Get 1 year of free community web site hosting from Community123.com!
Sunday, August 09, 2020











HOATalk is a free service of Community123.com:

Easy to use website tools to help your board
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: Conflict of Interest if Board works at same Agency or Company?
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
BH5
(Virginia)

Posts:39


07/30/2020 6:38 AM  
In Virginia, are there any laws that state or imply that Board members working at the same Agency/Company is a conflict of interest? There is nothing in our By-laws about this? Would it matter if one member supervised the other, or if one member were a contractor supervised (called COTR) by another.
MarkM19
(Texas)

Posts:623


07/30/2020 6:55 AM  
You need to look at the Definition of "Fiduciary Duties" Board members are Fiduciaries of the Community they are elected to represent.
CathyA3
(Ohio)

Posts:1120


07/30/2020 7:23 AM  
Elaborating on what Mark said, it absolutely would make a difference if one board member supervised another. The employee may not feel able to disagree or express a particular opinion with his supervisor, which would prevent the employee from doing his duty as a board member. Even if the two only worked at the same company, they still may not feel free to be candid since many workers want to keep their private lives separate from their work lives (wisely so).
AugustinD


Posts:3683


07/30/2020 8:43 AM  
I agree with CathyA3's and MarkM19's points. Furthermore, if the Virginia NonStock Corporation Act applies to your single family (non-condo) HOA, then
"§ 13.1-871. Director conflict of interests" appears relevant to your concerns. Importantly, § 13.1-871 states appears to me to strongly suggest that any director with a conflict of interest had better disclose it early on in her or his service on a board and also before any discussion or vote where the conflict of interest could have a bearing.

I see nothing in Virginia's HOA statute on this topic.

TimB4 of Virginia hopefully will have more to offer.



KerryL1
(California)

Posts:7397


07/30/2020 8:46 AM  
I don't think the above situation is a "conflict of interest," where a director (or their family) could benefit--usually financially-- because of the situation. Sorry, my writing's too terse, but it might elicit better replies.

It feels more like an ethical issue if one director has power over the other at work. It seems that this oculus be a real problem on a small board. Maybe not so much on a board of say 7.
AugustinD


Posts:3683


07/30/2020 9:04 AM  
Posted By AugustinD on 07/30/2020 8:43 AM
if the Virginia NonStock Corporation Act applies to your single family (non-condo) HOA, then "§ 13.1-871. Director conflict of interests" appears relevant to your concerns.
For the text of the Virginia Nonstock Corporation Act, see https://law.lis.virginia.gov/vacodepopularnames/virginia-nonstock-corporation-act/
JohnC46
(South Carolina)

Posts:9678


07/30/2020 9:07 AM  
Personally I say if they both "properly" got on the BOD, then not a problem.
DouglasK1
(Florida)

Posts:1519


07/30/2020 9:58 AM  
Posted By JohnC46 on 07/30/2020 9:07 AM
Personally I say if they both "properly" got on the BOD, then not a problem.


I agree. If the members feel there is a problem, they can rectify it at the next election, or even do a recall if needed.

Escaped former treasurer and director of a self managed association.
BenA2
(Texas)

Posts:758


07/30/2020 5:57 PM  
I don't see any conflict at all. An employee might feel reluctant to go against their boss but that could happen with any relationship. As long as a vote has no relationship to the company, there is no real conflict. I do agree that there could be a perception of conflict so they should reveal that they work together if it isn't already known.
KerryL1
(California)

Posts:7397


07/30/2020 6:33 PM  
Good point, Ben. I've noticed on this forum many times in the past that "conflict of interest" isn't always correctly understood.
CathyA3
(Ohio)

Posts:1120


07/31/2020 5:41 AM  
Our attorney said that there can be a conflict of interest if a board member has a financial stake in the outcome of a vote.

While it depends on the personalities of the two board members involved, I can foresee situations where there could be a tit for tat: the employee supports some project that his employer (eg. the board president) wants in exchange for some benefits at work. Obviously this depends on the details of the situation. Many HOAs/COAs don't deal with the huge dollars that can encourage bad behavior. And for many board members, this sort of thing wouldn't even come up. But you can't rule it out.

An interesting question: would this sort of external relationship be prohibited on other boards of directors? If so, then this tells us that it is a potential problem that should be disclosed, at the very least.
CathyA3
(Ohio)

Posts:1120


07/31/2020 11:41 AM  
Posted By CathyA3 on 07/31/2020 5:41 AM
... snippage ...
An interesting question: would this sort of external relationship be prohibited on other boards of directors? If so, then this tells us that it is a potential problem that should be disclosed, at the very least.



Ha!

https://www.imd.org/research-knowledge/articles/the-four-tiers-of-conflict-of-interest-faced-by-board-directors/

Quote:

"Tier-II conflicts arise when a board member’s duty of loyalty to stakeholders or the company is compromised. This would happen when certain board members exercise influence over the others through compensation, favors, a relationship, or psychological manipulation. Even though some directors describe themselves as “independent of management, company, or major shareholders,” they may find themselves faced with a conflict of interest if they are forced into agreeing with a dominant board member. Under particular circumstances, some independent directors form a distinct stakeholder group and only demonstrate loyalty to the members of that group. They tend to represent their own interest rather than the interests of the companies."

So yes, two board members who have an outside relationship such as boss/employee do, in fact, have a conflict of interest.

Having said that, we often see "cliques" forming among directors, or one director calling the shots while others don't push back. According to the quote about, this is also an issue even though there isn't any obvious financial advantage at stake.
AugustinD


Posts:3683


07/31/2020 11:53 AM  
Posted By CathyA3 on 07/31/2020 11:41 AM
So yes, two board members who have an outside relationship such as boss/employee do, in fact, have a conflict of interest.
Absolutely. With money on the line (via workplace promotions, annual evaluations and the like), I think having two HOA board directors where, when not on the board, one works for the other, is a stunning conflict of interest.

Thanks for the quotation from our friends in academia.
KerryL1
(California)

Posts:7397


07/31/2020 12:00 PM  
Thanks for the quote, Cathy. I knew that not solely financial benefits created a conflict of interest, but did not know of the tiered approach to this topic.

So....and given that cliques do form within boards where there's no conflict off interest, what would anyone in an HOA do if bothered by the subordinate/boss relationship between two directors?
CathyA3
(Ohio)

Posts:1120


07/31/2020 2:17 PM  
Posted By KerryL1 on 07/31/2020 12:00 PM
....

So....and given that cliques do form within boards where there's no conflict off interest, what would anyone in an HOA do if bothered by the subordinate/boss relationship between two directors?



That's a good question and I don't have a good answer to it since the relationship by itself may not be a problem - although I do think board members should avoid even the appearance of wrongdoing.

The best I've come up with is requiring disclosure of any formal, outside relationship and then keeping a closer eye on how the votes are going. I'd want to know if one director seems to be accumulating power and what that person is doing with it.

There are associations where one board member appears to be making all the decisions, but it's because the others are lazy or don't know what they're doing, so they just rubber stamp whatever the knowledgeable person says. If that person is making thoughtful decisions, I don't think I'd be trying to kick the board to the curb - especially since there may not be any volunteers willing to take their place.

A lot of what boards deal with is day-to-day, low stakes stuff. But if there are higher stakes issues involved, or if one director seems to have an agenda beyond just doing the job, I'd pay close attention.

Which is a long way of saying, it depends. :-)
Please login to post a reply (click Member Login on the menu).
Forums > Homeowner Association > HOA Discussions > Conflict of Interest if Board works at same Agency or Company?



Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.







General Legal Notice:  The content of forum messages are from the posting member and have not been reviewed nor endorsed by HOATalk.com.  Messages posted by HOATalk or other members are for informational purposes only, are not legal or professional advice and do not constitute an attorney-client relationship.  Readers should not act upon this information without seeking professional counsel.  HOATalk is not a licensed attorney, CPA, tax advisor, financial advisor or any other licensed professional.  HOATalk accepts ads from sponsors but does not verify sponsor qualifications nor endorse/guarantee any sponsor's product or service.
Legal Notice For Messages Posted by Sponsoring Attorneys: This message has been prepared by the sponsoring attorney for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Readers of HOATalk.com should not act on this information without seeking professional counsel. Please do not send any sponsoring attorney confidential information unless you speak with the sponsoring attorney or an attorney from the sponsoring attorney’s firm and get authorization to send that information to them. If you wish to initiate possible representation, please contact an attorney in the firm of the sponsoring attorney. Sponsoring attorneys that post messages here are licensed to practice law in a specific state or states as indicated in their message signature or sponsor’s profile page. (NOTE: A ‘sponsoring attorney’ is an attorney that is a HOATalk.com official sponsor and is identified as such in the posted message or on our sponsor page.)

Copyright HOA Talk.com, A Service of Community123 LLC ( Homeowners Association Discussions )   Terms Of Use  Privacy Statement