If you have served on a board you most likely can relate to this dilemma: dealing with prior board decisions. Some decisions are genius and end up saving the association money, increasing property values, and creating a wealth of harmony in the community. Some don’t make much impact from the owners’ perspective, but aid in the board’s operations of the association. And then there are some decisions that fail miserably.
These decisions or choices that don’t succeed are often the brain child of a board member or members who believe their idea will:
1) benefit all;
2) change things in a positive way;
3) possibly create a financial savings;
4) set the stage for future boards to have more “power”.
Often times these grand ideas are borne out of a real desire to better the association, but lack the research and rationale to make it work, or sometimes they are simply created to fulfill a certain group’s personal agenda.
What we must keep in mind is that an association is similar to a small government and should be treated like a democracy. Decisions must be made that will benefit the majority, and also be founded on sound business judgment. Diversity is what makes the world go round, and being human we tend to make decisions based on emotions. Emotionally-based decisions generally turn out to be poor business decisions. This is a trap into which many well-meaning and dedicated board members fall. Generally when a poor board decision is made, it is not immediately apparent. Oftentimes the bad decision manifests itself on a future board of directors, leaving them to deal with the “fall out” and “emotional baggage” from the prior board’s actions. How should the current board respond?
First, all board members should understand two very basic rules of thumb to being a good board member:
Fiduciary Duty: All board members are required to uphold their fiduciary duty as a board member. What this means is that upon election to the board (or by filling a vacancy mid term) you, as a board member are representing the owners. They have placed their confidence in you to act on their behalf and in their best interest. *Fiduciary Duty includes: Duty of Diligence, Duty of Good Faith; Duty of Loyalty; Duty of Obedience.
Business Judgment Rule: What this refers to is that decisions you make while serving as a board member should be held to a higher standard and should hold up under scrutiny. *The term “Business Judgment Rule” means that board members actions are judged or reviewed based on whether or not an ordinary person, under the same set of circumstances, would have acted in a similar manner.
Having these two rules of thumb as the guidepost for each board member, more rational decisions can be achieved that are both beneficial to a community, and leave no long-term negative legacies for those who serve after you.
When a current board is faced with a prior board’s bad decision, there are some things you can do to help overcome the hurdles.
- Research: The first and often the most difficult response is to objectively research the matter in detail. This sometimes means interviewing former board members to get to the root of the issue. The current board can also form ad hoc committees to perform investigations and research to present to the board. This helps to lighten the load of the board, as well as neutralize some of the sensitivities that may occur.
- Review governing documents: Thoroughly review the governing documents to determine whether or not the prior board’s decision is in compliance with the documents, local, state and federal law. Generally at this point, it is a good idea to consult legal counsel for advice. Frequently, a decision that seems to be a bad one may not have been an illegal one. That does not mean it should continue to be practiced if it does not fit the needs of an association.
- Create a plan: If the current board, based on the research and legal guidance, determines that a rule or decision needs to be corrected, amended, or changed completely, a plan must be devised. This plan should be well thought out and supported by a majority of the board members. A great resource in this step is your managing agent; they probably have been through this with other boards and can provide a wealth of information that can make this process much easier for the board.
- Communicate: One of the most critical factors in making a successful change is to communicate with your members. When facing a major adjustment that will impact the owners, it is important to start communications early in this process. Let them know what the board is considering and why. Change can be difficult for owners, and educating them is the best way to overcome this hurdle. If the change is going to require a vote of the membership to make it happen, communicate often and early. As with any democratic process, you must campaign and sell the idea to your owners in order to obtain a positive outcome. Note: remember when communicating with the members, try to avoid the negative. Instead, present your rationale to the owners in a positive manner, how will the change benefit them, or improve their quality of life, or property values. It never pays to run a negative campaign.
- Implementation: Once the formalities of voting, amending documents, rules, etc. have taken place, it is important that the board be fully prepared to implement the changes that were adopted. During the initial implementation period, set reasonable time-lines in which owners should comply, or adhere to a new rule, or policy. It is best to give advance notice of the effective date of a change or new rule to ensure that owners have time to prepare themselves for the new way of doing things. Websites, bulletin boards, newsletters, and email blasts are some of the tools available for communicating to your owners.
Following these simple steps can assist the board in tackling a difficult situation. Board members should remember that when making policy, rules or amending documents, these changes should be done using the Business Judgment Rule, and thinking about how the change will impact future boards and the governance of the association.
The examples of good boards making bad decisions is far too numerous to list, and each board will have their own version of this malady. The key to overcoming it is to avoid the negative comments. Unless we can roll back the clock and actually walk in their shoes, it is difficult to understand the rationale behind a decision that ended up being a bad one. The best any board can do is to move forward, and try to steer the community back on the right course.