When volunteering to service on a community association Board of Directors, one must understand fiduciary responsibility.
A fiduciary duty is a legal or ethical relationship of confidence or trust regarding the management of money or property between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relationship one person, in a position of vulnerability, places confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.
When serving on a community association’s Board of Directors each individual member must place the concerns of the community ahead of any personal prejudice, desire or agenda. The board is charged to act in the best interest of all community members, not just a select few.
It is imperative that Board members disclose any conflict of interest regarding an issue. For example, it may be acceptable for a Board member to place their home for sale yet remain on the Board of Directors. However, the same Board member should disclose the fact that their home is for sale when discussing issues that will possibly affect the long term situation of a community. If the Board is discussing or planning adjustments to a long-range financial capital plan which will require a vote of the Board, the individual with the home for sale should probably excuse themselves from voting on this specific issue. Why? There is a perception that their long term financial interest is not the same as a person who does not have their home for sale and intends to remain in the community for a longer period of time. Changes to the long-range financial capital plan will have more of an impact to the long-term residents versus someone who may accept a buyer’s offer tomorrow.
When determining if a conflict of interests exists, keep this phrase in mind – If you question it, disclose it.
Fiduciary responsibility applies to all decisions that come before a Board of Directors. Whether you are dealing with an employee issue, a vendor concern, a disgruntled homeowner or a financial concern, one must always adhere to their fiduciary duty.
Community Associations Institute suggests that a Board of Directors adopt a Board Code of Ethics and Rules of Conduct for each member to sign. As Board members are replaced, the new members should also sign the document. For a sample document, click here.