THE SUCCESSFUL BOARD OF DIRECTORS
( Part IV in a IV Part Series ) by Brian Blackwell , CCAM
In the past three editions of The HOA Board Quarterly I ’ ve shared some ingredients for a Successful Board of Directors . This included Important Tools to help your community operate successfully , the One-Hour Board Meeting , Dealing with Difficult Owners , and Vendor Relationships / Partnerships .
This edition will cover the Board ’ s Fiduciary Duties , the Good Business Judgment Rule , and a recommended Board of Director ’ s Code of Conduct Agreement . I ’ ll conclude with a very simple recipe for avoiding making decisions as an individual , and / or as a Board of Directors , that may not be in the best interest of the community and subsequently may result in a negative judgment against its Directors as individuals and / or the Board as a whole .
FIDUCIARY DUTIES Upon their election to the board of a common interest development , directors become fiduciaries with
powers to act on behalf of the association . As fiduciaries , directors are held to a higher standard of conduct and have two primary duties :
• Duty of Care
• Duty of Loyalty
DUTY OF CARE ( Due Diligence ; Duty to Investigate ): Directors must be diligent and careful in performing the duties they have undertaken .
DUTY OF LOYALTY (
No Self-Dealing ): Directors must act in the best interests of the association even if at the expense of their own interests . This is more than just
embezzlement of funds ; it includes steering contracts to family members or taking actions that result in personal benefits to the director at the expense of the association . Violations could result in :
• Liability for all profits received
• Cost of all damages caused by the breach
• Punitive damages
BUSINESS JUDGMENT RULE The Corporations Code provides that even though officers and directors are
fiduciaries , they can make poor decisions that result in damages or loses , but still avoid personal liability if they performed their duties :
• In good faith
• In a manner which the director believes to be in the best interests of the corporation
• With such care , including reasonable inquiry , as an ordinarily prudent person in a like position would use under similar circumstances
As provided for in
Civil Code § 1365.7 ( a ), a
volunteer officer or director is not personally liable in excess of the association ’ s insurance for bodily injury , emotional distress , wrongful death , or property damage or loss as a result of the tortuous act or omission of the officer or director if all of the following criteria are met : 4 | The HOA Board Quarterly | Issue # 5 | Spring 2013
• The act or omission was performed within the scope of the officer ’ s or director ’ s duties
• The act or omission was performed in good faith
• The association maintained and had in effect at the time the act or omission occurred and at the time a claim is made one or more policies of insurance which shall include coverage for :
• General liability of the association
• Individual liability of officers and directors of the association for negligent acts or omissions in that capacity ; provided , that both types of coverage are in the following minimum amount :
• At least $ 500,000 if the association consists of 100 or fewer separate interests
• At least $ 1,000,000 if the association consists of more than 100 separate interests
SAMPLE ETHICS POLICY CODE OF CONDUCT FOR DIRECTORS & COMMITTEE MEMBERS
BOARD RESPONSIBILITIES The general duties for directors are to enforce the association ’ s governing documents , collect and preserve the association ’ s financial resources , insure the association ’ s assets against loss , and keep the common areas in a state of good repair . To fulfill that responsibility , directors must :
• Regularly attend board meetings
• Review material provided in preparation for board meetings
• Review the association ’ s financial reports
• Make reasonable inquiry before making decisions
• Respond to member inquiries
PROFESSIONAL CONDUCT In general , directors and committee members must conduct all dealings with vendors and employees with honesty and fairness , and safeguard information that belongs to the association .
Private Gain Self-dealing occurs when directors or committee members make decisions that materially benefit themselves or their relatives at the expense of the association . “ Relatives ” include a person ’ s spouse , parents , siblings , children , mothers and fathers-in-law , sons and daughters-in-law , brothers and sisters-in-law and anyone who shares the person ’ s residence . Benefits include money , privileges , special benefits , gifts or other items of value . Accordingly , no director or committee member may :
• Solicit or receive any compensation from the association for serving on the board or any committee