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Board Member Tips: How to Handle Conflicts of Interest

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As a member of a homeowners’ association (HOA) board of directors, you must know that both real and apparent conflicts of interest can occur while conducting HOA business. With a fiduciary duty to act in the association’s best interest, homeowners and the association must be the priority for all acting board members. No decision should ever be made to only benefit them as an individual or a select group of people they're associated with. However, HOA conflicts of interest do unfortunately happen. If you find yourself in this scenario, follow our guidance on board member conflicts of interest and learn how to resolve this issue now. 

What is an HOA Board Member Conflict of Interest?

An HOA board of directors conflict of interest is a situation in which a board member may have a personal gain from decisions he or she makes in their official capacity as a board member.

HOA Board of Directors Code of Professional Ethics

Most boards have a mandated Board of Directors Code of Professional Ethics. This code of ethics for HOA board members should outline expected behavior regarding integrity and objectivity, technical standards, conflicts of interest, and more. To avoid getting into a situation in which a conflict of interest may arise, be sure to fully understand the Code of Professional Ethics and how it impacts the decisions you make.

Types of Conflicts of Interest

To help identify a potential HOA conflict of interest, ask yourself this question: Would a reasonably informed person perceive my actions as a board member to be motivated by my financial or material gain? If the answer is yes, you might have to dig deeper into the source of conflict. Here are a few ways conflict may appear:

  • Self-dealing. Self-dealing is apparent when a board member makes decisions on behalf of the association that financially or materially affect them—or their immediate family—directly as private citizens.
  • Accepting benefits. Conflict may arise when a board member accepts substantial gifts, bribes, services, or other significant benefits that may be perceived to influence their decision-making on official business.
  • Using confidential information. If a board member uses confidential information acquired from their role as an association leader to their advantage, there’s potential for conflict. Confidential information should only be shared between parties authorized to have it and should never be taken outside of board roles. 

Read More: 6 Conflict Resolution Best Practices for Board Members

How to Handle HOA Conflicts of Interest

While specific guidelines for handling HOA conflicts of interest may be highlighted in your association’s governing documents, there are additional ways to address issues amongst the board. Follow the steps below to help streamline the process for managing conflicts of interest: 

Step 1: Disclose the information.

Immediately disclose the existence of any board member conflict of interest to the board president in writing. You want to be as transparent as possible about the issue so they understand how to fully address the conflict.

Step 2: Decide as a board.

As a board, decide whether the board member-in-question may participate in any discussions or votes on the issue at hand. Their participation may be a conflict of interest of its own depending on the details of the matter. 

Step 3: Withdraw or remove.

The board member-in-question should withdraw or be removed from those meetings and discussions in which they have a financial or material interest. However, if they must remain in meetings to fulfill their administrative responsibilities, they shouldn’t participate in any discussion regarding the issue at hand.

Step 4: Evaluate funding proposals.

Any proposal for funding submitted by a director in which they, their relatives, or their friends have a financial interest must be fully disclosed and forwarded to a minimum of two directors. Those directors will then evaluate the proposals, determining who the funding benefits most and if they have any association with the board member in question. 

Step 5: Seek legal advice.

When in doubt about whether a conflict exists, advice from legal counsel should be obtained. Should a director be found in an HOA conflict of interest that has not been disclosed to the board, the board may require the director to fully reveal the nature of the conflict of interest through the legal avenue or, by special resolution, remove the director from the board.

Read More: How to Find the Right Lawyer for Your Association 

How to Avoid a Board Member Conflict of Interest and Other HOA Board Member Mistakes

Dealing with a board of directors conflicts of interest isn't easy. Unfortunately, they aren't the only issues that HOA boards can run into when doing their job. While board members often put forward their best effort to succeed in their positions, sometimes they still make big mistakes that can result in serious repercussions for themselves, the board, and the community. Read our ebook, “8 Mistakes Board Members Make & How to Avoid Them,” to learn how to avoid costly mistakes and become a more effective board member in the process.