Question on Running a Business per the WSJ

Question:
Soon to embark upon a new, Senior level managerial position with a new company (employer), what are the three (3) most important objectives that one should seek to achieve in their first 90 days; and why?

Answer:
1) Learn the business. Understand the financials, operating statistics and competitive advantages of each and every strategic business unit; 2) Build personal relationships with key business and functional leaders, particularly your peers and boss(es); 3) Determine the critical strengths, weaknesses, opportunities and threats among your department staff, particularly, the leaders. These are the top three; I think the reasons why are obvious.


Comments, Corrections, Omissions, References
Note 1. The above was posted recently on an online forum of the Wall Street Journal. This would seem appropriate advice to any new board member. After all, being on the board of managers of an HOA is achieving a senior managerial position in a business, isn't it?

The Sun Sets at BLMH

The "Wheaton Sun", that is.

This post will serve as a condensation of recent happenings, although I have prepared some additional notes on the recent association meetings.

I didn't get my paper last week, and it seems neither did my neighbors. What happened? For several weeks we had multiple copies of  the "Sun" delivered and the extra was dropped in the driveways. Some of our "homeowners" didn't bother to pick up the papers and left them scattered around. So after being run over several times and after a period of days the papers became a soggy mess, scattered in driveways and the streets, because of the recent rains.

Cleanup of this is, of course, an expense to the association. This is reminiscent of a situation which occured several years ago and I assume FUPM again took charge, called the Sun and asked them to suspend delivery to everyone in the association. That's certainly one way to get a result.

It's probably the best way to deal with a problem of this type. We were given several weeks to deal with this as "owners" and we didn't. As with overflowing trash containers, etc. our paid maintenance crews pick up any trash that is left behind and they do it for us, at our expense, when we the "homeowners" are unwilling to do it for ourselves. It keeps this association looking nice, and is a wonderful, but mandatorily expensive benefit of living here.  I say mandatory because there is no individual choice in this matter and those of us who do pick up trash in the street reap no benefit for our efforts; other than deriving some pride of ownership. Our fellow "homeowners" who can't be bothered are given the hand-holding of the board, at our expense. Isn't socialism wonderful? The committed get to work and slave for the rest of us. That too is the way the board works. So it seems to be increasingly difficult to get capable people to run and accept positions on the board.

Ah, yes, but "everyone" they say, complains about high fees.

In fairness, not all buildings had papers left outside; for example, I twice picked up the extra four in front of our building, stripped off the plastic wrappers and put them in my recycle bin. Some other unit owners did the same. But on driving the grounds, it was obvious many did not. I know; I took the time to check, just as I take the time in my busy schedule to post this blog and attend association meetings and study the issues and vote. So too, do a few of my neighbors and fellow "unit owners." But many do not.

My immediate neighbors and I have a good working relationship. That is, the unit owners who share the entrance in this building. For example, if I should return from work late on a Friday, my recycling bin is already in the garage; courtesy of my neighbors. I return the favor whenever I can. Residents of the building pick up the newspapers in the outer hall and bring them in; in that way the mailcarrier doesn't step all over them. Oversized packages and Express Mail deliveries are brought inside and are placed at the specific door of the occupant. One or more of my neighbors vacuums the hall carpets. Monthly meeting notices, etc. are removed from the cork board and recycled after the meeting.  Do we all participate in this? Perhaps not, but when four are sharing the load, such tasks are achieved effortlessly. It isn't about liking or disliking one another. Sharing a building entrance isn't a popularity contest. It's one small aspect of honoring a social contract.

Returning to the problem of newspapers scattered all over the grounds, this occurs to me as another example of how this association continues to devolve with a board that attempts to satisfy "everyone" by not offending anyone who lives here. Oh yes, we're all "homeowners" the board keep insisting. Really? REALLY? Don't "homeowners" have duties, accountabilities and responsibilities? Aren't they expected to keep their property clean and neat? Aren't they expected to adhere to some minimum standards? So why, if our board insists we are "homeowners" are not rules violations enforced when situations such as these papers occur? Isn't that littering? Isn't a "homeowner" supposed to handle the litter on "their" property?

I conclude that some of our board members are playing a childish game. They are pretending we are homeowners and providing "lip service". I must ask, how will calling us "homeowners" get us to act as "homeowners"? What actions on the part of this board would be a correlate to treating us, the unit owners as "homeowners"?

I think it's very easy; either everyone in a building finds a way to cooperate and get the job done, even if that means only one in four makes the effort and takes the time to pick up the papers littering the driveways. Or, everyone gets violation notices and if this continues, are fined. Oh, but that would be "repressive measures" one on our board has previously written. Promoting anarchy is preferred to promoting a neighborhood!

As for enforcing rules, the new board via our R+R Director with their new procedures, never discussed in front of unit owners, by the way, now merely writes letters and runs focus groups to discuss the betterment of the rules. One of the "better ideas" is to pass inspection to the professional management. I understand some of the politics. Who on our board is going to tell their "friends" that they are breaking the rules? From the board's perspective, that's apparently not the way "nice" people are supposed to operate in our association. So who is to be the heavy? It's now up to the professional management to do the inspections and provide a list of violators to the board. Those that don't pass the subjective "filters" our "loving, tender, caring" board have established will get some sort of letter of violation. Do all the violators get a letter? Who knows? It's in the hands of our board. The same board that repeatedly hides behind closed doors in executive sessions.

This approach is how we will now get much less bang for the buck from management. Instead of running the business, our management joins the cadre and army of people who are supposed to clean up after us. Does management have unlimited time available for this? No they don't. So I am inclined to ask, if the management is now doing clean-up duty, what aren't they doing? What tasks are no longer being completed in this assumption of the duties of the board by management? There are a limited number of hours in the day, aren't there? I suppose not if one is a serf. And make no mistake, we have board members who really treat everyone as a serf.

There was a time, very recently, when the R+R Director walked the grounds daily and made lists. But that resulted in violation notices and some upset unit owners. There were also disagreements on the board. After a vigorous campaign against board "repressive measures" we have new procedures, per statements in the newsletter and even more forthcoming rules changes and procedures, all by our new board and our new R+R Director. Will these be better procedures as in "more effective" procedures? I'll let you be the judge of that. It all depends upon one's perspective. An immediate benefit is, we no longer get the "Wheaton Sun".

After attending many meetings and listening closely to the board, I have concluded that all this talk about "being nice" and it's flip side, which is about "repression" is personal in nature. Collection procedures are not directed as a means to punish. Enforcement of the rules are not "punishment". Each and every unit owner and every renter has a social contract with this association and that is ultimately an agreement with their "neighbors". Living here is a privilege and as a "right" has specific duties and responsibilities. For example, we are expected and contractually bound to pay our monthly fees in a timely manner. If we fail to do so, there are consequences. Those consequences are not "punishment" and unit owners and members of the board should not expect their "neighbors" to carry that load for others. Our attorney addressed this at the May meeting. When a unit owner does not do certain things, or violates the rules, he or she violates the social contract. Such actions are undermining to the association and undermining and damaging to the others who live here. I have concluded that for one or more of our board members this "nice" talk is sourced by a deep animosity. I have news for you. "Nice" people honor their agreements and keep their contracts and pacts with their neighbors. "Nice" people pick up the trash, pick up their dog litter, adhere to the rules and pay their fees. If there is an issue, they don't "demand" that the rest of the planet change for them. They clean it up or ask for clarification of the rules and then they clean it up. Anyone who doesn't is an undermining person who lowers the quality of life here at BLMH. Period!  That also has a deleterious impact on unit sales. That's right, Virginia, all of this "La-la land talk" and lack of action could be driving potential buyers away.

After attending many meetings, it would seem that the emphasis of the board is to cater to pseudo "homeowners" who are waiting for the next party, the next free coffee, the next fee reduction, and someone, anyone to pick up after them.  These same "homeowners" supposedly now want, or is it "demand" private gardens! That's the latest "grand idea" coming through the board, I understand. Who will maintain the "gardens" of these "homeowners?" Who will set the rules and who will enforce them and levy the fines when people violate those rules? No one, is  my guess. When unit owners do go too far, when their gardens turn to patches of weeds or die and create mudholes, then it will be up to someone else to clean up the mess, at association expense.  Just another task for our professional managers and maintenance crews. Just another expense passed to the rest of us.

Promoting these ideas is much easier than creating an association that works. It's much easier than dealing with the difficult issues. It's more popular than enforcing the existing rules.  It's a lot easier than living by example.

The suspension of the Wheaton Sun is what I call a reduction in services. Potentially the first of many.

Comments, Corrections, Omissions, References
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1. Of course, setting standards and adhering to them would impact everyone including the board members. That might be uncomfortable for some of them. Issuing citations to offsite owners for uncollected newspapers in driveways would be too close to "home" and any fines levied would be a fee increase. Board members wouldn't want to promote such things. Such fines might come out of their own pockets. 
2. When our CD promoted the attendance of renters at association meetings, there was no conversation about duties and responsibilities. If I were in a building sharing an entrance with a renter, could I expect the renter to help out and act like an "owner"? Could I expect them to return the courtesies and pick up "my" newspaper or trash bin and bring it in? Could I expect them to help shovel snow or distribute salt in the winter? Could I expect them to carry a part of the load?  If you are an owner sharing an entrance with a renter, who is it that does these tasks? If the renter doesn't do it, shouldn't the unit owner who owns the rental, or the unit owner's "representative" be required to do it? Why not? I realize it wouldn't be convenient for the off site owner. In other words, on site owners are supposed to deal with all of the problems. On site owners are supposed to do the tasks the off site owners are unwilling to do. On site owners are supposed to carry the load. Aren't these the types of issues our board is supposed to be dealing with as fiduciaries?
3. The obvious question to ask is, how many of the  members on the board do these things; e.g. carry in their neighbors trash bins, shovel snow or picked up those papers? That is to say, how many board members "walk the talk" and act as owners? Or are they also waiting for someone else to do the work?
4. If we aren't willing to do the work, then the only option is to pay others to do it or suspend services and reduce the scope of projects. Read your Manor Briefs and attend association meetings. The board talks about lowering fees. The only way to do that is to lower expenditures. Reducing the scope of projects is one way. Architectural shingles can be eliminated. It could mean shifting some chores to unit owners. However, I see no way for that to occur with a board that is unwilling to press unit owners to participate beyond coffees and parties. If the job is to get done, it needs to start somewhere, and that is "leadership by example" followed by consistent and uniform enforcement of existing rules, treatment of owners as "owners" with duties and responsibilities, and discussions about the duties of renters and the duties of offsite owners. All necessary to maintain the quality of life here at BLMH. 
5. When it came time to vote on the reserve study, there was no mass outcry on the board against the motion by the CD to approve the higher bidder. Our CD, who promoted the higher bidder, didn't stop and say "I prefer the higher bidder, but I promised to scrutinize every bill and to hold the line on fee increases. So I can't recommend them." Wouldn't that have been the responsible thing to do and to say? Would you believe that we have just begun an incredible roofing project here? The board may gut the project to reduce the expenditures. That's one way to reduce fees; lower the cost of projects to be accomplished with the reserves collected. Of course, the real question is, are we saving money or is this financial "slight of hand". For example, reducing the scope (no insulation and/or no roof ridge vents), using cheaper shingles and materials and construction techniques, reducing the length of the warranties, using lowest bidders no matter what the references, could lower the up front costs. But it's a game. Put on shingles that will last 10 years as opposed to 20 or 25 and do we save money? Only if the cost is less than 50% that of the "higher" roof. But I am certain this board will consider going that way. Then some on the board will then be touting how she or he has "saved us money". Well, in 10 years when we are again facing the prospect of doing roofs, possibly with no reserves, those left "holding the bag" will pay the piper. How many recent and current board members will be long gone at that time? I'll be watching. However, when it comes to "pet projects" we will go with the higher bidder, just as the board did with the reserve study. The justification? We now have the "higher bidder" for the reserve study who has "project management skills". We already have a maintenance company with "project management skills" so, I have to ask, what are we really getting for the extra money we are spending on this study? The obvious answer is "nothing", absolutely nothing! You may recall this same board member who promoted this particular firm is the same board member who was once promoting "we will seek ways to reduce expenses". Yes, talk is really cheap, as they say: Click here for my September 11, 2008 letter and the response
6. All of this, the board would have us believe, has absolutely no impact on unit sales.
7. In my September 2008 letter to the candidate who is now the CD I included the following statement: "To empower change and open communication it will be necessary to have a web site open to all unit owners and where ALL letters and responses are posted. Unit owners should be able to post their questions and concerns without censure by the ROC, the Board or anyone else, within the limits of what is considered to be non-obscene. Who would moderate this?" I received this reply:  "Would you like to moderate it? The job is open."  I subsequently offered to take on the job, but there was no reply. So this blog, which is a compromise, is the result. 

Board Operation, Some Examples and Fiduciary Duties revisited - Part III

Aspects of Fiduciary Duties 

(3) "A fiduciary duty arises out of a relationship in which one person or entity is entrusted to make decisions for, and control the interests of, another person or persons. Boards of directors owe a fiduciary duty to the association’s members. Most jurisdictions have either enacted statutes or have specific case law that establishes directors of nonprofit and non-stock corporations as fiduciaries.

There are two aspects of fiduciary duty. The first relates to a director’s responsibility to perform his duties in good faith, in a manner each director believes to be in the best interest of the association, and with such care, including reasonable inquiry, as a prudent person in a like position would ordinarily use under similar circumstances. This standard of care has been adopted in most jurisdictions and is often cited as the “prudent person standard” or the “business judgment rule.” Directors will not be liable for mere mistakes in judgment so long as they act in good faith and have a rational and informed basis for their decision.

The second aspect relates to a director’s duty of undivided loyalty to the association and its membership. This higher standard of performance is breached when a director acts in his or her own interest or with a conflicting interest. Not only must directors perform their duties in good faith and in the association’s best interest, but they also must exercise undivided loyalty and honesty and avoid any conflict of interest or self dealing.

• A director can comply with the standard of due care by following the business judgment rule requirements. Courts will not second-guess a director’s decision that is made with reasonable diligence and is believed to be in the association’s best interest. The business judgment rule requires directors to:
• Be informed about the association’s business at all times.
• Attend and participate in all meetings.
• Register a dissent in the minutes.
• Remain knowledgeable about the declaration, bylaws, rules and other documents essential to the association’s operation.

As to the avoidance of conflicts of interest, failure to meet the standard of undivided loyalty and honesty could expose the director to liability for a breach of fiduciary duty. When faced with a decision involving a potential conflict of interest, the director should disclose the conflict of interest in writing and abstain from voting on the issue."

(4) "The law of fiduciary responsibility can be viewed as having two purposes. The first is moral or educational in nature. The law sets a standard for appropriate conduct of association directors. It is intended to guide proper conduct and avoid inappropriate actions. The other role of the law of fiduciary duty is to act as a practical tool for restitution. If a homeowners association is damaged because of a breach of fiduciary duty by the director, the law affords a remedy to recover the resulting damages. A wealth of resources are available to directors to assist in understanding and meeting their fiduciary responsibilities. Books, pamphlets, magazines and newsletters are one source of information. Professional advisors, including attorneys, accountants, reserve study consultants, engineers, architects, insurance brokers and community association management consultants are among the paid advisors who may be engaged to advise on either a narrow issue or more broadly to help directors understand and comply with their legal standard of care.

The ability of volunteer directors to effectively perform their fiduciary duties will ultimately determine the success of common interest developments as a form of housing. While there are widespread examples of successfully run subdivisions, there are unfortunately also well known instances of leadership failures where homeowners associations are in political turmoil, financial collapse and physical deterioration. The challenge to each director is to exercise good leadership to avoid such a downward spiral of economic and political self-destruction.

(5) Recipes for Success and Failure

From the legal standpoint, directors incur liability when they breach the standard of care to which they are held under the statutory and case law which are discussed below. In reality, however, suits for breach of fiduciary duty can be viewed as arising from a lack of leadership and management skills by the board of directors. It is appropriate, therefore, to pause and consider the characteristics of successful leadership and management.

In successfully run homeowners associations, members of the board of directors possess good communication skills, carefully plan in advance, make good judgments based on sound decision making practices, delegate work to qualified committees or advisors, exercise initiative and independent thinking, and work well together as a team. In contrast, political or fiscal failures often result from the acts or omissions of boards of directors lacking good communication skills, procrastinating necessary work, making bad judgments without seeking input from committees or advisors, stagnating for lack of initiative, or political stalemates caused by dysfunctional personal relationships among the board members. From this perspective, the exercise of fiduciary duty flows naturally from effective business management, and it is the breakdown of good management practices, and the lack of skilled leadership, that breeds claims for breach of fiduciary duty.

(6) What is Fiduciary Duty

Fiduciary duty is a standard of care which inheres in a legal relationship of trust and confidence between one in a position of power, dominance or authority, and another who is dependent on the proper exercise of that authority. Fiduciary duty exists in relationships between directors and their corporation, trustees and their trusts, and attorneys and their clients. Inherent in fiduciary duty is the responsibility to act in good faith and candor, the duty to act in the interests of another and to avoid self-dealing transactions, and the obligation to not exert undo pressure or to act without the knowledge and consent of the "beneficiary".

The law imposes fiduciary responsibilities to ensure that power is exercised responsibly. Directors are expected to act in the best interests of the corporation, and not to exploit their position of power for personal gain or advantage. No one argues with the soundness of this principle in the abstract. Experience demonstrates, however, that directors can become paralyzed in the stressful situation where the responsibility to act in the best interests of the corporation conflicts with personal or emotional needs, such as the basic human need for personal approval from one's neighbors and friends. Enforcing the governing instruments, properly funding the economic needs of the association, or pursuing causes of action for defective construction potentially place the director in the position of controversy and criticism. The good people who volunteer to serve their community through election or appointment to the board of directors are often unprepared for the emotional and political crossfires that can easily arise in the performance of these duties. Even the anticipation of such controversy is sufficient to keep many directors from taking difficult short term actions that are important to the long term well being of the homeowners association."

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I encourage the reader to visit the following sites and continue and expand their education. The more informed our unit owners and our Board of Directors are, the better run our HOA will be.

References:

(3)   Harborview HOA blog

(4), (5), (6)  HOA Law - Jeffry A. Barnett, APC

Interlude - An Association that works "For All of Us"

As I study this great American experiment in community living, I do wonder how it will turn out. Some experts say that condominiums are failing to be the social and living systems that they were intended to be. At this juncture in time, I would say, with my personal experience, that they are possibly correct.

Is such failure pre-ordained? Is it inherent in the structure of this organization and is it woven into the fabric, its very being? Are we destined, as a former board member once told me "to slip continuously into mediocrity?"

There are questions which would seem to be vital and must be asked. If we are not to simply operate out of subjective "change" which is defined as positive and negative, and based upon fundamental human issues such as fear and greed, and "winners" and "losers" then what should we be operating from?  These are questions for our leaders to ask, to answer and to express in their daily actions. Leadership on the board and by the board as a single entity is the only possible way out of the morass that encompasses this association.

Are they up to it? Are WE up to it?

I'm sure a few readers wonder where I have been going with this blog over the past 120 posts, and where I have been coming from. It's probably time to tell you. You have been very patient and gracious. 

Consider that the mantra of this group has been about "change". I suggest that is inadequate. How about "Transformation?" Transformation of the board into a force for positive change. Not "change" as we normally think of it, nor "change" as a buzzword, something desirable which we should therefore all aspire to. I don't mean change as it has been most recently expressed in this association, an association that works for some of us, or a few of us, or sometimes the majority of us. I mean a transformation into an association that works for all of us. For it is my perspective that an association that doesn't work for "all" in fact, works for none. Organizations in which "some" goals are achieved, or, in this case are working for "some" owners, are inherently inadequate.

What would that look like? Would you like to live in such an association?

It's your choice. We can all be a force for change, both positive and negative, or we can be a force for transformation. I choose the latter. How would that look on our board? As an example, such a board, that is, a board "that is working for all of us" as stewards and as leaders, would approach issues entirely from the perspective of performing their "fiduciary duties". When an issue came before such a board, each and every board member would be ready, willing and able to discuss, argue and present both and all sides of any issue or argument. By contrast, in a board that is coming from "change", individual members present or advocate only that side that serves them or a group or groups in this association.

Wouldn't that be interesting? Wouldn't that be empowering? For each of our board members to be knowledgeable in all aspects and all "sides" of the issues? To see each board member promote all sides, both the pros and the cons, of all issues, both large and small at all times, instead of the current approach that "its right" to do this and "it's wrong" to do that, or "it's just" for this to occur and "it's unjust" for that to occur.

It would be a manifestation of an association that works for all of us, each and every one of us, not a few and not the many, but all of us. It would be the manifestation of a board that is really up to the task and is seriously engaged in an inquiry about leadership and stewardship.

Will this happen here? Can this happen here? Well, as I said in an earlier post, this is 2010 and it will not be a repeat of 2009. I am committed to that.

But what are you committed to?

Board Operation, Some Examples and Fiduciary Duties revisited - Part IIa

"In successfully run homeowners associations, members of the board of directors possess good communication skills, carefully plan in advance, make good judgments based on sound decision making practices, delegate work to qualified committees or advisors, exercise initiative and independent thinking, and work well together as a team. In contrast, political or fiscal failures often result from the acts or omissions of boards of directors lacking good communication skills, procrastinating necessary work, making bad judgments without seeking input from committees or advisors, stagnating for lack of initiative, or political stalemates caused by dysfunctional personal relationships among the board members. From this perspective, the exercise of fiduciary duty flows naturally from effective business management, and it is the breakdown of good management practices, and the lack of skilled leadership, that breeds claims for breach of fiduciary duty."(6)

This is the second post on this subject and the first half of Part II of a multi-part post. In these posts I'll reference and quote a few sites and professionals, and provide a few "real world" examples. This will illuminate some of the issues faced by our board (or any HOA board) and a few of the issues when performing one's fiduciary duties. The next post will go into this a bit further.

I suggest the reader take the time to visit the links at the end of this series of posts, for further information. 

I am of the opinion that our board has been operating at a "technical" level. There are more than a few reasons for this. There have been and continues to be loosely defined responsibilities and accountabilities among members of the board. I think there is a perception that they must keep a "majority" of the unit owners happy and contented and at other times also cater to the whims and complaints of other groups. They may see their principal job as overseeing the maintenance, landscaping and other firms which support this organization. They may perceive their "duty" as bending the rules by reducing the enforcement of the rules, so that no one is offended and no one is compromised. Of course, in such a situation we are all compromised. If they are, in fact, attempting to operate for the majority of us, rather than for all of us, is it any surprise this association is sinking into divisiveness and petty complaints?

The irony is, the group that initiated this was all about a shift from a business model to a social model.  They seem to have become that which they most abhorred! Isn’t there an expression that "What you resist, persists"? Perhaps this is why our HOA is becoming a field for power plays, resentment and passive-aggressive behavior? I'll let the board and our great thinkers answer that one,  because whether they know it or not, they do, in fact, "lead by example".

I have recommended, in writing, that our current board attend a session with attorney and workshops to improve their understanding of the meaning of their "fiduciary duties".  This would be a mandatory assignment for all board members. Failure to attend would require resignation. In this small, intensive and "hands on" workshop, there are numerous questions to be asked, and answered. What are the issues and the practical application in an HOA? How to run an association for the benefit of “all” and avoid catering to the majority or other groups? How to balance the business aspects with the social aspects and properly enforce the rules and regulations? How to deal with dissension among unit owners and divisiveness among board members and successfully complete and uphold our duties? What is the proper conduct for a member of the board?

Here is the first of several examples, to illuminate the question "what are fiduciary duties". Sometimes it is useful to determine what something "is" by determining what it "is not". Or, what actions "are" consistent with fiduciary duties, by studying actions that "are not". Here is a list of recommended actions:

(1) "What actions can community association boards take to limit claims that they have breached their fiduciary duties?

In general, we offer the following advice to community association board members:

1.     Understand the association and its operations.

2.    Devote time to association business and actively participate in decision-making.

3.    Select and support good management.

4.   Seek the advice of professionals and listen to the advice those professionals give.

5.    Avoid making decisions solely based on popularity or to quiet dissension among neighbors.

6.   Serve the association altruistically, without compensation or special treatment.

7.    Conduct business at arm's length and for the association's benefit, not your own.

8.   Document the decision-making process in the association’s minutes, including professional advice received, for all major decisions."

I suggest the reader re-read the above. I’ll use some of the above in a few “real world” examples.

Let’s start with Number 3. Last year, there was open hostility toward existing board members, management and our professional maintenance company. It seems that the position was taken that one doesn't have to support management if they truly believe that management isn't "good". Really? REALLY? Certainly FUPM's communication methods with unit owners were under par; there were sufficient unit owner complaints about that. But it went further; why, ”we all knew” that management isn't good, didn’t we?  Question: Who is the "we" and how do we know what we know?  Well, I take another view. I think that it is the role of the board to support management, to guide management in correcting their inadequacies as part of the "partnership" that exists in running this HOA. And vice-versa. Instead, it became very clear that our management firm was in the crosshairs of a few. But the storm seemed to “blow over” and nothing happened! Actually, something did happen, and management now appears to be far more compliant to the wishes of the board, including the board's position on "hot button" items such as unit owner fees.

Current or recently elected board members have chosen to listen to management when it serves the purpose and position of some of the members of the board, and management seems more compliant, sometimes defending the position of certain board members during association meetings, etc. This year, management made an about face at the budget meeting of the association and made a statement which was something like "management does not believe a fee increase is necessary at this time." This was immediately seized upon by most of the board and has been used to justify their vote, to hold fees constant. How is it that members of the board can have it both ways? Management is “good” if the information it provides suits and supports the position of the board, and yet management is also “bad”. How can that be? Our treasurer, an experienced board member, stood his ground and did not cater to the "will of the majority". Good for him.

Number 5 seems to be a reoccurring and very difficult one. Is the goal to please people or keep them happy and thereby seek re-election? At times members of recent boards have seemed to promote and favor the wishes of groups, including the ever changing and nebulous "majority". Our current board may be accelerating the movement in that direction. Forms are being prepared with questions for unit owners to answer. From this, the position of the majority on key issues can be tabulated. Of course, since nearly half of our membership doesn't vote, it would be "common sense" that the majority will not respond to these forms.  There is a problem here. A group is a group. Satisfying the needs of the majority at the expense of a minority is "making a decision based on popularity." I thought an association is to be run for the benefit of "all" members. Any time the board of an association operates by seeking approval from a group of unit owners and then attempts to justify their actions because of the "will of the majority", it is headed down a very slippery slope. Consider for a moment the possible rationale of such a board. "We are merely doing what our membership is asking us to do." Is that leadership, or politicking?

Our board will have to make unpopular decisions. It appears that their current rationale is to attempt to offend as few people as possible. That in and of itself, is neither "good nor bad". However, it is not a valid approach if the principle goal is to be "popular or to quiet dissension among neighbors."

The board must uphold the condominium act, must collect sufficient funds to properly maintain this property (common elements) and in other ways "protect unit owners from themselves". That will include unpopular actions. Interesting, but no one asked me if I was for or against a fee increase during the budget planning period, and it’s my understanding that board members don’t read my blog. I suspect some don’t read my letters which are routed through management, either. Is it possible that the justification for this is their position that I am not a member of the majority, or some other special group? Since when is that a criteria? The only approach which is acceptable is for our board of managers to make decisions in good faith and with a rational and informed basis, which is to say, "in a manner each director believes to be in the best interest of the association, and with such care, including reasonable inquiry, as a prudent person in a like position would ordinarily use under similar circumstances." That is why I have taken the position that each and every board member should be willing and able to discuss their votes, and provide their basis and reasoning in reaching that vote. Is it possible that reading this blog would be a part of being “informed” and making “reasonable inquiry”? It certainly isn’t if the goal is to only read that which supports one’s preconceived notions.

If there is a desire or emphasis to satisfy the purported "group or majority", it is inevitable that some unit owners will be given short shrift.  I'll use the example of the change from guest parking to unit owner parking, which was discussed and voted last year in our HOA. During the unit owner's portion of that meeting, a unit owner made the request that the board consider preserving some of the guest parking as handicap parking. Some board members began discussing this, including the fact that the "guest" spaces did provide level asphalt for egress from vehicles, but it was quickly passed over in the rush to vote for the conversion of all "guest" parking to "resident" parking. As I recall, this had been promoted earlier in a survey. It seems that this conversion was the "popular" decision to make. If such a stance is taken, doesn’t that mean that the issues and the votes will go whichever way the wind blows. Is this leadership?

Continuing to another "popular" item last year, there was a request to change the rules to allow lawn posting of unit "for sale" signs. These are currently permitted only in windows. This item did not make it to a vote by the board last year. It will resurface. I don't have a personal opinion, either way. The questions for the board to answer in considering this would fall under the umbrella “How does this serve, enhance, or detract the entire association?” Some of the specific questions could include: 1) What is the recommendation of management, and why. 2) What is the opinion of professionals and who are they and why did they state what they stated. 3) How does this serve all the members of the association and why does it do so; alternatively, which members of our community are not being served.  4) Who made the request that the board consider this change. 5) Are there any costs or liabilities to the association in doing this, 6) What would be the effect if 20, 30 or more signs were posted? 7) What would need to be done to control the posting and maintenance of these signs. 8) What rules would be necessary for esthetics, such as to keep signs “neat”, maximum size and quantity per unit, 9) Could or should signs be removed by the association and under what basis? 10) Should a fee be extracted if there is any requirement for cleanup by maintenance, for example, damage to lawns, signs scattered on the grounds, etc. 11) Who is responsible for damage to lawns, etc. 12) In considering this at this particular meeting, what other business needs to be considered by the board at this time and which may be of higher priority due to scheduling, weather, breakdowns, etc.

And then there are requests for "garage sales" and "association parties" on the property, and so on. These I am certain will again come before the board. So how would one, if on the board, present this? I suggest that a "reasonable inquiry" in this example would include, at a minimum: 1) What was the cost to this association when the last injury case came before it in legal action, 2) Has the board considered the "experts" position regarding the possibility of legal action against this association, for example, noted attorney Mark Pearlstein's statement that "60% of all condo boards and homeowners associations in Illinois are involved in some kind of legal suit" see Our "City within a City" , 3) What was the increase in insurance rates the year following that last legal injury case, 4) What is the cost for rider insurance for each party or activity; last year it was initially stated to be nothing but later it seems a rider was quoted at $4,000, 5) Did our board budget funds for this insurance in 2010, 6) Is this a prudent use of unit owner fees, 7) Is it possible to control visitors and if so, how and if not, is that a problem or could it be a problem for unit owners. 8) Specifically where on the property would this occur and what limitations would be placed on unit owners. 9) Are there any safety or legal issues to be considered. 10) Has legal counsel been consulted. 11) Who will pay for any cleanup costs, damages, wear and tear, etc. and how will this be collected. 11) What restrictions will be placed upon unit owners who participate or organize these events. 12) What other restrictions would be necessary so as not to interfere with the lives of unit owners who choose not to participate, for example, what dates, times, day of the week, etc. 13) Who does this serve in the unit owner body, and who might it not. 14) In other cases, this board has taken the position that all unit owners in the immediate proximity of unit owners who want to make certain changes must be consulted and must give approval. Would that not also be appropriate for these types of events? If not, why not?

If the above questions are not asked by the board, then are they in fact "acting in good faith and reasonable care" in exercising their duties and responsibilities?   

As another example, I want to present the discussion last year of the ongoing upgrade of the railings on second floor patios. You may recall the meeting in which some board members challenged the necessity of doing so. Unit owners attending the meeting expressed anger over fees and the apparent willingness of the board to waste money. The new board members stated that this was a problem because 1) we are not currently required by our city to provide this improvement, and 2) There was issue taken that our maintenance company was doing the work, and making money doing what seemed to be an unnecessary task. During the discussion that ensued, our professional management stated 1) This was being done as a pro-active measure, it was also stated by other board members that 2) The association has, for a period of years, been providing free screening to cover the open areas of the older style rails to any unit owner who is concerned about the size of the openings or have children or pets and request this. 3) Management and the architectural director stated that while not currently mandated by code, this has a safety component and the association has been pro-active in doing this. 4) The existing board stated that by doing it this way, the association can spread the costs over a period of years and coordinate with the painting schedule of the buildings, 5) It was stated that all aspects of decks have been a particular concern of the association ever since the notorious collapse of one in Chicago several years ago and the litigation that created, 6) The architectural director stated that the association routinely maintains and repairs common elements, including the concrete first floor patios. The maintenance of railings would therefore seem to be appropriate for second floor owners. When the vote was taken, the board decided to continue the replacement of balcony railings on the normal schedule.

In the above example, was the decision appropriate to "fiduciary duties"? Were the explanations reasonable? Did the board seem to understand the operation of the association? Was the board supporting management? Was the advice of professionals sought and considered? Was this made as a popular decision? Was compensation to board members involved in the decision making? Was the decision made "at arm's length" and with no political or other reward?

Looking into it a bit deeper, is the association responsible for the maintenance of common elements and secondly, is the association required to provide adequate or necessary safety measures for common elements? The answer to both of these questions is "yes" and by addressing this issue, was the board of managers "acting in good faith, with a rational and informed basis for their decision?"

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References, Errors, Omissions, Additions:

(1)  Colorado HOA Governance
(6)  HOA Law - Jeffry A. Barnett, APC
 * Miscellaneous spelling, grammar and typographical corrections.
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Board Operation, Some Examples and Fiduciary Duties, revisited - Part I

I'm going to provide a few quotes and links to illuminate the subject of "fiduciary duty" as it applies to an HOA with some insights into these duties as they have been and are being applied in this HOA. Because of the length and richness of this subject, I’ll provide this in three parts. Part I will serve as introduction, Part II will include references and review of “fiduciary duty” in the words of "experts" and certified "professionals", and in Part III I’ll look at some of the practical application of  "fiduciary duties" as currently and previously applied in this association and I'll draw some conclusions and perhaps make a few recommendations. 

First, some background information. If you came here for entertainment, you came to the wrong place. I don't think this subject will be particularly entertaining, but I suppose it could be. I should also state that one of the forces that drive us is the desire to remain in the dark, and unenlightened. That way, we can continue on our merry way and do untold mischief, and feel good about ourselves at the same time. Yes, it is true that "ignorance is bliss" and if you crave that, you have also come to the wrong place. 

Our board is comprised of many newly elected, or inexperienced members. That is to say, some have no prior experience on the board of an HOA, or any board, for that matter.  Some have no “professional” or business experience. So it would be presumptuous on my part, and arrogant on theirs, to assume that they know their true duties. Most of us, and that includes myself, operate more as technicians than as leaders. That's a natural way for most of us to be. We all have immediate tasks and responsibilities to perform, and we can and do become readily absorbed in the day to day minutia. However, to do any task well requires some critical thinking skills and the willingness and ability to keep "the big picture" in perspective, and to prepare for the part. That preparation can take years; some of us prefer to think like the Nike ad, which purports that all it takes is a nice expression such as "Just Do It" and we are ready for the task at hand. Reality has a way of deviating from 30 second sound bites. If you have read about Chesley B. "Sully" Sullenberger, the pilot who landed a disabled aircraft in the Hudson River in January 2009, you quickly discover that he was unusually trained. That training, some on his own initiative, allowed him to accomplish what some people think was a "miracle".

For the members of the Board of Managers of an HOA in Illinois, part of the training is an understanding of the Illinois Condominium Property Act, another is a comprehensive  understanding of the Bylaws of the HOA and the Rules and Regulations. Another and perhaps most important is an understanding of their “fiduciary duties”. Finally, each member of the board  must possess sufficient education to exercise common sense, make sound business decisions, and perform their specific duties and assignments.  If we are to assume that an HOA is first and foremost a business, which it in fact is, then some rudimentary arithmetic and accounting skills are required. How else to review, approve and execute budgets? And so on.

It is the responsibility of candidates for the board to determine their suitability and  to either possess or rapidly acquire the fundamental skills necessary to function as members of the board of managers. They all vote on all matters, and they begin voting at the first association meeting. So it would be common sense that the members each possess these fundamental skills. Of course, if they don’t then they must rely upon “professionals” who are experienced in these matters, or they must rely upon other board members. In either case, the quality of the board is impaired. In the first situation, a board can become over-reliant upon the judgment of a single manager or professional. In the second case, the board may become the expression of one or several “powerful” board members. In both cases, the results can be less than satisfactory. For example, at one time, this association relied upon a manager who provided guidance on budgeting and reserves which was, to understate it, less than adequate.  We have the historical data to substantiate this. 

The opposite extreme is also possible. In such a situation the board decides that it is far too reliant upon the “professionals” and is eminently and inherently qualified to make more or most of the decisions.  At our HOA, the term “larceny” is sometimes used by some unit owners to describe past boards and management. There is no proof of any of this; it's simply innuendo and character assassination. I do have to wonder how people can think and say that the past situations were so terrible, and then in the next breath promote a position founded on the belief that our current board is so eminently capable, qualified, trustworthy and honest that such a situation “could never occur here”. This type of flip-flopping is not rational and certainly doesn't adhere to any definition of  "common sense" that I am familiar with. Any manager is somewhat familiar with the “Peter Principle” and if people are seriously considering this route, I suggest all unit owners read Tom Peter’s management book “Thriving on Chaos” (sorry for the pun, Mr. Peters). I do have a copy of this excellent book in my library.  But again, the fiduciary duties of a board would prohibit certain aggressive actions. 

Of course, a board could take the approach that they are first and foremost "administrators", hire professional threesomes in all categories, and then sit back and allow or direct, depending upon the skills of the board, the professionals to argue each position and present for each situation. The board would then simply select the two that, in the opinion of the board, are most satisfactory and vote on that. Using this approach could be prohibitively expensive and would run afoul of "fiduciary duty" issues. After all, could anyone really state that such an approach was a good and prudent use of association fees?

The members of our board are mandated and required to put the association first, at all times. Upon becoming members of the board of directors of BLMH, they gave up certain personal rights as a unit owner, because they must now act in the interests of all the owners of the association. They are prohibited from creating or supporting groups or sub-groups in an HOA. For example, as a unit owner, one can ignore the rules and assume this is primarily a social club and press for block parties, garage sales, street fairs and socials and coffees. However, a member of the board of managers, who also may have similar beliefs and agree with a specific group, is required to put their personal wants, needs and desires aside. They must view this solely with the perspective of an impartial member of the board of managers. That perspective should include a consideration of  the impact on all unit owners, which may include but is not limited to the cost of insurance for these public parties, the consequences of accident and possible litigation, direct and indirect costs, the problems of traffic and parking and possible hazards with visiting people driving our, to them, unfamiliar streets, and finally the consequences and desirability of the imposition of these events upon all unit owners. (Note: We don't have a sidewalk along our streets so most unit owners and their pets walk in these main streets, which because this is a PUD, are narrower than the usual, and cannot readily accommodate pedestrian traffic and two-way vehicular traffic).  A member of the board must weigh the possible benefits to all unit owners, as well as all costs both direct and indirect, as for example "wear and tear" on association property, and any and all possible liabilities. The personal position of the board member is of no relevance. Members of the board must  actually transcend the issues and view everything from the perspective of their fiduciary duty on one hand and the Illinois Condominium Act, the Bylaws and Rule and Regulations of the Association on the other.

What's best for the association is not necessarily the result of formal or informal polls. As an example, what if the majority of this association, as the result of a poll, decided they wanted no reserves and that all monies paid should be returned? This is an extreme example, but I think some of our board would be inclined to say "return the money" because that's what they believe the "majority of us" want! That’s one of the dangers inherent in an HOA in which a member or members of the Board of Managers are unfamiliar with their true “duties and responsibilities”.  If any member of the board assumes they have a broad political or  “social mandate” and their duties encompass ambiguous “change” and their specific tasks are the administration of  the Landscaping contractor, Maintenance contractor or even simply preparation of our Newsletter, then they are operating out of a personal perspective, not a fiduciary one.

To look at this a little closer, it is perfectly appropriate for me, as a unit owner, to express my "outrage" over what I perceive as "injustice" or infringement upon my personal “rights” or the rights of others, and I can threaten, cajole, or solicit agreement to change the rules which don't work for me. And in so doing I can ignore all or most of  my neighbors. However, as a member of the board, I must publicly and privately uphold the current rules and regulations and see that they are applied fairly and impartially to all unit owners. The board may openly discuss the issues inherent in the current Rule and Regulations, but is bound to uphold those rules fairly, impartially for all unit owners, no matter what their personal situation, relationship to the member(s) of the board or even their proximity as neighbors.  There is a method for altering the rules and regulations, but again that method not only encompasses open discussion but it also requires the members of the board of managers to view this from the perspective of their “fiduciary duties”, which includes the rights and privileges of all unit owners.

To overstate this, I can also, as a unit owner, operate from the perspective that I want to be as popular as possible. I can schmooze and "ooh and ahh" and express "oh, you poor dears" to my heart's content. However, as a member of the board of managers I must remain somewhat aloof and avoid entanglements and promises. I can only promise that I will always be objective, will do my best to use sound business judgment and common sense to guide this association in such a way that divisiveness is reduced, that the property (common elements) is well maintained, and that I will evaluate budgets encompassing both current and future needs when preparing and voting for assessments, fees, promoting capital projects and the funding of current operations and maintenance. 

It is unfortunate but in the real world, not all of us operate from integrity and it is also true that individuals seek seats on boards for personal esteem, personal reward and to promote personal agendas. If you doubt me, then you are truly naive. I recommend that you spend about $100 and talk to a good lawyer who specializes in condominiums and HOA law in Illinois. I can recommend one.

As individuals and unit owners, we may perceive our duties and obligations as the member of a board of managers of an HOA in a certain way, and there are many possible interpretations, but only one is of any significance, and that is the legal interpretation as it applies to our HOA. Winning a seat on the board of managers is nothing more than an opportunity to be a steward. Some say it is to work for the good of the association. But what truly is the "good of the association"? That is an area of mischief. Only by becoming intimately familiar with the concept and realities of one's "fiduciary duties" and by using that as a beacon to guide a board member's actions, is it possible for the board members of an HOA to navigate through the problems which face them.  If the board member is capable of exercising common sense and good business judgment, it is then a possibility that the board member will successfully complete his or her tasks, but will most likely not be universally popular.  

Actions by a board to put the board first is not putting the association first; power in a democracy does not give one the power to do whatever one pleases. It does provide the opportunity and that can be coupled with private agendas; ergo the need for the Illinois Condominium Property Act, for observers, and for point of law. Of course, what does one do in an association when members of the board have the unflagging opinion or belief that their position always conforms and aligns with the "right" position? That is, of course, in accordance with their personal beliefs, standards, judgments and evaluations.  It may also be aligned with those of a group of unit owners which is forever promoting and reinforcing these unshakable beliefs, to the benefit of course, of that particular group. In such a situation the board member occupies the center of the universe, and we the unit owners, in particular the "silent majority" of us are, I suppose, simply dust and detritus orbiting around them!

When posing some of these questions, I have been told that a good paper trail is always a handy thing to have, and there are any number of organizations that provide "independent and objective evaluations of fiduciary compliance".

  In part II, I’ll take a closer look at what exactly are the “fiduciary duties” that guide our board and how they guide and enable a member to do “the right thing”, no matter what their personal viewpoint may be. 

Who Is Managing the Managers?

We have a very important association meeting on Thursday. Our board will discuss the proposed 2010 budget with unit owners. I did send a letter to the board of managers, via our professional management and I raised my concerns and briefly stated my case. I received a response that my letter was "passed to the board". However, there was no indication that the board will address the issues I raised. I understand there was an association "non-meeting" the other day, which was attended by a professional manager, some members of the board of managers and some unit owners. I have been told that concerns about the budget were discussed. This meeting was not posted to the unit owner body; nor was it listed under the "Events" tab of our official website. I was not made aware of the meeting prior to its occurrence and therefore could not attend. I assume that was also true for the majority of unit owners.

I suggest unit owners attend the association meeting on Thursday and determine if the proposed budget is viable.  Certain board members have stated that our fees are "high" and at one time issued a statement about unit owner "outrage" over our fees. I conclude that they are pre-disposed to lower fees and have also made it known that our management should be replaced. In such an environment, there is pressure on the professional managers to say what the board wants to hear.

I am not in favor of increased fees. I am in favor of long term planning, i.e. 10 years or longer and budgets to accomplish these plans. Such budgets prioritize spending and the accumulation of reserves and will provide the funding necessary for maintaining this association. I have written letters to management and the board of managers, presented my case in those letters and here and have made statements at board meetings. This has resulted in "unpleasantries" directed against me.

I have not published my findings on this site because I want the members of the board to produce their plan. The proposed budged incorporates a plan which could create extreme pressure on future boards and unit owners, and some hard and unpleasant choices. I stated my case in a letter to the board. I want the plan of the board stated clearly to me and to all unit owners. I want to know how much will be accumulated year by year for roofs, drives, streets and all other maintenance and I want to know the proposed expenditures year by year. How many roofs will be replaced in 2010, 2011, 2012, 2013, and so on until all are completed and how will this be achieved with the proposed budget? When will these projects; roofing, drives, etc. be completed with the proposed budget? How much money is anticipated to be spent on each of these projects year by year? How will the problems with Lakecliffe be corrected? How much money is being allocated to this problem and is it sufficient? How did management and the board come to their conclusions and what data was incorporated?

If our fees are insufficient to achieve a "10 year" plan and if the board intends to hold fees constant, then where will the money come from? Special assessments, a reduction in services or from a loan to this association which will be repaid by the owners as higher fees? Are we, in fact, mortgaging our future? If services costs are to be reduced to achieve the budget and "10 year" plan, then where and how will they be reduced? What inflation numbers and other assumptions are incorporated in our proposed budget? Does this board have a "10 year plan" and if not, why not? If it doesn't, then how can it state that the budget is a "good" budget. It has been said that any road will take us where we are going, if we have no idea what our destination is. So it is with planning.

We, the unit owners are responsible for managing our board. Ultimately it is our responsibility to be assured that whatever plan our Board has, which is behind the proposed budget, will maintains fees constant and achieve all of the maintenance at BLMH next year and well into the future. That includes accomplishing and solving all identified problems or issues.

It is my concern that our board is constructing a budget which justifies their proposed positions and fee structure and which passes severe problems to future boards and future unit owners. It is our job to manage our board in such a way that problems built into the current budget are not ignored or glossed over and are not passed to future boards and to future unit owners. I frankly do not want to attend an association meeting in 2015 in which angry unit owners again storm the gates and loudly proclaim "how could this happen"? We are creating that future today and our board will pass a budget which includes solutions or problems and possibly both. There are choices to be made. That is why they were elected. I want them to articulate those choices to me and so should you.

"Brian" has stated in a comment on this site that our board "probably does not read" this blog. As the person who is creating our official association website, under the direction of the Communications Director, he is in a position to to make such a statement. If he is correct, it is unfortunate that our board wants "good news" people surrounding them, and doesn't want unit owners to ask the hard questions.

I will review the position of the board and management and I will then compare it to my analysis and I will then publish my agreement or disagreement. I ask that concerned or involved unit owners attend the meeting, take notes, ask questions and support me in this endeavor. Ultimately you are supporting yourself.  Someone has to ask the hard questions.

Active Unit Ownership and Participation

During the board meeting that I attended last night (April 9), one of the unit owners who was present made the statement that he "was a unit owner" and continued with a brief declaration about what he expected from the association.

In that declaration, statements were made about unit ownership as opposed to something else.

This created an opening for a serious conversation about the duties and responsibilities of a unit owner. During the board meetings I have attended, the statements made by unit owners generally center on the "rights and privileges" of the unit owner. This sometimes devolves into complaints about "service". Well, we are all adults here and with those “rights and privileges” also come “duties and responsibilities”, and "being of service" to others in our community.

I think BLMH has evolved, or perhaps, from a certain point of view has "devolved" to where it may not be acceptable to have unit owners sitting idly by, and the conversation about rights or privileges must also be offset by one about the "duties and responsibilities" of the unit owner. Our volunteer board consistently makes requests for assistance from non-board member unit owners. For example, it has been stated that our landscape director has 40+ acres to oversee and when there is a drought, requests are always made for volunteers to step forward and assist by watering the lawn. There are requests made regarding assisting in snow shovelling when we get that winter dusting or distribution of additional salt on icy entrances.

It may be perceived as sacrilege to take this position, but perhaps it requires one unit owner per building to take responsibility for the condition of the halls, another the garage interior and yet another the grounds in the immediate vicinity of each building. The fourth unit owner per building could actively support our landscape director.

This activity need not be voluntary; the board may stipulate who is to do what and may require that we ”unit owners” be assigned these duties, on a rotating basis. However, leadership in this as with all other endeavors at BLMH will come only from the board.

I am tiring of conversations about "community" which seem to be centered on block parties, garage sales and similar endeavors. It's time to get real about what "community" is all about. This is not a cruise ship with one or more staffers per vacationer! Or perhaps it is, and I took a mis-step when I entered the twilight zone?