5 Essential Do’s and Don’ts of Great Board Members
October 24, 2018
Do . . .
5. Create realistic budgets that fund all necessary operating expenses and reserves.
Many board members take great pride in never raising assessments. This is a great practice if there is an ability to reduce certain costs – say insurance premiums. But if it is a result of using less reputable vendors or other risky practices, doing so is likely to catch up with the association in the long run. While inflation has been very low in the U.S. for quite a while, it nonetheless increases by 2 to 3 percent per year, which means that each year assessments don’t increase the association is likely to be facing deficits as the cost of services increase.
4. Read and understand your Master Deed and Bylaws, and if you don’t understand ask your attorney or manager.
Understanding your governing documents is essential to understanding your role as a board member. Great board members review their governing documents and have a basic understanding concerning what they, as board members, are and are not authorized to do. Board members who don’t know their governing documents are merely shooting in the dark and are surprised when called on the fact that they have acted in an unlawful manner.
3. Review the association’s insurance coverages and understand what risks are or are not covered and which endorsements may be available to cover those risks.
Insurance, whether it is property casualty, D&O or general liability, has many complexities. Good onsurance agents, as part of their service, will meet with the board to explain coverages and answer questions. Board members can make informed decisions about which coverages to obtain and which endorsements are worth paying extra for only if they understand what they are buying and what is not covered if they don’t. Take advantage of your agent’s services. Insurance is too expensive for board members not to fully understand what they are buying.
2. Support your management staff in front of the membership.
Management is your link to your vendors, professionals and, most importantly, your owners. It is critical that the board foster a positive relationship with its management staff. If you are at a meeting open to your membership and you express confidence in your management staff, owners will automatically have greater respect for the manager. Great board members never throw their management staff “under the bus.” If you believe management needs to improve in a certain area, meet privately to discuss it. Just as you would find it abusive to be criticized by your superior in front of co-workers, managers are similarly impacted. When management performs well, let the manager know you appreciate her efforts and tell your owners. That will only make your manager want to work harder for you.
1. Plan for the Association’s future
Most boards are reactive. When a crisis occurs, it deals with it. While not everything is predictable great boards make the extra effort to plan for the future. What can you anticipate might happen in the next 3-5 years? What are the association’s strengths and weaknesses? Have you ever done a SWOT – Strengths, Weaknesses, Opportunities and Threats – analysis? If not, spend a few hours with your fellow board members and someone familiar with doing SWOT analyses. You may be surprised when you step back and focus on the future what you and your colleagues come up with. Most larger association projects can’t be accomplished in one year. To undertake a multiple year effort, you must plan for it.
Don’t . . .
5. Micromanage the day-to-day operations of the Association
Your management staff is hired to carry out the day-to-day activities of the Association. Your other professionals are similarly retained to provide services they are trained and experienced to do. In some instances, committees take on certain tasks. Too often, rather than have a 30,000-foot view of association operations, board members individually become involved in micromanaging the association’s activities. The job of the board is to set policy, review financials and receive reports from those it has retained to provide services. If any of those professionals are not carrying out the services in a manner that pleases the board, first have a constructive dialog to let the professional know what troubles the board, and if a professional still doesn’t please the board, change him or her. But the solution is not individual board members taking on the services of the professionals. The most effective boards create the policies and goals and then monitor the effort of those whose job it is to carry them out.
4. Act defensively at meetings when owners criticize the board
Great board members and leaders are open to ideas and criticism. Although a board may discuss a solution to a problem the association is facing, occasionally a unit owner will suggest a better solution. Too many boards are wed to their own ideas and fail to recognize the ideas of others that deserve consideration. Great leadership accepts the fact that all ideas need not come from within. Successful communities are built on the idea that there is talent among those other than the board members. And even when another owner is interested in only trying to “take the board down,” the best response is the disarming “thank you for your suggestion, we will consider that when we next discuss it.” Leadership is created by being able to reach consensus that a majority of your owners support. That happens when owners believe they are part of the process.
3. Approve actions without a board meeting open to your fellow owners.
Far too many boards continue to conduct routine business outside of the view of their fellow owners. While the law allows substantial leeway in being able to discuss matters in executive session, the final vote must, in most instances, take place at a meeting that other owners may attend. Too often, board make decisions that are acted on between meetings and then “ratify” them at open meetings. This is a dangerous practice that may not bite the board 99% of the time, but when it does, it will be very embarrassing.
2. Use reserve money for operating expenses
Boards are often proud when they tell their fellow unit owners that for five years they’ve held the line and there are no increases in the assessments. This is a corollary to #5 above. In order to meet the association’s current operating expenses board’s sometimes dip into the reserves to fund current expenses. While in emergencies this is acceptable, so long as board members recognize that the amount taken from reserves must be restored in a reasonable period of time, it’s a poor practice if relied on as an association piggy bank. While current board members may believe it’s not a significant issue, when the time comes that the reserve funds are necessary for large expenditures, the taking of reserve funds to pay for current expenses is a breach of each board members fiduciary duty. This should be done only when no other option exists and, then, only if a plan exists to replace the funds taken from reserves.
1. Ignore the advice of your attorney
Well, okay, it’s not just the advice of your attorney that you can rely on, but board members are provided with broad immunity where they rely on their counsel and others. The New Jersey Nonprofit Corporations Act provides:
In discharging their duties, trustees and members of any committee designated by the board shall not be liable if, acting in good faith, they rely on the opinion of counsel for the corporation or upon written reports setting forth financial data concerning the corporation and prepared by an independent public accountant or certified public accountant or firm of accountants or upon financial statements, books of account or reports of the corporation represented to them to be correct by the president, the officer of the corporation having charge of its books of account, or the person presiding at a meeting of the board.
Great board members understand that they can take comfort in following the advice of the association’s attorney or accountant, or the treasurer’s statement that the books of account are correct. Unfortunately, too many board members believe that the attorney’s advice is “just his opinion, and my opinion is equally valid.” No, it’s not. Attorneys are specifically trained in matters of law, and community association attorneys in matters specifically relevant to you. To ignore that advice is to risk liability by the association or yourself. You’re a volunteer. You should not place yourself at unnecessary risk.