What Makes a Director Outstanding [Part 3] – Understanding How The Role Is DIFFERENT

What Makes a Director Outstanding [Part 3] – Understanding How The Role Is DIFFERENT

All the knowledge and experience from the working world (“day job”) can actually hinder a volunteer’s effectiveness in the world of HOA governance if the differences between the two worlds are not understood. Outstanding directors have learned that much of what worked for them in their day job will likely work poorly in the context of board governance. The chain of command is completely different in a community association. In the workplace, there is usually a person who is the “big boss”, somebody who is your immediate supervisor, and someone who you supervise. In the association, no single person is in charge. Decisions are made by the board, so the chain of command is horizontal and not hierarchical. The president in a common interest development is not the “big boss.” The president has far less power in most nonprofit corporations since all important decisions are made by the board, and so the president’s vote is no more important than any other. In this very different paradigm, the individual director typically has no personal power. Once directors embrace the framework of the board as decision-maker, they understand that they cannot make individual promises. This restraint can be very freeing since no individual is responsible for the association and its actions, as all decisions is made by board vote. So, when confronted at the pool or parking garage by homeowners demanding action, the director can truly say they can’t individually do anything and suggest the homeowner bring their concern to management or to a board meeting. Directors failing to adapt to the group decision-making process will often stray outside of corporate...

The Board Balancing Act

The ancient Chinese concept of yin and yang deals with opposite and inseparable forces. Common interest developments (“homeowner associations”) have their own “yin and yang” issues, in which four basic and inseparable priorities must be balanced to produce a successful and harmonious community. The four interests to be balanced are the association’s corporate, real estate, financial and community priorities. Each are critically important areas of emphasis for a healthy community, and the neglect or over-emphasis of one of these priorities often is the root of major association problems and conflict. The “Corporate” HOAs are a legal entity, and are governed by legal documents such as covenants and bylaws. Boards must obey laws and the governing documents and observe the corporate process. The “Real Estate” HOAs are real estate developments, and their boards must act to preserve, protect and maintain the common area and its architectural theme. Buildings, streets, and other common elements must be repaired and maintained. The “Financial” HOAs collect money from the owners and then spend it to benefit the association community. Money must be collected diligently and be spent wisely. Budgets, bids and bills are part of the “bottom line” in the association’s financial world. The “Community” HOAs are made up of people who chose to live in a way which trades some independence for the benefits of cooperatively sharing some control with one’s neighbors. The community interest attends to the fact that the members are not just stockholders or investors but neighbors, and boards promote the peacefulness of the community. A closer examination the cause of many HOA struggles can often reveal an imbalance between...

Risk vs. Reward: How to Make Community Service Fair

It is a basic truth that the risk in any venture should match the reward. High risk investments should bring high yields, while low returns may be acceptable for very secure investments. The same principle should be applied to volunteer board service. Start with the reward – what is the compensation for board (volunteer) service? Of course, there is none – if the director receives any compensation, the director is not a volunteer. If there is no compensation, what is the amount of personal risk the volunteer leader should be expected to take on? If the “books are balanced” and things are fair, then the officers and directors should never be personally at risk for the volunteer service they provide to their neighbors. Fortunately, there are at least three very important legal protections California law provides to HOA volunteer leaders. However, too many volunteers are unaware of the critical importance of these protections, and all too often stray from their safety zones into areas where they are exposed to legal risk. Business Judgment Rule The first protection, the “Business Judgment Rule”, can be found at Corporations Code 7231. The Business Judgment Rule protects volunteers in the scope of their service so long as they act in good faith, in the best interests of the organization as a whole, and upon reasonable inquiry. Well-intentioned (and sometimes overly zealous) volunteers can step outside of these protections. Common mistakes include retaliatory action, favoring or disfavoring certain owners, or deciding without having a proper basis for the decision. Civil Code Section 5800 A second protection also comes from a statute, Civil Code Section...

Multiple Ownership, Unilateral Actions

Hi, I am professional and own multiple rental properties in a condo complex. I happen to be a board member of HOA. Can I be sued personally. Thanks, B.S, Anaheim Hills Dear B.S., Civil Code 1365.7 provides that volunteer directors are not personally liable so long as the association holds directors and officers liability insurance. That insurance minimum is $500,000 for an association of 100 or less residences, or $1,000,000 if there are more than 100 residences. There are other limitations, such as the actions must be within the director’s role, and in good faith. A director acting outside of the corporate process, or a director who receives compensation of any kind) other than reimbursement of out of pocket expenses) could be outside the very important protection of this statute. Another limitation is found at subpart (e) of the statute, which limits the immunity to owners of no more than two memberships in the association. I assume the thinking behind this law was that someone who owns more than two memberships in an association is not really a volunteer but has primarily a business involvement. So, if you have more than two memberships in one association you may want to consider having personal umbrella insurance coverage. There is still another source of protection, the all-important “business judgment rule” (see earlier HOA Homefront columns for that discussion.). Best regards,Kelly Dear Kelly, Is it permissible for a President of a HOA and manager to meet with a homeowner and sign an agreement without letting the Board of Directors know about the discussion and agreement? Thanking you in advance, E.H., Cherry Valley...

Bad Board Meetings, Settling the Debt

Mr. Richardson, There are Board meetings taking place with little or no advance notice to anyone other than the Board Members. We never have a formal agenda published and minutes of these meetings are not properly documented for circulation to the homeowners. No open forum time is allowed for homeowners to voice their concerns. My question is, what course of action may we take as individual homeowners to insure our Board is following the protocols required by the laws applied to homeowners associations in the State of California? Any input or direction from you is appreciated. Cordially, J.E., Blyth Dear J.E., Boards ignoring the Open Meeting Act (Civil Code 1363.05) are at peril in many respects. Perhaps most important is the failure to respect neighbors, and to lose their trust. Such associations are fraught with conflict, and prone to a poor relationship between board and community. If proper corporate process, including that required by the Open Meeting Act, is ignored, then the decisions of the association might even be set aside by a court. Some would advocate legal action, but frankly, in poorly run associations this rarely accomplishes permanent change. Instead, consider mobilizing your neighbors and elect a new group of volunteers who will respect the process and the community. Perhaps also join CAI. Failures of transparency can take many forms: Failing to publish agendas in advance, abusing closed session, not keeping minutes, or deliberating outside of board meetings. Such failures are all bad for the HOA, and bad for the board. Good luck,Kelly Hello Kelly, I have a question regarding past HOA dues. I have successfully modified my mortgage and am now in...