The HOA Board Quarterly Summer 2019 Issue #21 | Page 3

RESPONSIBILITIES OF MAKING CORPORATE DECISIONS by Brian Blackwell Fiduciary Responsibility and the Business Judgment Rule: First and foremost, a board of directors should understand that a community association is a non-profit corporation where the board of directors view their role as decision makers, acting in the best interest of all its investors (the owners who elected the board), and in protection of its assets. Each director has a responsibility to the entire corporation. The Corporations Code provides that officers and directors are fiduciaries (defined as “One, such as an agent of a principal or a company director, that stands in a special relation of trust, confidence, or responsibility in certain obligations to others”). The law provides protection for Directors, even if they make poor decisions that result in damage or loss, IF they performed their duties: A) In good faith, B) In a manner which the director believes to be in the best interests of the corporation, and C) With such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. Corp. Code §7231(c) This is known as the “Business Judgment Rule”. It is vital that a board of directors utilizes their experts, keeps in touch with common sense, and strives for fairness when making all decisions. In other words, let’s say a decision made by the board – the board agrees to repair pin-hole leaks in the common area plumbing by rehabilitating the inner infrastructure of deteriorated or failing water piping systems using an array of cured-in-place epoxy pipe lining solution. This option, based on the recommendation of an expert, the plumber, is contested by an owner who experiences a flood inside their unit following completion of the pipe lining. Claiming that the board failed in their responsibility by not replacing the pipes – and the complaint eventually makes its way in a court of law before a judge. A good judge will ask the members of the board how they came to the decision that was made. The judge is looking for three things: the board acted in good faith, in a manner which the directors believed to be in the best interest of the corporation, and with reasonable inquiry – based on the opinion of an expert, in this case a plumber. In addition to the judge’s favor on choosing the filler rather than replacement of the pipes, utilizing the Business Judgment Rule also ensures that the board’s directors and officers insurance will back up their decisions in the event the owner were to file an insurance claim against the board for negligence. Contributed by Brian Blackwell, CCAM, CEO / CFO West Coast Management Firm, Inc. 619.704.7393 [email protected] or visit them at www.westcoastmanagement.com Summer 2019 | Issue #21 | The HOA Board Quarterly | 3