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July 29, 2005
Board Member Mania - What's Up?
It seems lately that Board members are tripping over themselves all over the place these days - I get so many calls from board members that need help because the Directors are fighting with each other or the hired help or the members. Sometimes a Board member is harassing employees, staff or owners. Sometimes they are threatening each other. Sometimes one or more is taking information from executive session meetings and attorney-client privileged information to the owners because they can't get the board to agree to what they want. Sometimes a Director comes to a board meeting drunk and obnoxious. Sometimes the board won't seek legal advice when one board member thinks it is critical to do so. Wow, seems Board mania is a contagious disease. What's up?
My theory is that the problems Boards face are getting tougher; expenses are increasing drastically for HOAs; many are facing very serious construction rehabilitation issues and/or shortfalls in reserves and operating accounts; the economy (credit based and overencumbered loans) makes it tough to raise assessments or pay large special assessments, legislative micromanagement and negative press present undeniable hurdles; homeowner education is leading to more diversity in thinking on the boards, and therefore more disagreements; and society in general seems more stressed, always hurried and meaner in spirit. Oh yeah - and there is also the ever present threat, "I'll sue you!" California is such a litigious state. I wonder if there are so many attorneys because there is so much litigation, or it is the other way around.
So are there solutions? Yes there are. Since I practice in California, I cannot speak for other states but these are solutions found by me to be workable and successful in some of the situations involving Board infighting. Training in mediation, negotiation and people skills can help greatly to neutralize heated board meetings. Who wouldn't benefit from a "Dealing with Difficult People" mediation course? (...well, maybe one of the really difficult people!) Appointment of outside inspectors of election can take the heat out of a contested election. Parliamentary procedure can help greatly too, if the Board understands how to use it appropriately. It is after all required by law to be used at all association meetings. Board members who leak confidential information, start rumors about other board members, undermine the Board's role and threaten protections important to the Association, can sometimes be "neutralized" without resorting to such a drastic and politically upsetting course such as recall or court action There are a couple of options at least - the Board can take away their "office" position on the board if they hold office (appointment and taking the officer position away - not to be confused with unseating a Director from the Board) is usually a Board perogative. In a really drastic situation, or when a board member is suing the Association or the rest of the Board members, the Board may want to appoint a duly constituted "executive committee" consisting of all Directors except the problem board member for purposes of dealing with executive session discussions and meetings with the attorney. Board members who harass employees or scare off contractors can be relieved of their role in oversight and instructed not to approach employees, staff or contractors, by the Board. If a Board member comes to the meeting inebriated, he or she can be asked to leave. Of course if you need a them for a quorum and they pass out in their chair or on the clubhouse couch you may want to let them stay (ha ha).
From my view (of course taking into consideration that most of what I see are the problems Associations face) the position of serving as a Board Member in an HOA is getting ever increasingly complicated for many reasons including complicated laws, threats of lawsuits, shortage of money for the budget, discovery of serious problems, trying to conduct business in the face of insulting or difficult board members or insulting or difficult owners, and sometimes because of excessive meetings and time requirements when something big is happening. It seems to me that every year, the fights get more serious, the job of each Director gets harder and the pool of volunteers willing to serve is shrinking. The stress encountered in the thankless "job" wears good board members down and the burn out rate is high. Often, board members are recruited because the were innocent owners who showed up at a meeting and did not think quickly enough to decline when asked to serve. Once on the board, they find they are either not qualified to serve or they had no idea about what was required, that they do not have the time or energy to do any work or review the board packets and come to the meetings informed; sometimes they find that there is too much infighting (sometimes they are unfortunate enough to become the "swing vote" and are subjected to intense pressure from both "sides", or they find that it is hard to get off the board once they are in the "hotseat" because no one else is willing to step up to the plate.
How happy would that make you?
Posted by Beth Grimm at 10:17 PM
Should Managers Give Legal Advice?
A reader sent me this message: "I've lived in condo associations for many years and am well aware of their problems. Something that I notice frequently and a problem we currently have are associations who have no legal representation, never get legal advice, BUT RELY on management companies; who often times take advantage of their ignorance. If you question this, board members often say they don't need legal advice because they have D&O coverage... so alot of times they make their own rules. I don't know if the D&O policy always covers them if the fail to follow thru with due diligence, which would mean seeking legal advice.
What are your thoughts on this?"
Speaking from my experience in California, but believing it most likely to be endemic to management-associations relationships elsewhere as well, I see that some managers are wanna-be lawyers and take things too far, give advice and get the association into trouble, and sometimes they even look to the attorney to get them out of hot water gracefully. But in other cases I have managers ask me how to get the associations to seek legal advice when they need it. It's not uncommon for a board to say to a manager - why don't you answer that question for us, that's why we hired you, because you are certified and are supposed to have training in the legal aspects of associations. Many board members treat the problems before the board from a personal perspective and want to avoid spending money for legal advice - especially the penny pinchers.
For starters, related to the question at hand, any board member who says they don't need legal advice because they have D&O coverage (which for those who don't know it is Directors and Officers Liability Insurance coverage, which provides protection from lawsuits based on board actions or inaction) has a problematic attitude. The coverage is not a substitute for getting legal advice. In fact, any board member who has been sued with or without the Association as a companion defendant knows that being involved in a lawsuit is no picnic. Dedicating hours and hours to depositions, answering discovery motions, missing work for appearances, appearances, appearances, mediations, suffering sleepless nights and having to appear in court proceedings is frustrating at best. Preventive legal advice often costs less than $500 - on the other hand, defending a lawsuit against the Association generally requires payment of a deductible of at least $5,000, and then Board members pay the high price of time and energy - and if there is any action by a Director that takes them out of the "good faith" category and puts them into the "willfull and intentional conduct " category that Director might find themselves billed for the costs of the defense of the legal action. Insurance companies that take on the defenses of the Association usually issue a "reservation of rights" letter that says they reserve the right to come back and pursue collection of the costs spent to defend from the Association or any of the Board members if the actions of the Board or any Director are found to be intentional or willful conduct rather than negligence, or if the event turns out to be one not covered under the policy.
Managers can learn about the law, and freely quote statutes, articles written by lawyers, and even cases to the Boards. However, when a manager starts to analyze a problem with legal ramifications and interpret how the law or a case might apply in a certain situation, he or she is stepping over the line. And a board that expects this of a manager is asking too much.
That's what I think about it.
Posted by Beth Grimm at 9:47 PM