An Association’s board of directors plays a fundamental role in a residential community, and, even though much of the day-to-day operations of running the Association may be delegated to a professional manager, a well-functioning board is indispensable to a well-functioning community. The Association’s board is the ultimate decision maker, and the buck stops with the board. We have recently written on topics to help board members understand the board’s role and the fiduciary duties that directors have to the Association they serve.
Notwithstanding our writings, the reality is that board members are volunteer community members and will often have little to no experience of what it means to serve on the board of directors of a corporation. Additionally, unfortunately, at some point, many communities will be faced with a situation where there is board member or group of board members who act improperly and/or in their own self-interest to the Association’s detriment. While most governing documents will provide for removal of directors by Association members, in order to shape and set community expectations for board members and to guard Associations and the communities they serve from the occasional, but often inevitable, bad actor, we recommend that all associations adopt resolutions or rules that require board members to sign codes of conduct in order to sit on the board. These codes of conduct should include the following:
- Provisions related to proper decision making and record keeping: board members should commit to follow basic parliamentary procedure, such as Roberts Rules of Order. Minutes must be kept of board meetings. Decisions of the Association should be made in meetings. Decisions can only be made outside of meeting if bylaws do not prohibit it and those decisions are unanimous and in writing (MCL 450.2525).
- There should be a section related to defining avoiding conflicts of interest, disclosure of conflicts, and recusal from decisions where a reasonable person might determine that there could be a conflict between the director’s personal interests and their fiduciary duties to the Association. While MCL 450.2545 deals with director conflicts in the context of contracts or transactions, associations will want to avoid the appearance of any impropriety.
- Almost all governing documents will provide for a duty to enforce the restrictions which they contain. Directors should commit to familiarizing themselves with the governing documents and to enforcing them.
- Directors must commit to keep matters related to unit files, delinquencies, and legal matters confidential. Directors should keep executive session matters confidential and refrain from divulging board communications without specific written authorization from the Board.
- Any criminal convictions should be disclosed and if a board member is convicted of a felony or crime that could negatively affect the Association, they should resign.
- Actions taken by Directors may bind the Association. Therefore, Directors must commit to not act unilaterally and agree not to take any action that might bind the Association unless they first have proper written Board authorization.
- Directors should be reminded that discrimination prohibited by law, including by the Federal Fair Housing Act and the Michigan Elliot-Larsen Civil Rights Act, is not tolerated.
- Directors should act professionally and with civility. We know that directors have fiduciary duties to the Association, but, a code of conduct should also require directors to commit to:
- Refrain from harassment or personal attacks against members, board members, and managers. Personal attacks create serious distractions from the business of the Association and also can create risk of costly legal liability if such attacks can be construed as defamation.
- Refrain from political communication in their directorial capacity and avoid any communication that could suggest the Association is taking a political position.
- Act honestly—directors must not knowingly misrepresent facts regarding community matters.
- The code of conduct should specify consequences for breaches. This can include having the director commit to resign in the case of repeated or material significant breaches of the code.
The above points are not exhaustive but are intended to help motivate boards, in consultation with Association legal counsel, to open a discussion about adopting a code of conduct for association directors, or perhaps revisit an existing policy. We see issues related to director conduct arise all too often and all residential associations are well-advised to adopt a code of conduct for board members. We are available to assist with the drafting such a policy or in answering specific questions related to these important issues and if you need assistance please call (248) 349-6203 or send us an email through the form below.
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