The board of directors of a homeowners association should make decisions that are for the good of the entire community and not for the private interests of a few. Having a conflict of interest policy for board members helps protect the HOA from mistrust and unfair decisions.
What is a Conflict of Interest Policy for Board Members?
A conflict of interest policy for board members is a written set of rules explaining times when a director’s outside interest may affect an HOA decision. It should also explain how board members need to act when such scenarios come up.
Usually conflicts like these are connected to vendor selection and contracts. Although it may also appear in other instances, including the approval of ARC requests and rules enforcement.
The purpose of having a conflict of interest policy shouldn’t really assume there’s bad intent from the get-go. Instead, it’s there to create and ensure fair processes and decisions.
Why HOA Board Members Need a Conflict Policy
Having this type of policy helps keep things fair in the association while protecting the HOA’s funds and assets.
If your association doesn’t have a clear policy, the board may make the mistake of handling conflicts differently for every case. There wouldn’t be standardized processes and rules to follow, making things disorganized and leaving loopholes for some people to take advantage of.
HOA Board Member Conflict of Interest Examples
Conflicts of interest can arise in many different scenarios. Some involve money while others involve other types of advantages for a small percentage of the community.
Here are some of the most common ones that you may encounter:
- Hiring a board member’s or a friend/family member’s business: One of the most common instances of conflicts of interest is a board member trying to get their business hired or that of their close family members.
- Receiving financial benefits: A director should disclose any type of financial gain or benefit that they may receive from a possible HOA decision.
- Decisions on issues involving friends or relatives: It’s considered a conflict of interest if a board member will have the authority to decide on enforcement matters involving their close friends or relatives.
- Supporting rules for personal benefit: A director may have a conflict of interest if they’re pushing for rules that benefit them or a select few.
- Using confidential information for personal advantage: Board members should not misuse confidential information entrusted to them because of their position.
How to Handle an HOA Board Conflict of Interest
When an HOA board conflict of interest comes up, the board should have a clear process to follow. Here’s how your board can handle such scenarios:
Disclose the Conflict
The first thing board members need to do is to identify and disclose the conflict. Directors would need to explain what the issue is before the board decides how to act on the matter.
Once this is identified, the rest of the board can determine if the director with the conflict would need to be excluded from related decision-making processes.
Review the Matter Objectively
When handling issues like this, the remaining directors will have to be objective and evaluate the issue fairly. This will usually involve cross-referencing documents.
For example, when choosing vendor contracts, this means they would need to objectively compare and review each proposal. Meanwhile, when it comes to enforcement or ARC request, the board will need to cross reference matters with their own policies and governing documents.
Avoid Informal Influence
If the board member with the conflict has been ruled to not be involved in the issue, they should avoid trying to impose informal influence. They should not try to privately influence and lobby for other board members to rule in their favor. Additionally, they shouldn’t scare or pressure HOA managers from doing their bidding in connection to the issue, as well.
Sample HOA Conflict of Interest Policy
Your policy for these situations needs to serve as a clear guide for the board. It should outline how they can identify and handle such conflicts. Here are some of the basic considerations your board will have to make when creating such a policy:
Fiduciary Duty to the Association
One of the most important factors to consider when making this policy is the directors’ fiduciary duty. Board members need to act in the best interest of the HOA as a whole, in line with the governing documents. They shouldn’t use their position for any type of financial gain.
Definition of a Conflict
The policy must explain and define what an actual and potential conflict of interest would include. These may include financial interest, benefits for people with a close personal relationship with the member, preferential treatment, or situations when a director’s ability to act impartially is questioned.
Disclosure Requirements
Before related discussions begin, board members with possible conflicts need to disclose them. In case they don’t recognize the potential conflict early on, the member will need to disclose the conflict as soon as it becomes apparent.
Recusal Procedures
A conflicted director may need to step away from the discussion and voting process. They should also avoid trying to influence other directors privately or publicly on the matter.
Leaving the Meeting
Depending on the nature of the conflict, the director may be asked to leave the room while the remaining board members discuss and decide the issue. This helps prevent the conflicted board member from trying to push improper influence towards other members.
Meeting Minutes
The meeting minutes should indicate that the conflict was disclosed and that the director was recused when appropriate. They don’t need to include unnecessary personal details or a full account of the board’s discussion, however.
HOA President Making Decisions Without Consulting Others
What should the HOA board do if the president goes off to make decisions without consulting other board members?
While this may fall under conflict of interest as well, it may also create a different governance problem. While the president leads meetings and signs documents, they are not allowed to act as the entire board of directors.
Major HOA decisions still need to be made consistently with governing documents and state laws. They should also be aligned with the board’s voting procedures.
The president’s solo action can also become a conflict of interest, especially if it benefits themselves or anyone they would favor. To avoid this, the rest of the board should review the decision and check whether proper authority existed.
Ensuring Transparent Decisions
A conflict of interest policy for board members protects the HOA from misuse of funds and poor administration, while protecting its relationship with residents. Homeowners are more likely to accept difficult decisions when they can see that the board used a fair process.
CWD Group offers HOA management services to community associations in Oregon and Washington. Call us today at 503-488-2008 or contact us online!
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