Bad Boards

I n November, the topic of this newsletter was HOA Managers, The Good, The Bad, And The Ugly -- locatable here

I received some emails from managers asking me to write about bad board members. As it had already happened, just the previous month, in October, I had written about some disasters for Owners that were created or at least allowed to happen (also locatable at the above link), because of poor "management" on the part of board members and even one manager who, at the behest of a board, ignored the need to address serious deferred maintenance. You can find these and other newsletters in the E-news archives at the above link. You can also find articles and blogs at my website - (here) and I have referenced some other resources at the end of this newsletter for more on boards.

I decided instead of just writing about what that boards should or should not do, I would write `about what constitutes bad conduct AND what can be done about it.

Below are scenarios.

Board member is bullying other board members into agreeing with him or her. Guess what? This Board Member can be "neutralized" by being "demoted".

When this is going on, it is indicative of a problem, yes, but the problem is not limited to the offensive board member. It is also evidence of a failure of other board members and perhaps even the membership who allow it in the beginning, and allow it to go on. How do people like this get elected to the board? How do they end up becoming President, the most influential position on the Board? How can they continue? It's because people allow it -- whether motivated by fear, friendship, or apathy. A bully will likely expose himself or herself at open Board meetings so it's not like this kind of behavior is a secret. When I provide consultations to directors who are exposed to this kind of abuse, I often ask why a director who is overbearing is appointed to serve as President. "That gives them latitude to force or make unilateral decisions," I say, "and the ability to abuse the position." The usual response? "No one else wanted the job." Although other board members have been complaining and homeowners may even be complaining, nobody has done anything about it. No one else wants the job. And ... few really know what can be done.

What can be done? The first thing that should happen is that the Board should schedule and provide notice of an executive session meeting to discuss personnel matters. All board members should be invited and attend, including the offensive Board member. The other Board members need to confront the offensive director with the facts and ask that the conduct be curtailed. The offensive director should be warned that the Board is considering unseating him or her. Truth is though that little can be done unless (1) there is someone else on the board willing to step up and serve as President, and (2) the other board members are willing to stand together and be firm. The other board members by a majority vote at a proper board meeting can "un" appoint that person - yes I mean the other board members can vote one president out and put a new one in - at any time! (Corporations Code Section 310.) The officers serve at "the pleasure of" the board unless the bylaws say otherwise. If no one does anything because of fear or an unwillingness to work, or are sheep, and not shepherds, things won't change. The offensive board member can't be kicked off the board, per se, but he or she can be "neutralized" if all authority to act unilaterally is removed. Often, board members don't want to rock the boat; they just want someone like me to "fix it" by threatening the director.

I can do that, but threaten with what? A reprimand, scolding, chastisement, censure? My experience tells me censure is probably an exercise in futility. What obnoxious person is going to be moved to change by a letter of censure? However, a board certainly can make that the first line of defense, or offense. A letter of censure would help set a "due process" "record" going forward so I wouldn't rule it out entirely. But if things have not gone well in the executive session meeting the letter of censure will probably do nothing more than delay things. The executive session will constitute due process, assuming the problematic board member is invited and given an opportunity to speak.

How do minority board members (or owners) change this scenario when the majority of the Board just "goes along" with the situation?

First of all, one concerned board member without support has to go looking for it and there are two ways to do this: (1) seek assistance through pressure exerted by the consensus of a group of members who see the problem and want change or (2) seek support of other directors on the board. If neither of these works, it's not necessarily the end of the inquiry.

Turnover Through Elections. Let's face it, the most powerful catalyst for change from offensive or apathetic directors to directors who are motivated to provide good leadership is at the polls, and working to get better board members through the association elections is work, but worth it, at least so I am told by parties who take the pragmatic course.

Turnover Through Recall. Working through petition processes with other owners to get the board's attention is another option. Members have access to a petition process whereby they can - by law - push for recall. This is a complicated process and not necessarily the best way to go for a number of reasons but this E-news is not focused on Recall. A full gamut of information for boards and owners on the topic is available in THE RECALL GUIDE available in the webstore at http://store.californiacondoguru.com. In that Guide there is an abundance of information on the process as well as the pros and cons.

Turnover Through Providing Good Information to Garner Support. It is difficult to garner support of the membership unless by facts, and if the conduct or problem is obvious and outrageous; that makes it easier to get the attention of others. Something drastic probably is required to draw owners out of the stupor of apathy. If one goes about trying to get support without a basis in fact for the concerns expressed, the effort will start to unravel as soon as someone points out there are no facts to back up the allegations. And an obnoxious Board President or majority bent on ignoring the minority will surely use misinformation against the gatherer. Even worse, the offensive director (if still the President), or the majority "block" may direct the Association attorney to write a nasty letter threatening a defamation or harassment action. Truth is a defense to any defamation claim so why not gather facts before hand rather than scrambling to do it after? It is difficult for anyone to argue against factual evidence. Hence, the famous FBI catch phrase: "Just the facts ma'am."

If facts are evident, such as overbearing or offensive behavior at a meeting, then get more witnesses in the room! Encourage neighbors to attend the meetings. In order to gather facts, board members have a right to review all Association records. Non-board members have a right to review most of the Association records except matters that are the subject of executive session meetings, communications with the Association's attorney, and private owner files. A nasty Board President or board or manager too closely tied to a board that commonly makes decisions based on emotion or by friendship usually will try to block a minority board member or homeowner's right to review records to gather information, and that is when I would be pointing out the rights under Civil Code sections 5205. Records Requests, Inspection And Copying, Place For Inspection And 5235.Enforcement/ Action For Refusal To Produce Records/Penalties/Costs, and all sections in between. There are monetary penalties written into the law if a board ignores rights to inspect records, and also if a board or any members of it violate the open meetings requirements for HOAs in the Davis Stirling Act. Holding unauthorized secret meetings and use of email to conduct business would be violations (See Civil Code Section 4955.Civil Action To Enforce Open Meetings Article and all related Open Meetings requirements statutes.) There are penalties for failure to conduct elections properly. (See Civil Code Sections5100-5145 Elections.) These and other statutes are set forth and explained by commentary in The Davis Stirling Act In Plain English which is available in the web store at http://store.californiacondoguru.com. They also can be retrieved from the laws on the state website for free at www.ca.gov.

Addressing Other Bad Behavior of Board Members - Divulging Confidential Information. A board member has a fiduciary obligation to the HOA and does not have the right to divulge confidential information gathered in an executive session or any of the subject matter authorized for executive session meetings, communications with the HOA attorneys, or any other confidential communications.

Eliminating The Problem and Inappropriate Disclosure of Confidential Information. A board member who divulges confidential information may be segregated from confidential board meetings on the subject matter the Board fears, with good cause other than simple speculation, that the director will divulge to others contrary to his or her fiduciary obligation. How does this occur? By appointing an executive committee of the board and excluding the problem board member from this board committee and its meetings. This is especially pertinent if a board member has sued the Association and the board needs to discuss strategy with legal counsel for the HOA. The owner who sued must be excluded.

Before anything arises to the level of a lawsuit, however, if a board member is suspected of divulging confidential information or is acting badly, a board should conduct an executive session meeting to discuss the conduct, under the confidentiality veil of personnel matters. In my view, as above, the Board needs to include the problem board member in the meeting in order to address him or her directly about the conduct, although boards usually don't want to confront the problem director. Due process is absolutely necessary. And I have seen situations where the board issues a slap on the wrist of some kind. A letter that serves as a reprimand, a "shot across the bow", a warning with a "stick to come later", or threatening censure might do the trick in this situation. The director may not even have realized that it is a breach of fiduciary duty to share confidential information.

All of the above principles apply in addressing bad board conduct. Here are a few more shorties on specific subjects.

Addressing Other Bad Behavior of Board Members - Disparate Treatment of Owners.

Some boards insist on treating the members as if they were a lower class, violating rules themselves, while punishing member owners for the same violations. Some just engage in practices that target certain individuals or protect friends, or show bias. Some go so far as to actually discriminate in the constitutional sense against minorities. Granted, there are instances where minorities play the "minority card" when it is not really a factor, but if any board member or the board as a whole does engage in discriminatory behavior such as targeting a minority, it subjects the entire Association to punishment by the federal fair housing laws, constitutionally protected classes and agencies that represent them, and the courts, all of which can lead to substantial costs for damages and legal fees. Any Director. that looks the other way is not only doing a disservice to the HOA, but can be swept up in the net of defendants to any governmental or legal action.

And, it might be interesting to know that insurance professionals speaking at HOA seminars often identify "inconsistent enforcement" (not necessarily targeting minorities but disparate treatment) in an HOA to be the number one cause of lawsuits against associations, directors and officers. If any director or officer of the Association is found to be acting in "bad faith" which can be as simple as ignoring warnings of fellow board members or advice of professionals, may find themselves without the umbrella of the HOA's insurance coverage or indemnification protection. What this means in lay terms is a board member acting badly may end up having to pay their own legal bills or reimburse the HOA's insurance company if they are sued.

Addressing Other Bad Behavior of Board Members - Mishandling of Funds, On Purpose?

A "bad board" might be one that spends money like water, or fails to collect assessments sufficient to meet the association's needs, especially in the area of fulfilling maintenance responsibilities. See reference in this edition below and a link to find last October's E-news about what happens when a board fails to properly address association responsibilities. These are fiduciary duty issues, not covered by specific language in the statutes. They expose board members to individual liability for lawsuits and personal fines if the acts or failures to act (including letting a blow hard President run the show) are egregious enough - meaning if the individual director was informed or knew what they were doing was not up to legal, moral or ethical standards or the director just "went along" and someone got hurt. Here are some URL for articles that are pertinent to this subject of Boards acting badly.

http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1933&context=mulr

And

http://corporations.uslegal.com/officer-and-director-liability/ Officer and Director Liability

These articles focus specifically on the trend toward expanding personal accountability for acting or failing to act appropriately while serving in a position of authority and specifically, acquiescing to the actions of others are inappropriate without doing something to stop it.

Here are some buzz words of warning about mishandling of funds.

Every officer, director, or agent of any corporation who carelessly, with knowledge of the wrongdoing or after warnings, misapplies any of the moneys, funds, or assets of any character or who, without authority from the Board is subject to losing important corporate protection and/or to being held individually and personally responsible for losses of the HOA!

Every officer, director, or agent of any corporation who embezzles, abstracts, or willfully (which could mean carelessly after warnings because of the knowledge factor) misapplies any of the moneys, funds, or assets of any character or who, without authority from the Board, or who makes any false entry in any book, report, or statement of such corporation with intent to injure or defraud any individual person, or to deceive any officer or any agent is subject to criminal prosecution!

Being that I am already at four pages, this is probably enough to digest at this time. I will, in the next edition of WHAT'S NEW IN HOA LAND cover additional topics on Boards, The Good, The Bad, And The Ugly. I will cover board members engaging in conflicts of interest, being disruptive at meetings, refusing to sign or adhere to codes of ethics, and will give more examples of what would be construed to be breaches of fiduciary duty.I will also provide you with more resources. In the meantime, I suggest that you take a look at some articles I have written in the past. Some things never change. Check out these free Articles and Newsletters which appear on my website:

2013 - WHY DO BOARDS HIDE... AND WHAT HAPPENS WHEN THEY DO? ... Found at http://www.californiacondoguru.com/hoarticles/boardshide.html

2003 - BETH GRIMM'S TOP TEN WAYS TO STAY OUT OF LEGAL (and other) TROUBLE - Part II

2010 - THE VALUE OF CONSENSUS AND RESPECT IN AN HOA BOARD

These are found at http://www.californiacondoguru.com/hoarticles/articles.html

STAY TUNED FOR MORE ON THIS TOPIC, INCLUDING CONFLICTS OF INTEREST AND CODES OF CONDUCT -- IN FEBRUARY. Can you believe I passed to 100 mark on E-newsletters last fall when I was laid up with foot surgery. That's a lot of information, all of which is available to you here.

And at the same time I finished the Guide called

THE SMALL HOA SURVIVAL GUIDE which is now available in the webstore under BOOKS and GUIDES at http://store.californiacondoguru.com/index.php/guide-booklets.html

It is a new publication geared specifically to help small HOA boards but is filled with basic information on running an HOA and what is important. Many publications as well as the 2016 Davis-Stirling Act in Plain English which explains all of the laws discussed above are available in the Guru Webstore.

Just go to the main page and navigate to the store directly, or check out the articles, E-news archives and blogs first to see if you can find what you need. When ready, go to the store and see that there are tabs for the Books, Primers, Forms and Guides.

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WEBINAR SCHEDULE: I had planned to begin WEBINARS January 6th and the 20th but time got away from me, so look for the webinar schedule later in the spring. If you are signed up to receive this E-newsletter you will have plenty of notice about topics, dates and costs. Thanks for your patience! And patronage. Suggestions for webinar topics are welcome. I plan to have more than one track, for example, two each month for small HOAs, two for topics of homeowner interest specifically, and two for all boards, managers and owners generally..............Stay tuned.


Note - the credit card issue with the website is RESOLVED!! The merchant is friends again with the server. Check out the Primers, Guides and Publications.

Let me know if you have any questions or problems.


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