In community associations, each board member is considered a fiduciary and is duty bound to only act in the best interests of all residents, not his or her own best interests. In general terms, fiduciary duty is the highest standard of care imposed under law, and it occurs when one or more persons are responsible for the money or property of another. The fiduciary is expected to be honest, free from fraud and faithful to his or her obligations. It requires the party acting on behalf or another to exercise the skill and care that a reasonable person would exercise under similar circumstances. Failure to exercise the duty of care is considered negligence.
This means, in the budgeting context, is that a Board member should be considering what is in the best interests of the Association as a whole, not if they personally can afford some level of assessment increase. Furthermore, Board members should not be focusing on budgetary efforts that only benefit them and not the rest of the community (special landscaping on common areas only their yard would enjoy, for example). Another example, besides the budgeting process, may be accusations of self-dealing or conflicts of interest that can arise during the vendor hiring process. Generally, board members who have a personal stake in, including profiting financially from, hiring a vendor risk putting their own interests before those of the community.
What can an association do to ensure the community comes first?
Ask board members to fully disclose a conflict when objectivity cannot be maintained.
Ensure board minutes reflect the entire disclosure.
Require conflicted board members to sit out the board’s decision on the conflicting matter, as well as related executive sessions that may occur.
If you have any questions about fiduciary duty, conflicts of interest or expectations for board members, please ask your Trestle Community Manager for advice or direction.