Avoiding Conflicts of Interest Acting for the Common Good

Successful association or cooperative living requires harmony between all parties involved, from management to staff to board to residents. Should one of these groups put their own self-interests above the common good, the wheels can come off quickly. A condo or co-op can see its resources depleted; be unable to pay for maintenance and repairs; or even find itself in serious legal trouble if board members make decisions with the intent of lining their own pockets (or those of their associates), instead of upholding their duty to the community as a whole. 

Because of this, it’s imperative that a board identify and avoid potential conflicts of interest – or even the appearance of such. Adopting specific protocols via which vendors are selected is necessary to ensure that any hire is made based on the job at hand and the specific company’s merits, and not because hiring them could benefit one or more board members in any way. 

The F Word

The sole purpose of a board is to make decisions on behalf of the association, ostensibly for the greater good of everyone living in it. By ignoring a conflict of interest, the board acts in direct violation of its fiduciary duty to owners and shareholders.

“All of a board member’s dealings must be for the good of the whole community, without question,” says Kara Cermak, president of Rowell Incorporated in Elgin, Illinois. “If a conflict of interest ever does exist, board members are required to disclose that conflict, and may need to seek a legal opinion as to whether that conflict is a problem for them.

“In instances where there is no outside manager,” she continues, “then the board is seeking bids for various projects, and handling these things themselves. Thus there can occasionally be what appears to be a conflict of interest. If the board is seeking bids appropriately, yet showing preference to vendors that treat the community right, do their job properly, and do it for a great price, then I find that no conflict exists. If the board is showing preferential treatment because a particular member is receiving something from these vendors, then that is a problem. The board should adopt a policy about ‘gifts’ such that everything is above board, in order to avoid these issues.”

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Comments

  • Excellent reporting. Thank you very much. Relevant, even a thousand years from now. I have a what if question if you will. What if a co-op has a 3-person board, and the president out of the blue one day comes to the other two board members and say to them “Actually, I found a buyer for my apartment, therefore I command you two to sign my buyer’s stock and lease”? Obviously such president is aware of the conflict of interest and self-dealing involved and would be trying to protect itself by such actions. Would it be prudent for the other two board members to decline the command and either force the president to sign on to the buyer’s stock and lease in order to have evidence of the self-interest dealing transaction and later go to court to have the board take back the unit, or should both these other board member not sign at all, force the president to resign first, get a new president, then the new board can review the purchase questionnaire, buyer’s financials, contract details in order to make a decision of whether to approve or not? Inquiring minds want to know. Thank you. God bless.