Q&A: Changing the Rules to Benefit a Board Member

Q. Can a board member vote on a rule change that will directly benefits him/her? For example, the board member is an investor with more than 10 units and needs more parking spaces for tenants, therefore s/he has moved to vote to change the rule allowing more spaces, and placed him/herself in an advantageous position relative to other residents.

                     —A Question of Fairness

A. “Just because a change in rules may benefit a board member doesn’t necessarily make the change improper,”  says attorney Eric Mann of the firm Hyberg, White & Mann, based in Northfield. “The association’s business is generally the duty and function of the governing board.  Because the board is acting on behalf of all members of the association, it has a special obligation which requires a certain degree of responsibility, commonly known as a fiduciary duty.  This fiduciary duty requires the board and its individual members to act in such a way that places the needs of the association and its members above any personal needs or desires.  The board owes the members a duty of undivided loyalty and honesty and requires the board to act in good faith and with due diligence, care and skill and to avoid self-dealing, conflicts, financial or otherwise. 

“As such, in response to the question above, one must determine whether the board member’s decision was based on his or her own personal wants and desires, or if the decision was in his or her mind truly one that had an overall benefit to the entire association.  Does the association truly need more parking for tenants?  Are other owners in need of more tenant parking?  Or is this new policy not really an issue of overriding concern or importance to the community at large?  The answers to those questions would help determine whether the board member is acting within the scope of his/her fiduciary duties.  If the decision is merely one that benefits his/her personal needs without due consideration of how it affects others, it is likely a breach of fiduciary duty.  If the tenant parking issue is really an issue that needs to be addressed, the fact that the board member may be positively affected doesn’t make the action improper.

“Frankly, if I was counseling the this specific board member, I would encourage him to abstain from voting on issues that seemingly have such a great benefit to himself to avoid even the appearance of impropriety.”

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Comments

  • We have a board that has one member being a President and Treasurer. I don't consider this good. Currently, at a board meeting, out of 7 board members there were only two board members present. Four questions: We consider people who do not live at our complex to be investors and who only go by heresay as to what is going on at the complex; especially if they live out of state or even in state. 1) Can people who do not live at the complex be on the board over the telephone especially when we don't even know that this person on the phone is an out of state board member, nor do we know what they are saying on the phone, and when asked about who was on the phone, you do not get a proper answer? 2) How many board members must be physically present at any board meeting, 3) Can one shareholder hold two positions on the board; we consider this extremely irregular. 4) Changes to the bylaws are not distributed to shareholders. Improper? 5) How to conduct a shareholder audit if we think there may be impropropieties.