If you serve on a homeowners association board of directors, perhaps you’ve wondered, what will I do and how will I respond to my first ethical dilemma. Perhaps, you’ve even asked a more tenured member of your board what you should do if you encounter an ethical dilemma. Perhaps, you’ve even wondered, does our HOA’s directors and officers insurance policy protect me for that?
Nope! You probably are not protected by the association’s D & O policy.
Entire books have been written about ethics. The “Power of Ethical Management” by Kenneth Blanchard and Norman Peale seems to capture the issue pretty well. Their book suggests that HOA board members should ask three basic questions as they navigate through their board of director duties:
Is it legal?
Is it allowed under the Association’s Declarations and is it in total compliance with the Colorado Common Interest Ownership Act, (CCIOA)?
Is it balanced?
If we decide to approve this or take this action is it, in any way, biased against those that are impacted by this decision?
Is it right?
In the future, when you look back on this decision, will you still believe that it was fair and just; that it was ethically correct?
It sounds simple enough, but be careful. Like life, HOA management usually comes in shades of grey rather than being black or white.
Worse yet, due to the duties associated with serving on an HOA board, directors and officers normally interact in six distinct relationships and all six expose directors to possible ethics dilemmas. These six relationships are between:
• Individual board members
• The board of directors and the association
• The board of directors and individual homeowners or residents
• The board of directors and the association management company
• The board of directors and the professionals that advise the association such as attorneys, tax advisors, etc.
• The board of directors and the association’s vendors.
Remember that I said you’re probably not protected by the association’s director’s and officer’s policy IF you fail the ethics test. Well, here’s why. When a member is elected or appointed to serve on an HOA board, he or she is accepting a two-part duty: a duty of care and a duty of loyalty. The duty of loyalty is a duty to put the interest of the association above his or her personal interests. The duty of care requires him or her to act in good faith, with the diligence, care and skill of the ordinary prudent person in the same or similar circumstances. In short, if the decisions that you make aren’t ethical, you have stepped out of the bounds of a board of director role and you are now on your own!
So, should all of this discourage you from serving on an HOA board? Absolutely not! Serving on a board may have challenges in many other ways but any board member who practices sound ethics, adheres to a high level of integrity and accepts personal responsibility for his or her actions should not have any reason to worry.
Practicing ethics is as simple as knowing, understanding, and doing: Knowing what is allowed by the association’s declarations and by CCIOA; understanding right from wrong and always doing the right over the wrong.
If you follow the knowing, understanding and doing rule of thumb, you’ll be prepared to confront any ethical dilemma.
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