not personally benefiting from his or her position on the board by obtaining multiple vendor proposals to make certain they are paying market rates, the potential for, or perception that there may be an ethical issue could create problems for the association as well as the individual board member.


When community members see the association’s pool maintenance vendor, landscape maintenance vendor or janitorial company at a board member’s private residence it sends the wrong message and creates the perception that there may be an ethical conflict.


Whether or not there is an actual conflict of interest is moot as the perception alone can damage the reputation of the individual board member, their fellow board members, and even the association as a whole.


Board members have a fiduciary obligation to conduct themselves in an ethical manner and in the best interest of the association as a whole. Board members are fiduciaries of the community’s homeowners and could potentially be held personally liable if they fail to meet their fiduciary duties, which includes the duty of care by avoiding conflicts of interest and acting out of self interest, and the duty of loyalty by acting in the best of the association.


In addition to ethical concerns, I have witnessed many association/vendor relationships damaged when vendors are hired by board members to perform work outside of the vendor’s association responsibilities, ultimately impacting the very association the board member volunteers to protect.


For example, I recently learned of a board member who hired the association’s landscape maintenance company to install their rear yard. The board member received a bid and authorized the work, but then refused to pay when the finished product did not meet expectations.


Eventually, the landscape maintenance company took the board member to small claims court to get compensation for the work performed. The conflict between the board member and the landscape vendor resulted in infighting between board members as well as with the association’s vendor. Ultimately the association’s common area landscaping suffered and the association terminated the landscape maintenance contract.


To avoid perceived or potential ethical issues and ensure that board members act with a duty of care in the best interest of the association, I strongly recommend associations adopt a policy discouraging board members from hiring association vendors.


With numerous qualified vendors actively seeking work in this difficult economy, there is no shortage of talented, competent companies for board members to hire for personal home improvement projects.


Readers can submit questions to: drhoa@pmprollc.com.


Brad Watson is managing director of Property Management Professionals which is located at 27413 Tourney Road, Suite 100, Valencia. He can be reached at 661-295-4900 or www.pmprofessionalsllc.com. The column contains general information about HOA practices and does not represent the specific CC&Rs of each HOA or replace the advice of an attorney. Watson’s column reflects his own views and not necessarily those of The Signal.

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