Conflict of Interest Issue

Conflict of interest concerns are commonly applied to board member actions and votes. Do they also apply to committee chairs and members who are developing project proposals that benefit their properties selectively? If so, what can be done?

Not in the legal professions, Betty. When committee members/chairs have a conflict of interest, they should reveal it to the rest of the committee. Then that person should recuse him/herself from the discussions and votes just like an "interested" (one with a conflict of interest) should do.

If the committee thinks it's a good project for your HOA, they approve it.

But I think we need to know more. Does the committee in question have the authority to spend HOA funds on this project? Or must the Board approve the expenditure? If it gets kicked up to the board, the conflict of interest should be noted in the committee's report to the Board.

Can you give us an example, Betty? Here's one. A landscape committee of five. One member wants a common area tree removed because it's gotten so big it blocks her formerly nice views.

But what if it now blocks the views of dozens of homes too? Then it's not just the committee member's issue.

Remind us, Betty. Are you on the board? On the committee in question?

If it can be viewed by the membership that the committee member potentially has something to gain from a vote one way or the other on the issue, then that committee member should recuse him or herself from a vote on a particular issue.

We have a situation where a member of our grounds committee has several large commercial properties. The grounds committee has reviewed bids and made a selection of a large scale grounds maintenance company to recommend to the board, and chosen the same company that one committee member uses. This committee member did not recuse and voted in favor of the selected company. Could the committee member get special incentives on other properties by helping to secure more business for the selected company? Possibly.

Whether they actually do or not, in my view this was a conflict of interest.

I don't think you're an attorney either, CfD. To speculate or "suspect" that the Comm. member could "potentially" or "possibly" get special favors from the vendor does not create a conflict of interest.

It would be a conflict of interest if the comm. member's family or close friends own that landscaping business.

Think of it this way. In a suburban area, there are xx grounds maintenance firms. Only a few of them specialize in one HOA's needs. Among that handful, chances are pretty good that one or more comm. members or directors know a member of that vendor's firm. To get paranoid and say that director could approach the vendor and try to get a kickback in exchange of his vote does NOT describe a conflict of interest. It's merely idle speculation.

I do agree that if a Board chooses a vendor who's related to or close friends with a director, the homeowners would become very suspicious. Documentation of that director's recusal is crucial, but even then, folks'll be suspicious.

Thanks for your clear explanation, Larry--much better than mine!

And sometimes a director might have special expertise that does give them insights into painters or pest control vendors, or, etc. that knowledge should be, IMO, welcomed by the Board.

I went into some detail because a couple of times a year the topic comes up on this forum, and some posters think that the most remote, or loose "connection" between director/comm. member and, say, a prospective vendor automatically is a conflict of interest.

Oh! They go to the same church! They both belong to the PTA!! Their sons both play football at Clemson!!

Again, Betty. Are you on the Board? On the Committee? Does the committee have budget, or must the Board approve the expenditure? If the Board must approve, do any directors own properties that'll benefit?

How many are on the Comm? How many are on the Comm. who own the properties in question? How much does the Comm say the improvements would cost?

Would enhancement near those properties only be visible to the Comm members?? Or might a lot of community members enjoy this change?

A better definition:

http://legal-dictionary.thefreedictionary.com/conflict+of+interest

Conflict of interest and self-dealing issues can be tricky. (Hard to tell what passes the smell test sometimes.) Even just it's appearance can stir up trust issues. IMO it would probably been best for your grounds committee member to recuse themselves from the decision making process and not take part in the vote of who got the bid, just to avoid the appearance of any impropriety. If It were me that's what I'd do.

In CfD's case, Amanda, it looks like the Committee already made its recommendation to the Board. Again, not a lawyer, but I agree with you and see no reason why the comm. member should have recused himself based only on the fact that he's done business with this vendor!!

I read both definitions that CfD offered and am not persuaded this comm. member would benefit at the expense of his HOA if this vendor is selected.

The decision now rests with the Board

Never said the committee member would "definitely" benefit. I suggested he was in a position where he could benefit, and that to me would warrant a recusal to vote. Nothing wrong with touting the merits of the companies you do business with in a committee meeting. Just thought this information should have been disclosed before a decision was made.

We didn't even find out about it until after the decision was made. Wouldn't have changed the outcome of the vote anyway. But if you read the news here in Virginia the mayor of a big city has been in some serious hot water for doing precisely the same thing...voting to give contracts to companies his private job (bank president) does business with.

http://en.wikipedia.org/wiki/Will_Sessoms

Appreciate all opinions whether you agree or not. Thanks.

Honestly, CdF, I do not see the VB mayor's behavior equal in scope, duration, $$$, etc. with your committee member.

"On November 9, 2014, the Virginian Pilot reported that Sessoms had "voted dozens of times with the City Council on matters directly benefiting developers who borrowed at least $140 million from the bank. The votes violate Sessoms’ promise not to let his duties to the bank conflict with his public obligations, and some may also violate state law."[25]"

You also wrote, CfD that "We didn't find out about it until after the decision was made." Who is "we"?? In other words are you on that committee or on the Board? during the Comm. meetings, didn't he say he thought XX was a good choice because he worked with them?

I do agree that he should have let the committee know that he's worked with this vendor, on one hand. On the other hand, you wrote that the Committee had considered multiple bids as well they should have.

Let's try this: the (permanent, required) commercial owner on our Board of 7 is a developer. He has worked with many MCs in our city because they've developed a lot of projects here. When we wanted a new MC a few years ago, our commercial rep recommended more than one to the Board because he was familiar with their work at their other HOAs. We chose one of his recommendations after interview, collecting references, etc.

Now, I suppose that the developer's firm COULD get a better deal or special favors, or whatever, with that MC, but....

In some ways, if we are cheats & crooks, all of us directors are in a position to possibly cut deals with vendors. I could, for instance, visit a landscaper who's bidding on our grounds and tell him he has my vote if he cares for my suburban daughter's grounds.

But if you have evidence that this comm. member has engaged in a long train of abuses that benefitted him, at the expense of your HOA, take your complaints to the board and ask them to dismiss him from the committee. Th Board does have that power.

Back to BettyO's question: IMO, if the certain committee members are the ONLY ones who'll benefit from this expenditure, an expenditures that ALL H/Os pay for, I'd say it's a conflict of interest and those individuals should recuse themselves from discussing or voting on that matter.

But you left a lot questions unanswered, Betty....so my reply only is partial (not to mention not a legal opinion).

In my view Kerry's example perfectly illustrates why perception of a conflict of interest should be avoided at all times by anyone in public governance. While evidence of consistent abuse would be important in a court room, a court room is exactly what you should be avoiding. Not sure how they do things out in California, but in Virginia our former Governor was recently sentenced to two years in prison for accepting bribes for favors. His wife will be next.

You might also notice what action mayors of neighboring cities took when the Virginia Beach mayor case broke. The last sentence is important.

On November 11, 2014, on returning from an international trip, Sessoms issued a statement saying "I have been made aware of the recent stories and am taking this situation and these allegations seriously."[27] Sessoms was subsequently suspended (with pay) by the bank, pending an investigation.[28] On the following day, the City of Virginia Beach Commonwealth’s Attorney asked for a special prosecutor investigation if Sessoms broke laws by casting council votes in favor of bank clients.[29] The Mayors of the neighboring cities of Norfolk and Suffolk, Paul Fraim and Linda Johnson, resigned their directorships at TowneBank on November 13, to “eliminate any perception of a conflict of interest and is not suggestive that any conflict exists.”[28] A day later, Sessoms resigned his positions on TowneBank boards.[28]

Doesn't look like we're going to agree, and that is ok. No hard feelings. I never suggested any committee member should be brought up on charges. I'm saying to vote for a particular grounds company in a committee meeting, and then have it discovered a few weeks later that the company you voted for is one your private business uses extensively, could be perceived as a conflict of interest, potentially because the situation Kerry describes could happen. No proof needs to exist for a reasonable person to think that possibly the committee member's business may get price breaks on other properties if the committee member votes favorably for said company and then the company is awarded a gigantic maintenance contract. It is the perception of a potential conflict of interest that should be avoided. In our case it would have been a simple thing for the committee member to disclose the information to our grounds committee and abstain from voting.

correction should say: "IMO it WOULD NOT be worth risking my reputation."

I agree John. IMO it all boils down to balance, good judgment and sometimes just plain common sense.