You're On the Board, Now What?!

By Matt D. Ober, Esq., CCAL 

This article was originally written for HOA Organizers Newsletter. You can view it here. 

The Basics On Director Roles And Responsibilities

Whether you are a veteran board member or newly elected, often your role and  and responsibilities are left unsaid. Or perhaps you have been on your board for years and just “rolled with the waives” without guidance, training or a board orientation.  But “winging it” is not a strategy for effective community association leadership; nor does lack of training absolve a director of responsibility or liability for the decisions made or actions taken by the board on behalf of the Association and its members. 

So, Let’s Start with some basics:

Prepare Yourself For the Role 

Whether incorporated or unincorporated, an association exercises the powers of  a California nonprofit mutual benefit corporation, including the powers set forth in the Corporations Code. And as a corporate entity, an association acts only through a volunteer board of directors. 

A director is a fiduciary, held to this highest standard of care. Being a fiduciary requires a director to act in the best interests of, and for the benefit of, the association and the membership as a whole in terms of preserving the value of the community and its assets.   

The Business Judgment Rules is a Director’s Best Friend

Truth be told, no one would volunteer as a director unless protected from liability for the decisions made. Thankfully, we have the Business Judgment Rule (“BJR”) to thank for protecting our volunteer leaders. The Business Judgment Rule protects association directors from liability for conduct committed or decisions made while serving on the board, provided, the director acted:

• In good faith;
• In the best interests of the association as a whole; and
• With reasonable inquiry [aka “due diligence”]

In order to satisfy the BJR, a director should be prepared for the role. She should have a familiarity with the association’s governing documents, understand the association’s financial statements, have a basic grasp of the association’s financial position,  and she should show up prepared to act at board meetings having conducted the due diligence required to act on the items on the agenda. And, when necessary, she should rely upon advise provided by third party professionals, experts, and consultants. This does not include another director who may happen to be a lawyer or CPA. The Business Judgment requires reliance, when necessary, on an independent third party.  

Part of a director’s BJR obligation of due diligence and reasonable investigation requires that you open that board packet and read it; gather the information necessary to make an informed decision and show up to the board meeting prepared! Successful meetings require that a director meet its expectations not only during, but before a board meeting.

Delegate! Let your Professional Community Manager Be Your Guide.  

Your community association manager is likely professionally trained, armed to serve and battle tested.  Rely upon them, trust in them, and delegate to them. 

The board is charged with the management and operation of the community. The board may delegate its management responsibilities to others,  provided that all authority and ultimate decision making is exercised by the board. So, Delegate!  Let your manager guide you to success. 

All too often board’s question the skill or ability of the community manager the board hired to manage the community! But if you don’t trust your manager’s skills and abilities, if you cannot rely upon them or if you are reluctant to delegate responsibility to your manager, then perhaps you have the wrong manager for your community.   

Institutional Memory.

As a new director, sit down with an seasoned director or your community manager to discuss what matters are pending, and where you might find additional information about those matters and other issues that will come before the board. Board decisions should not be made in the abstract or in a vacuum but should be made based upon what is in the bests interests of the association as a whole, given the facts presented, the applicable law, and considering any precedent, or custom and practice.  In this way, a director can  to ensure that the decision being made is consistent with the decisions mad or action taken by prior boards. 

Stick to the Script.

The best gift any board can give itself and its community is a well-run meeting. The purpose of an association board meeting is to conduct the business of the association. 

The Open Meeting Act  (Civil Code Sections 4900-4955) governs board meeting protocol and requires an agenda be provided with notice of the meeting.  The agenda is your roadmap for an efficient, effective and well managed board meeting.

• Set the agenda well in advance. Generally, the board president sets the agenda with the community manager.  But each director may have input into what is placed on the agenda and should work with the community manager to do so well in advance, allowing sufficient time to prepare the back-up information the board needs to address the issue at the meeting. Consider a timed agenda to inform the board and the members in attendance that discussion is limited and to help the board stay focused on getting through the meeting as planned. 
• Just Because It’s Uncomfortable, Doesn’t Make It an Executive Session Matter.  One of the most important director responsibilities is to maintain the confidentiality of matters addressed in executive session. The Open Meeting Act carves out a limited opportunity for a board to meet behind closed doors to consider litigation, matters relating to the formation of contracts with third parties, member discipline, personnel matters, or to discuss a member’s assessment delinquency. And that’s all.  Many directors struggle with this limitation, feeling that matters that are personal or uncomfortable, awkward or may engender anger or frustration should also be fair game behind closed doors. Not so. Removing a committee member, for example, may be difficult but that does not make it executive session.  Any matter discussed in executive session other than the limited categories above violates the Open Meeting Act. 
• Don’t overload the agenda.   A board meeting agenda should be reasonably manageable. Not every issue needs to be discussed in a monthly board meeting. Only those issues that are ripe for decision should be placed on a given agenda. Again, let your manager be your guide here as to what requires board action and what can wait.  

• Open Forum is a Listening Session. The Open Meeting Act allows members to address the board or comment on any item of association business (aka Open Forum). But the surest way to derail a board meeting is to turn the member comment portion of a board meeting into a debate. We are human and our natural inclination is to respond when questioned, challenged, or attached. The Open Meeting Act, however, prevents a board from addressing items that are not on the agenda (with limited exception). This includes matters raised during Open Forum. Open forum is an opportunity for homeowners to speak and directors to listen. Directors should resist the urge to respond and simply acknowledge that the member’s comments are noted, or that the board will look into the matter.  
  

Also note that a member’s opportunity to comment is only during Open Forum. Board deliberation, discussion, and decision are not opportunities for homeowner participation. Consider reminding members in attendance of this at the beginning of the meeting to avoid conflict during the meeting. 

“MUM’S THE WORD.” Board discussion outside of a meeting violates the Open Meeting Act.  

Among the most difficult skills a director must develop is to avoid discussing association matters with other directors outside of a noticed board meeting.  The Open Meeting Act was enacted in response to concerns about board’s making “back room” deals, and pre-determining decisions outside of the membership. The Civil Code defines a board meeting as a congregation, at the same time and place, of a quorum of the board, to hear, discuss, or deliberate upon any item of business that is within the authority of the board. In other words, anything about the association discussed by a quorum of the board anywhere, at any time, is a board meeting and requires notice to the members, an agenda, and an opportunity for the members to participate in that discussion. For that reason, the Open Meeting Act prevents a board from taking action on any item of business outside of a noticed board meeting.   

This does not prevent a director from discussing an issue with a single director (or less than a quorum of the board) and does not prevent a director from communicating with the community manager outside of a meeting. But the overriding objective underlying the Open Meeting Act is transparency. When directors discuss and decide upon important community matters in the open, members are less suspicious and more trusting of their leadership.

Setting Expectations through Policy.

Similar to the benefits of institutional memory in decision making, directors should govern through policy. A policy is a guide; a framework within which a board will address or resolve a given type of issue, or a set of rules by which a director is expected to govern or act. Setting expectations through a well-crafted policy makes one a better informed and prepared director and makes for less conflict during meetings and beyond. One of the most common policies is the board meeting/board member conduct policy.

• Improve Your Board Meetings with a Board Member and Meeting Conduct Policy. A common frustration for boards and community managers is conflict with individual board members. Sometimes egos and personal agendas interfere with a board’s ability to govern fairly, objectively, and respectfully. We have all heard of the board member who is hostile, disagreeable or the proverbial “loose cannon.” Other boards struggle with the director who consistently advances a not so hidden agenda without regard to what is in the best interests of the association. And,  there are directors elected who feel compelled to reveal confidential executive session information about the association to non-directors. Unfortunately, the Corporations Code does not yet contain a provision allowing the board to remove a director for behaving badly. The slap on the wrist that follows improper disclosure or misconduct does little to undo the damage already done. 

• A Board Conduct Policy Informs Each Director and the Membership How a Board will Govern. Boards are encouraged to adopt a code that meets the needs of their association. The directors should discuss together with counsel and the community manager the issues that have historically been problems and together,  reach a consensus on what to include in the code of conduct. A well-crafted board conduct policy that states the purpose of the policy and the reason it was adopted, and that clearly defines what is expected of each director, and the consequences of noncompliance,  is the best way for a board to lead by example. Once adopted, the policy is enforceable by the board just like any other association rule. Finally, community managers should review the code of conduct with each new director, and  the new board during the organizational meeting following the director election.

Above All Else, Civility. Finally, despite a well-defined statutory framework for community association dispute resolution, there remains an undercurrent of tension in director encounters with members and a generally lack of respectful  discussion, engagement or disagreement about community association issues. Respectful disagreement is health for any community association. But no amount of board conduct protocol can overcome the emotional hostility felt by an association owner who feels he has not been heard or has not been addressed with fairness or respect. Community leaders must recognize that the absence of civil discourse is impacting the ability of our community association boards to effectively govern. 

To be an effective community leader, a director must be effective in resolving conflict in their communities. Each director should strive to find common ground with a member, listen attentively, and encourage open, respectful discussion. Only by recognizing what each of us has in common can we effectively encourage compliance, resolve conflicts, and navigate our communities through important community issues effectively.