Condo Association / HOA Governance
Nearly every year, a new member is elected to the Board of Directors of the typical homeowner association. It may occur at the annual meeting or it may occur by appointment of the Board to fill a vacancy. We tell these newest volunteers "Congratulations and Welcome aboard!" But, what we also need to tell them is what their new role is all about and how that role interacts with the roles of the Association staff and the Managing Agent.
Roles and Responsibilities of the Board of Directors, It's Officers, Association Employees & Managing Agent and Their Employees
We need to acquaint the Board members with the standard of conduct that is expected of them. The law imposes certain standards of conduct and assigns a "fiduciary duty" to the members of the Board. The following guidelines regarding the role of the entire "team" will help in the effort of the association to run as smoothly as possible.
The Managing Agent utilizes the President as the main point of contact. The President guides the Board throughout the decision making process. He/she sets and establishes the Board's monthly meeting agendas and must ensure that the conduct of business follows the agenda as well as basic principles of Robert's Rules of Order.
Vice President's Role
The role of the Vice President is to assume the duties and responsibilities of the President in the latter's absence.
The Secretary is responsible for the minutes of the meetings, and to authenticate Association documents and correspondence when required.
The Treasurer's responsibility is to ensure that the financial records of the Association are properly kept. He/she will review the monthly statements for accuracy, but is not liable for validation of the accounting. That is the job of the CPA when engaged to conduct the annual audit. The Treasurer's authority to approve expenditures should be granted and approved by the Board and entered into the association's Minutes.
Resident/General/Site Manager's Role
The role of the Resident/General/Site Manager is to supervise, coordinate, and manage all on-site activities. The "Manager" is responsible for maintenance schedules, maintenance requests from residents, supervision of other employees, and vendors called to work at the community. He/She will also enforce the House Rules as a primary responsibility to ensure the residents' rights of quiet enjoyment of the property and quality of life are preserved. A report of his/her activities is provided on a regular (typically, monthly) basis to the Board of Directors and Managing Agent.
Managing Agent's Role
The management company assigns a qualified Account Executive as the association's liaison to the Board, owners, residents, and all vendors and professionals doing business with the Association. That person, often called the AE, will attend meetings, provide information, receive instruction and carry out tasks as assigned by the Board. The AE will assist with budgeting, collections, contracts, inspections, and assist with the employees of the Association. The AE will instruct, evaluate and offer guidance to the Resident Manager and other employees of the association and assist the Resident Manager in establishing a schedule of inspections and servicing for maintenance.
Other departments within the management company will provide Accounting, Administrative, and Human Resources services. Together with the AE, this team of people will carry out the duties as set forth in the Management Agreement with the association.
Now that everyone understands their role, what's next? Does a new member just show up at the next meeting and expect to pick up right where the last member left off? That is hardly the case. There is a great deal of homework to be done and the Managing Agent is there to guide the board members - both veteran and newcomer alike.
Where to Begin?
The Managing Agent should provide each Board member with a "workbook" as a new member to the Board. It contains the Association documents, the latest minutes, financials, and other pertinent information the members of the Board should know. The member is asked to add the items from the board packet to the workbook after each Board meeting. When that member's term is over, he is asked to please return the workbook, so that it may be passed on to future directors.
A new member's first responsibility is to educate himself. He should familiarize himself with the items in the workbook, including the Association Declaration, By-Laws and House & Ground Rules. A copy of relevant state statutes are also provided. These documents specify the scope of authority and responsibility. If a member acts outside the scope of his responsibility, he may be held personally liable.
The Board of Directors role is to govern the Association, establish policies and rules; ensure financial and administrative records are correct and current, maintain the common elements and promote a quality community environment for all residents. Board members are non-paid volunteers. They should obtain all the training possible. The Community Association Institute provides classes and seminars throughout the year and the Association typically pays for this training. The basic course is called the ABC's of Association Leadership. It is a great start for all new board members.
Each director owes every owner the duty to be careful with the Association's assets that are placed in the board's trust. This duty is a higher duty that calls for the Director to place his or her personal benefit second to that of the Association. This means that the director ensures that interests of the Association come first. It means that the directors carefully examine the Association's assets (capital expenditures) and make plans to ensure their protection. It doesn't mean hoarding reserves if maintenance is necessary, or automatically choosing the "cheapest" contractor. It doesn't mean neglect of the buildings in order to keep the maintenance fee down to win friends and re-election. It does mean standing up against the pressures of special interest groups in order to protect the Association as a whole. It does mean taking the time to carefully consider a variety of approaches to each question brought before the Board.
The Association is a business - a not-for-profit corporation. The board meetings are to conduct Association business that is discussed and voted on by the Board of Directors at the regular board meetings. Meeting packets are sent to each director prior to the meeting; the members should review the contents and come to the meetings prepared to vote on the agenda issues. No one board member makes any decisions - - the board votes and majority rules. Typically, your board president does not vote. They are the tie-breaker in split decisions.
At the end of each annual meeting, an organizational meeting is required to establish the Officers of the board. The Board will elect the officers of the Board, usually four positions (President, VP, Secretary and Treasurer). Good officers help the board conduct board business. Nevertheless, ALL directors should still maintain an active interest in the operations of the association. The directors, not the officers, have the ultimate responsibility for ensuring that the project and association operate in compliance with the law.
Once the officers are elected, the board is ready to function on behalf of the association.
Board Action and Operations
A number of fundamental principles govern board action:
- The board must act as a group at a board meeting, not as individuals.
- The board can delegate authority to act to others (such as the officers and managing agent) but cannot delegate responsibility for actions taken (or not taken).
- The board has a fiduciary duty to the owners it represents to act in the owners best interests.
- Following the correct procedure may be more important for a board at times than making the right decision.
- Board inaction may create more liability than board action (i.e., doing nothing but talk about a problem may get the board into more trouble than doing something which turns out to be wrong).
- Board action which complies with the governing documents and the law will usually be upheld as long as the board acts reasonably and in good faith.
- The owners who elect the directors can also remove them.
Failure to recognize and follow those principles can create problems for a board, no matter how well-intentioned its actions.
Directors should make decisions as a group, at a duly called and noticed board meeting. A president (or other officer or director) should avoid making major decisions without board authority. If circumstances force a president to make major decisions without board approval, the president should have the board ratify (confirm) the decision as soon as possible-certainly at the next board meeting. The ideal Board is one that can work together toward the common goal of protecting and enhancing the Association. The rewards are few, but a well run community is its own best reward.
Reiko Marino, AMS®, PCAM®, Association Times, March 2007