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Conflict of Interest

Started by TerriS6 • 8 replies • 254 views

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TerriS6 (California)
Posts: 3,284
Posted:
At meeting yesterday, a director gave the road report. She is bookkeeper for a paving company. She got a bid from another paving company for specific sections of our roads, then finished the report by stating she would be getting a bid also from her employer. My understanding is that an interested director would not discuss or vote on a project if one of her bids is from her employer which seems convoluted to get a bid from your own employer when you already know the competition's bid. Any comments welcome. Thank you.
KellyM3 (North Carolina)
Posts: 2,239
Posted:
Terri,

Obtaining a quote, based on a defined project where every company bids on a same job specifications and materials, will not be a conflict of interest. In fact, I wouldn't mind having such a quote if a board member is attached to a company.

That said, you can play it safe by having all bids come to one officer - not the bookkeeper - and then the bid pricing is released at the same time.

A conflict of interest would arise if the board purposely paid higher prices as a "hook up" to a board member's family, etc...which is against good leadership. Negotiating great deals by using relationships, to me, is a benefit of a well-connected board of directors.
JohnT38 (South Carolina)
Posts: 1,631
Posted:
Quote:
Posted By TerriS6 on 05/07/2023 10:16 AM
At meeting yesterday, a director gave the road report. She is bookkeeper for a paving company. She got a bid from another paving company for specific sections of our roads, then finished the report by stating she would be getting a bid also from her employer. My understanding is that an interested director would not discuss or vote on a project if one of her bids is from her employer which seems convoluted to get a bid from your own employer when you already know the competition's bid. Any comments welcome. Thank you.

The bookkeeper should not be involved in the road project if her employer is going to be bidding on this. I also find it interesting that she may have intentionally arranged it so that her employer would be bidding after the first quote. If I was on your Board I would want her to step aside and have another director take on any road related projects.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Quote:
Posted By KellyM3 on 05/07/2023 10:31 AM
Terri,

Obtaining a quote, based on a defined project where every company bids on a same job specifications and materials, will not be a conflict of interest. In fact, I wouldn't mind having such a quote if a board member is attached to a company.

That said, you can play it safe by having all bids come to one officer - not the bookkeeper - and then the bid pricing is released at the same time.

A conflict of interest would arise if the board purposely paid higher prices as a "hook up" to a board member's family, etc...which is against good leadership. Negotiating great deals by using relationships, to me, is a benefit of a well-connected board of directors.

I agree.
TerriS6 (California)
Posts: 3,284
Posted:
Our corporations code 7233 prohibits such a director from voting to prevent voiding the contract.
CathyA3 (Ohio)
Posts: 6,299
Posted:
We're even stricter: the director with a conflict of interest cannot participate at all in the process. For instance, it would be possible for them to direct the discussions in a certain way or otherwise manipulate the process (which appears to have already happened). If I were a homeowner, I'd be giving this director some side eye when election time rolls around.
ElleN (Idaho)
Posts: 4,420
Posted:
Quote:
Posted By TerriS6 on 05/07/2023 10:16 AM
At meeting yesterday, a director gave the road report. She is bookkeeper for a paving company. She got a bid from another paving company for specific sections of our roads, then finished the report by stating she would be getting a bid also from her employer. My understanding is that an interested director would not discuss or vote on a project if one of her bids is from her employer which seems convoluted to get a bid from your own employer when you already know the competition's bid.
I looked at California Corp Code 7233 and several other sub-sites on this subject that the D-S site has.

Call this Director, "Director Naivete." Regardless of what Director Naivete says, the board can never be certain that Naivete did not reveal the competitor's bid to her bosses, allowing her bosses to unfairlyundercut the first company.

I think the President should explain all the problems Director Naivete has created. The board should consider having the HOA attorney explain things to the board as a whole.

By any chance does the first company's contract contain what is clearly proprietary information?

At least Director Naivete was honest about getting a bid from her bosses. I tend to think this was a lack of education on her part. I reject censuring her at this point, unless she rejects what is told her about the problems she has created. She needs to own that she made a mistake, though possibly an honest one and in her mind, a well-intentioned one (but for the legal problems it has created).

What to do? I would vote for finding another director to get bids (or step up myself). I would support taking Director Naivete's company out of the competition for the contract.

All of the following seem relevant:
https://www.davis-stirling.com/HOME/Statutes/Corp-Code-7233
https://www.davis-stirling.com/HOME/Statutes/Corp-Code-310
https://www.davis-stirling.com/HOME/B/Bidding-Policy
https://www.davis-stirling.com/HOME/B/Bid-Shopping
https://www.davis-stirling.com/HOME/B/Boyfriend-Contractor
https://www.davis-stirling.com/HOME/D/Director-Conflicts-of-Interest
TerriS6 (California)
Posts: 3,284
Posted:
Thank you. Good stuff. I tried to send an excerpt of work detail but pic too big. The bid is very specific with locations, materials, measurements, treatments, etc. other company would have very clear direction of cost.
ElleN (Idaho)
Posts: 4,420
Posted:
Quote:
Posted By TerriS6 on 05/07/2023 6:00 PM
Thank you. Good stuff. I tried to send an excerpt of work detail but pic too big. The bid is very specific with locations, materials, measurements, treatments, etc. other company would have very clear direction of cost.
Given this, I continue to agree with your concerns.

As a non-director, how to get the board to address these concerns would be the next question. I know this is often not easy and may invite conflict.

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