Reader Questions - Conduct Policy With a Forced Waiver?

Kelly,

Our board instituted an ethics policy for all directors and committee members. The first requirement is that all nominees for directors sign a confidentiality promise and promise they will never sue the board. If a board member does something wrong, illegal or unethical, how can we get relief if we sign away our rights to sue? The board’s current attorney wrote this policy because we have had board members suing the board for problems they could not resolve among themselves.

Why should any candidate for the board sign their rights away? Is this even legal?

S.K., Encino

 

Dear S.K.,

Board ethics and conduct policies are a great idea for associations, and can apply to directors, committee chairs, and committee members. Such policies can make a strong statement about the association’s values and build members’ confidence in their volunteer leadership. Eligibility standards for board candidacy or for board service should not be in the conduct policy but should be stated in the bylaws or election rules. However, if Senate Bill 323, currently pending in Sacramento, becomes law it will require that all board eligibility requirements be stated in bylaws and will not allow such standards to be in board-adopted election rules. That bill is in process in the Assembly, with some increasing opposition after passing the Senate on a divided vote.

The Community Associations Institute has a Model Code of Ethics for Community Association Board Members, which can be found by CAI members at www.caionline.org/homeownerleaders. That is a good place to start.

A code of ethics/conduct can be adopted by the board as an operating rule, to make it harder for a future board to tinker with it without having first to notify the members in advance.

A policy on conduct should address behavior in board meetings, ethics, conflicts of interest, preservation of confidential information, the giving benefits to (or receiving from) vendors, and the Business Judgment Rule, among other important topics.

With respect to the protection of confidential information, many associations require their directors to annually sign confidentiality promises to remind them of the sensitive information with which they are entrusted during their board service. I think such agreements are quite proper and a good idea. Another topic is board boundaries – is it ok for any individual to be instructing vendors or the manager without a board vote so authorizing? If not, it should be included in the policy.

While board eligibility standards could require that a candidate or board member not be actively in a lawsuit against the association, it is hard to envision how a homeowner could validly be required to release their rights during their board service. For example, if a homeowner after being elected to the board had a bad roof leak which the association refused to repair, would that director have in advance released the association from that responsibility? Further, what does such a policy say about that association? Remember, this policy says much about what is important to the community.

The association’s legal counsel hopefully has substantial experience in drafting solid board conduct policies and should be involved in reviewing it before it is adopted by the association.

Thanks for your question and I hope your HOA finds other ways to reduce litigation between homeowners.

Best,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.