Managing Conflicts of Interest

Board Members have a legal obligation to the association that they have been elected to oversee. This means putting the association as highest priority -- even above your own personal interests. When you are unable to put aside your personal interests to perform your duties as a board member, this is known as a "conflict of interest."

Conflicts of interest occur when an individual or individuals personally gain from a position of power or influence -- knowingly and unknowingly. In order to understand how to prevent conflicts of interest from popping up, it's necessary to understand what qualifies as one and how best to avoid them in general.

Potential Conflict of Interest:

Potential conflicts of interest are much more common than actual conflicts since an actual conflict only occurs when a potential conflict is not navigated appropriately. Potential conflicts of interest are when a Board Member is aware of an actual conflict of interest that will take place should they be involved in the decision making process.

Example:

A landscaping company needs to be hired for the sake of the community, and it just so happens that the board has unknowingly suggested a landscaping company that is run by a family member of one of the Board Members. Since there has been no vote or movement forward on the contract yet, this is only a potential conflict of interest. The best approach for the Board Member is to remove themselves from the decision making process on this matter and explain the situation to the Board to provide full disclosure and transparency on the matter at hand.

Actual Conflict of Interest:

An actual conflict of interest takes place when a Board Member fails to act responsibly upon a potential conflict of interest for the sake of financial gain, nepotism, cronyism, and personal bias and has a negative consequence or potential for negative consequences upon the community.

Example: 

A Board Member knows that a landscaping company needs to be hired for the sake of the community. That Board Member happens to have a family member who owns a landscaping company of which the board is considering for the contract. This Board Member then uses their position on the board to push their family member's landscaping company into receiving the contract with the community.

What Qualifies as a Conflict of Interest:

• Nepotism - This occurs when a member of the Board shows favor to family members when dolling out contracts instead of seeking the best company or person for the job.
• Cronyism - Similar to Nepotism, but instead of being inside of the family, it's when a member of the Board shows favor to friends when dolling out contracts instead of the best company or person for the job.
• Insider Information - HOA Board Members have access to information about the community and the goings on inside of it before the rest of the members of the community. This allows the potential for insider information leading to personal gain.
• Personal Biases - As previously stated, one of the biggest duties a Board Member has is that of putting the community needs above personal needs. Voting or weighing in on issues from a personal bias that does not take the best interest of the community to heart is damaging to the community and a conflict of interest.

How to Avoid Conflicts of Interest:

• Avoid Voting when Necessary - When a conflict of interest is recognized due to personal bias, just don't vote or chime in on the issue. Remove yourself from the situation entirely to avoid any damaging repercussions to the community and your reputation.
• Hold Open Board Meetings - Closed door environments can lead to suspicion and elitism. Keep the Board meetings open for the community to attend to maintain transparency on any and all issues at hand.
• Rules Apply to Everyone - Ensuring that the rules set for the community apply to everyone is one of the best approaches available for avoiding conflicts of interest -- no favoritism.

We can assure you that most HOAs operate ethically. However, should you have any questions or concerns about conflicts of interest and how to handle them, don't hesitate to contact us at YourCommunityManager.com.