Board of Directors 101

Association board members are elected by the membership, typically at the association’s annual membership meeting. Following the election, an organizational meeting is required to establish the officers of the board. Boards generally have three or four officer positions: president, vice president, secretary and treasurer. Some governing documents allow for the combination of the secretary and treasurer or no vice president positions. The officers are tasked with specific duties and responsibilities related to the operation of the association and the board, as detailed in the association’s Bylaws. All directors need to maintain an active interest in the operation of the association, as it’s the entire board of directors, not just the officers, who have the responsibility for ensuring that the association operates in compliance with the governing documents and the law.

If the association has a managing agent, the board president should act as the main point of contact with management regarding the operation of the association and be the person who provides the association manager with instructions. A single point of contact prevents the confusion that can sometimes result from mixed messages from individual board members being relayed to the manager regarding the same subject. This makes the most sense as the individual holding the office of president guides the board throughout the decision making process, establishes the board’s meeting agendas and ensures that the conduct of business follows the agenda as well as basic principles of Robert’s Rules of Order.

The vice president assumes the duties and responsibilities of the president in his/her absence; the secretary is responsible for the meeting minutes and for validating association documents and correspondence when necessary; and the treasurer is responsible for ensuring that the financial records of the association are properly kept. The treasurer must also review the monthly financial statements for accuracy, but the association’s CPA is responsible for validation of the accounting through a mandatory annual audit, review or compilation. The actual completion of these duties may be delegated to the management company, but the board and its officers are not relieved of their responsibility by such delegation.

The treasurer, other board members, and management’s authority to approve expenditures should be granted and approved by a vote of the board and recorded in the association’s minutes.

Each new board member should be given a workbook containing the association governing documents, a copy of the most current meeting minutes, financial, and other pertinent information that new directors need to know. New directors have the responsibility to educate themselves about the association. They should make it a priority to become familiar with the items in the board book.

An association is a business–a not-for-profit corporation. In the state of Arizona (true for OK too), all association business must be conducted at open board meetings. Meeting packets should be provided to each director several days prior to the meeting. Members should review the contents and come to the meeting prepared to conduct the business of the association and to vote on items placed before the board on the meeting agenda. After the meeting, board members should add relevant items from the board packet to their board book.

The board must make decisions as a group at duly called and noticed board meetings. No one board member makes any decision alone – – the board votes and the majority rules. Typically, the board president does not vote and serves as the tiebreaker should a split decision result. A president (as well as the other officers and directors) should avoid making decisions without a vote of the board. If circumstances force a president or a director acting in his/her absence to make emergency decisions without board approval, the president should have the board ratify (confirm) the decision at the next board meeting and that action should be documented in the minutes.

The board’s legal authority to act on the owners’ behalf is found in the association’s governing documents (CCRs, Bylaws and Articles of Incorporation) and in state statutes that provide for the general authority and responsibilities of all corporate boards of directors.

The board’s role is to govern the association and set the policies, standards, procedures, programs and budgets for the association. The board is ultimately responsible for the operation of the association. Boards may delegate implementation of their decisions to their association manager, committees or to independent contractors. Although the board can direct or empower the manager to take certain actions on behalf of the community association, the board is still responsible to the owners.

The Board of Directors’ responsibilities include:

  • Care, maintenance and enhancement of the physical property, common areas, and facilities
  • Management of community finances
  • Risk management, including obtaining insurance and developing reserve funds
  • Establishment, enforcement and interpretation of rules and regulations
  • Preservation and promotion of community harmony

Board members have the responsibility of balancing the needs and obligations of the community as a whole with those of individual owners. They have the duty to be careful with the association’s assets that are placed in the board’s trust. Board members have a ‘fiduciary duty’ that requires directors to act within their authority, to exercise due care, and to act in good faith and with ordinary care that they believe to be in the best interest of the association. Board members are required to avoid conflicts of interest and acting out of self-interest. They are also required to act as reasonable people in managing the association’s affairs and must exercise reasonable ‘business judgment’ in making decisions.

The business judgment rule imposes on boards the responsibility for understanding association operations and researching the business decisions they make before acting. Essentially the business judgment rules says that if the board acts in what they believe to be in the best interests of the association—in an ordinarily prudent manner, after reasonable inquiry—then they’re not liable even if the decision turns out to have been a poor one. The business judgment rule also requires board members to exercise duty of care and the duty of undivided loyalty.

Duty of care requires boards to act in accordance with the law and the association’s governing documents, and to use the care and skill that a prudent person would use in similar circumstances. Boards can rely on information, opinions, reports, and statements prepared by their committees, the management company, legal counsel, CPA, and other advisers, provided that they use the input to act in good faith and with no knowledge that their actions are inappropriate.

Undivided loyalty is the most stringent duty that the law imposes on board members. As a fiduciary, a board member cannot in any sense be in conflict. He or she must act for the sole good of the association at all times. That means avoiding conflicts of interest and not allowing self-interest to interfere with their duty to the association.

Board decisions that comply with the governing documents and the law will usually be upheld as long as the board acted reasonably and in good faith. However, directors who act outside the scope of their authority are generally not protected by the association’s director and officer insurance and may be held personally liable.

Leslie Freed, AMS, CMCA, VP of Operations, Lewis Management Resources, Tuscon, AZ

© Association Times
Permission to reprint any of the information contained in this article is granted provided Association Times is credited as the source.


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