Is this a conflict of interest?

I am a new boardmember of my HOA.

We have a board member whose is an owner of a management company.

This director solicited a bid for a landscaping maintenance contract from a compnay they use for their other properties. That company was awarded the contract last spring.

The company in question hired this director's children to work over the summer.

The children no longer work for the company.

Here are my questions:

1) Does a conflict of interest exist due to the director's business relationshsip with the landscaping company?

2) Should the director have reported a conflict when the kids started working for the landscaping company?

3) Does a conflict still exist even though the kids not longer work for the company?

Thanks!

Thank you for the response.

Conflicts are covered under state code, not declaration or by-laws. I have read the code as it relates to conflicts. Only family and money connections would make an obvious conflict.

Here's a time line:

April - Board knew of business relationship. Director did not declare the conflict or recuse themselves. No obvious money or family connection so probably not a conflict.

Summer - Kids start working for the landscaping company. There's an obvious conflict now because of family. Director did not declare the conflict or recuse themselves from votes regarding the company while the kids were working there.

Today - And this is the real question. Landscape contract up for renewal. Kids don't work there anymore, but theyused to. Director did not declare the conflict or recuse themselves. Is there a conflict that should be declared?

Thanks again.

Read this and tell me if you still think there is no conflict.

Pay special attention to 1A and 3A.

GEORGIA CODE
Copyright 2011 by The State of Georgia
All rights reserved.

*** Current Through the 2010 Regular Session ***
*** Annotations Current Through October 29, 2010 ***

TITLE 14. CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS
CHAPTER 3. NONPROFIT CORPORATIONS
ARTICLE 8. DIRECTORS AND OFFICERS
PART 6. CONFLICTING INTEREST TRANSACTIONS

O.C.G.A. § 14-3-860 (2011)

§ 14-3-860. Definitions

As used in this part, the term:

(1) "Conflicting interest" with respect to a corporation means the interest a director of the corporation has respecting a transaction effected or proposed to be effected by the corporation (or by a subsidiary of the corporation or any other entity in which the corporation has a controlling interest) if:

(A) Whether or not the transaction is brought before the board of directors of the corporation for action, to the knowledge of the director at the time of commitment the director or a related person is a party to the transaction or has a beneficial financial interest in or so closely linked to the transaction and of such financial significance to the director or a related person that it would reasonably be expected to exert an influence on the director's judgment if the director were called upon to vote on the transaction; or

(B) The transaction is brought (or is of such character and significance to the corporation that it would in the normal course be brought) before the board of directors of the corporation for action, and to the knowledge of the director at the time of commitment any of the following persons is either a party to the transaction or has a beneficial financial interest so closely linked to the transaction and of such financial significance to that person that it would reasonably be expected to exert an influence on the director's judgment if the director were called upon to vote on the transaction: (i) an entity (other than the corporation) of which the director is a director, general partner, agent, or employee; (ii) a person that controls one or more of the entities specified in division (i) of this subparagraph or an entity that is controlled by, or is under common control with, one or more of the entities specified in division (i) of this subparagraph; or (iii) an individual who is a general partner, principal, or employer of the director.

(2) "Director's conflicting interest transaction" with respect to a corporation means a transaction effected or proposed to be effected by the corporation (or by a subsidiary of the corporation or any other entity in which the corporation has a controlling interest) respecting which a director of the corporation has a conflicting interest.

(3) "Related person" of a director means:

(A) The spouse (or a parent or sibling thereof) of the director or a child, grandchild, sibling, parent (or spouse of any thereof), or an individual having the same home as the director, or a trust or estate of which an individual specified in this subparagraph is a substantial beneficiary; or

(B) A trust, estate, incompetent, conservatee, or minor of which the director is a fiduciary.

(4) "Required disclosure" means disclosure by the director who has a conflicting interest of (A) the existence and nature of the director's conflicting interest, and (B) all facts known to the director respecting the subject matter of the transaction that an ordinarily prudent person would reasonably believe to be material to a judgment as to whether or not to proceed with the transaction.

(5) "Time of commitment" respecting a transaction means the time when the transaction is consummated or, if made pursuant to contract, the time when the corporation (or its subsidiary or the entity in which it has a controlling interest) becomes contractually obligated so that its unilateral withdrawal from the transaction would entail significant loss, liability, or other damage.

The direct benefit was his children getting a job because he steered a contract to the landscaper.

Unless they were paid $100.00 per hour for what was to others a $10.00 an hour job, I would not consider it a - "...financial significance to the director or a related person..."

What is it you want; to force this member from the Board or what?

So how old are these "kids"? Most likely they were just seasonal hires anyway. You have not proved a real link that would stand up in any court or hearing. And they are no longer there.

I am sure that this person got your message.

Let it be . . .

My question is where are the rest of the Board members on this? Did they not vote to hire this contractor? Then they were ok with that hire?

So the kids worked in the Summer so what amount of money are we discussing? Is that really worth now questioning this Board's members honesty? IMO NO

If this Board member works for a management company they will have relationshsips with many service providers. Are they now ALL not to be considered for serving your property because of your percieved conflict?

I think you are looking for an issue when in fact none exists IMO. And working to impose what you believe is right and just will do harm to your relationship with this Board member. Is that really the road you wish to go down? If so make an issue out of this and make public your accusations.

Russell:

Do you know that the kids were hired as a result of the contractor getting the work?

Did they work for the contractor the previous year before they got the work? Do you know?

How did this Board member benefit and do you think this was part of the arrangement? I get the contract your kids get Summer work?

By his sons working a Summer job? I think we might be looking for some grand criminal plan when perhaps none existed.

Just maybe the contractor and the Board member have a relationship where he needed workers for his busy season, the kids needed a job and there was NOT some criminal master plan to use this to obtain some kickback for servicing the property.

And how wold you purpose this Board member follow up on this issue? Accuse the Board member of illegal behavior? And what about the rest of the Board did they support this hiring? What do we do with them?

John:

Per your post above … “Pay special attention to 1A and 3A.”

(A) Whether or not the transaction is brought before the board of directors of the corporation for action, to the knowledge of the director at the time of commitment the director or a related person is a party to the transaction or has a beneficial financial interest in or so closely linked to the transaction and of such financial significance to the director or a related person that it would reasonably be expected to exert an influence on the director's judgment if the director were called upon to vote on the transaction; or

If I pay attention to 1A and per your comments, at the time of commitment, he did not have a beneficial financial interest. At the time of commitment the kids did not work for the business.

If you look at 1B:

B) The transaction is brought (or is of such character and significance to the corporation that it would in the normal course be brought) before the board of directors of the corporation for action, and to the knowledge of the director at the time of commitment any of the following persons is either a party to the transaction or has a beneficial financial interest so closely linked to the transaction and of such financial significance to that person that it would reasonably be expected to exert an influence on the director's judgment if the director were called upon to vote on the transaction: (i) an entity (other than the corporation) of which the director is a director, general partner, agent, or employee; (ii) a person that controls one or more of the entities specified in division (i) of this subparagraph or an entity that is controlled by, or is under common control with, one or more of the entities specified in division (i) of this subparagraph; or (iii) an individual who is a general partner, principal, or employer of the director.

The director is not a general partner, agent, or employee. The director does not control the entity (landscaping business) and the business was not a principal or employer of the director. Now if his kids had worked there BEFORE your homeowners association had hired the landscaper and he did not disclose that fact, then there may be a conflict of interest via related person of a director. Both of these sections state, “at the time of commitment”.

Janet,
Thank you for looking at the post and giving it some thought.

Re: 1A
You are correct about the time of commitment to the contract. No apparent conflict existed then other than the director was an employer of the contractor via a managmeent company he owns. It would be hard to show a conflict. However...

During the time the kids worked for the contractor, the board discussed the performance of the contractor and considered other proposals submitted by the contractor. Therefore, I'll submit the director should have told the board: "I can't participate in this discussion because my kids work there."

Of course, you did not know this. Sometimes it's hard to know how much detail to put in these posts. If you put too much folks won't read them!

Re: 1B
I'm not sure why you looked at 1B. 1A and 1B are written as "or", not "and".

Re: 3A
It just defines what a related person is, and a child is named as a related person.

Thanks again!

Hi John:

The reason I reviewed 1B even though it is written as “or” is it better describes the “relationship(s)” between directors and those who would be considered entities who could unduly influence. In this section a few times it states Employer of Director, and at no time states Employee of Director. This is because employee cannot have undue influence, but an employer can have undue influence. I reviewed because you voiced concern numerous times, the Landscaper was employee of director.

If the Director had worked for the Landscaper at the time of commitment there could be undue influence because they would have been in the position to make comments such as, “no vote … you’re fired”, “no vote … no raise”, etc.

JonD had a very good point … The Director owns a Management Company and has in the past or will in the future potentially hire all the best service providers (including Landscapers).

All the director did was recommended someone who performed good work at a reasonable price. As an employee of the director “at the time of commitment” the landscaper was not in a position to have undue influence. Many service companies obtain future work by offering good service for good price and are therefore highly recommended to others verbally.

During the time the kids worked for the contractor, the only time the director should not participate in the discussion is for example if the contract was going to be renewed or a “commitment made” for another year. However, discussing performance issues or other minor items regarding a company already hired and committed is a different story.

If you are going to perceive this as conflict in the future then your HOA needs to hire their service companies from the bottom of the barrel, as those are ones the director will not have hired. Others like Susan and I would welcome a good recommendation to insure our HOA gets the biggest bang for the buck from someone who has experience with all the providers.

Please start a new thread. There, tell us in what ways there could be even an "implied" "conflict of interest."

Exactly what I did Janet. Go weigh in. :-)