Board members have privileges… and responsibilities

Board members enjoy a significant privilege: that of being in the “inner circle,” privy to the decision-making process and the long-term plans for the association. Yet, each member also has significant responsibilities – including a duty to be prepared, to act prudently, and to act in the best interest of the association.

Responsibilities to the Board

Board members should attend most if not all meetings, and come to them prepared. Reviewing the “Board packet” (often prepared by the association’s management agent or the association secretary) prior to each meeting not only allows the meetings to progress in a timely fashion, but also helps to ensure that all Board decisions are based on informed discussion.

Certainly there will be occasions when other obligations conflict with a Board meeting. However, since most associations’ governing documents do not permit the use of proxies for these meetings, it is important to remember that any Director who does not attend cannot provide input or cast a vote.

Board members must also be familiar with the association’s governing documents – the Articles of Incorporation, Declaration, Bylaws and any Rules and Regulations. Of course, no one member is expected to understand all the many nuances of governing documents – that’s why the association engages the services of a management company, accountant, legal advisor and other professionals.

Finally, each Director must put aside personal agendas, remembering their legal obligation to act in the best interest of the association as a whole.

Responsibility to Act in the Best Interest of the Association

This responsibility to act in the best interest of the association is most notably a fiduciary responsibility. A fiduciary relationship exists where people place a special confidence or trust in someone (a board member) who is bound to act in good faith and with due regard for the interests of those people (the association members). In an association, where homeowners pay assessments – often incorrectly called “dues” -­ to an organization that is responsible for administering the community and safeguarding property values, the need for such a legally binding role is obvious. Residents depend on the association, through its Board of Directors, to maintain, protect, preserve and enhance the common areas and exteriors of the property, which, as a result, protects property values. The decisions the Board makes on behalf of the association bear directly on the safeguarding of each homeowner’s investment.

Upholding that fiduciary obligation is not simply a good idea – it is the law. Most associations are incorporated under the Minnesota Nonprofit Corporations Act, Minnesota Statutes Chapter 317A. Under that law, “a director shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” (Minn. Stat. Section 317A.251.)

A “good faith discharge of duties” includes seeking the advice and opinions of its professional advisors – including accountants, attorneys, and management agents – as long as the director reasonably believes that the matter is within the advisor’s professional or expert competence. It is, therefore, extremely important to ensure that advisors are well-versed in community associations. This is particularly true with regard to legal advice. While many attorneys may claim competence in order to gain an association’s business, it is incumbent upon an association’s Board of Directors to determine the level of experience and expertise such professionals have specific to community association law.

Many of the same responsibilities a Director has to the Board affect his or her responsibilities to the association. Actively participating in Board meetings, being familiar with – and following – the terms of the governing documents, and putting personal agendas aside all enhance a board member’s ability to uphold his or her fiduciary duty and act in the best interest of the association.

Responsibility to Act Prudently

As noted, the Minnesota Nonprofit Corporations Act requires a director to act prudently. In making this determination, many legal professionals and courts look to the business judgment rule. This rule essentially provides that if board members act in what they believe to be the best interests of the association – in an ordinarily prudent manner, after reasonable inquiry – then those directors are not liable for their actions, even if the decision made later turns out to have been a poor one. The protection afforded by the business judgment rule highlights the importance of documenting the Boards’ actions in conducting a reasonable inquiry.

“Acting prudently” includes abiding by and uniformly enforcing the association’s governing documents. If the Board makes a business decision not to enforce a particular provision of the governing documents (often because it’s unpopular or will affect a significant number of owners), the Board must appreciate the consequences. The Board may unintentionally establish a precedent that makes future enforcement difficult, and may open itself to liability for failing to discharge its fiduciary responsibilities. Remember, the fact that a restriction is unpopular does not absolve the Board from its obligation to enforce that restriction.

Finally, Board members must remember that they must always act as a unit – no individual has the authority to make decisions independently. Homeowners, however, do not always appreciate this fact. Often – particularly when an association is self-managed – homeowners will contact a Board member to seek assistance on a particular issue. Board members should advise those owners to submit their concerns in writing to the Board for consideration. Board members should avoid telling homeowners that they will “go to bat” for them or otherwise champion their cause. Doing so will only cause discord in the event the Board acts in a manner contrary to the homeowner’s position. It also calls into question whether the Board member is in fact acting in the best interest of the entire association.

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