Conflicts of Interest, Nepotism

Started by TiffanyC • 22 replies • 4114 views

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TiffanyC (Texas)
Posts: 11

Posted:

Currently, my BOD has a vacancy, due to resignation of one member. According to our By-laws two members of the same household cannot be active with the board, because each household only gets one vote. However, there is no specific mention of nepotism or two family members being active with the board at the same time.

Our by-laws state that when a board member becomes unable to uphold their duties due to moving or resignation that their seat will be filled by election or nomination. The BOD has decided to nominate the vice-president's mother. While she does live in a separate household from him, she has held the BOD secretary position previously and was fired for disobeying the board's wishes, and possibly even stealing from the community. Does this constitute a conflict of interest for the VPoBOD?

I have read that according to RONR, "a conflict of interest is defined as a member having a direct personal or pecuniary (monetary) interest in a motion under consideration not common to other members." Wouldn't his mother's position on the board be considered a personal interest not common to other members.

Also I have read that according to RONR, "the rule in RONR is that he should not vote on such a motion, but even then he or she cannot be compelled to refrain from voting."

Questions, Comments, Concerns? HELP! Is there a way around this?

MicheleD (Kentucky)
Posts: 4,491

Posted:

A couple of comments and observations:

First, there may be any number of reasons why the governing documents would not allow two members of the same household as board members, but the "number" of votes per lot would not be that reason. The board does not vote on the same types of motions that the membership votes on that require a single-lot vote (one lot; one vote).

The board members would vote on things like whether to hire a certain contractor, when to send out the assessment statements, things like that.

Association members vote on things like, well, who will be a member of the board and amendments to the covenants.

Second, I think you're focusing on the wrong issue. A family member on a board is not necessarily a "conflict of interest," and I would think someone would be hard-pressed to prove something like that. What benefit will either the son or the mother derive from both being on the board? If there were any board business that came up where either would benefit, they would just simply abstain from the vote, just like any other board member who might have something come before them for which the board member might benefit.

Finally, what's more disturbing to me is the allegation that she was "fired" for conduct and possibly stealing.

Now, I don't know from where you obtained knowledge of either of these allegations, but it would seem to me that if the board was aware of them, and they were true, that the board would not entertain re-installing her (short of her being legally elected by the membership).

SusanW1 (Michigan)
Posts: 5,202

Posted:

. . .and what does "possibly even stealing" mean?

Apparently, the candidate/appointee was "qualified" or the board would not consider her.

TiffanyC (Texas)
Posts: 11

Posted:

@MicheleD - According to our By-laws "A householder shall be considered a member, and husband and wife shall be considered as only one member." Then it goes on to say "All members, except as provided in Art. III, Sec 5, of these by laws shall enjoy the same rights and privileges. Each member shall be eligible for election to the BOD or to an officership and for appointment to standing or special committees."

The one member thing is about having one vote per household and also later it excludes other members of your household from being eligible for the board and committees. It was also put into effect so when people, such as myself, own more than one lot they are not given more than one vote as it pertains to financial decisions over $10,000, Elections of BOD, or By-law acceptance.

Here is my ultimate problem with electing a mother and son. It is nepotism, through and through. If we start getting family members in there then they would have even more backing to push their agenda as it pertains to rules, restrictions, and fines. I mean I might as well turn my community over to one family, and eliminate the board all together because the other members interests will not be looked after in my opinion. Currently, we have no Rule, Policy, or By law pertaining to abstaining on a vote, nor do we have one on Nepotism. Therefore, it has never been enforced. Hence why I am looking for it in RONR, and honestly even that says they should abstain, but cannot be made to.

Furthermore, in regards to the firing, the board that fired her was approximately the 2005 BOD. There are only two members of our current board that were living here at the time, one being her son and the other being the 2005 BOD President who fired her. The rest were not even living in this community. I got my information from several of the board members that voted to terminate her employment at the office. They stated that she blatantly disobeyed a request from the president. They also said that there was a possibility, although they were unable to prove it that she had stolen from the office.

Our current board is doing some very shady stuff as in regards to Policies and Procedures. They are not voting before spending money and when questioned they say well it was already budgeted. When our By-laws clearly state that every expense must be budgeted and voted on by the board. There are situations when a financial committee should be called and times when a membership vote should be called. They have already sided stepped those processes and just spent the money stating that it is budgeted and was agreed upon by the membership then. The point being that our board is not exactly doing things by the book and we are having to constantly point out, this was not done by the book.

TiffanyC (Texas)
Posts: 11

Posted:

@SusanW1 - I mean according to the members who voted for her termination. There was reason to believe, but no proof.

TiffanyC (Texas)
Posts: 11

Posted:

Basically I am wondering if there is any way around that? If a husband and wife cannot be on the board at the same time then why would a mother and son be able to. Should the VP be able to vote for his mother's nomination, when the board votes to fill the vacancy?

MicheleD (Kentucky)
Posts: 4,491

Posted:

Tiffany:

First, you obviously completely misunderstand my comments regarding votes.

Board member votes are DIFFERENT from Membership votes. If there is a basic lack of understanding of that difference, I'm at a loss as to how to explain it to you over an internet forum so that you will understand.

I would like to see that "exception" because I think, just based on what you have shared so far, that it is being misinterpreted, causing a gross unfairness to people who own two lots.

I find no good reason why people who own two lots, who have paid for two lots, who pay assessments for two lots, are denied a legitimate vote on each of those lots.

But, again, that's talking about MEMBERSHIP votes and NOT BOARD MEMBER votes while engaging in the business of the board.

Two entirely different things.

Second, unless the son somehow OWNS the association and is hiring the mom, there is no "nepotism." Also, I don't know of a single family where everyone thinks and believes the same way.

Honestly, you have failed to explain in any good way why either family member would somehow benefit, monetarily or otherwise, from the votes of the other board member who is a family member.

Finally, upon further reading of your situation it seems to be a clear case to me of gossip mongering.

There may well be a legitimate reason why she "disobeyed" a "request" from the president. And the characterization of that alleged incident gives me further pause to think you may not have as much knowledge about boards, board members, officers and their duties and responsibilities.

First of all, the President is not the "boss" of any of the board members or officers. Each has the same standing and the same vote power on the board and in conjunction with association business.

While there are some policies that some boards may have guiding which board member speaks on behalf of the board to the attorney or management company, for example, no one member is higher or lower than another. Each vote counts the same. That is why the entire board votes on things, and the president just doesn't go off and do whatever he/she wants or dictates what will and won't be done to the rest of the board.

In addition, since all board members generally come from different perspectives with different priorities and goals, it is not uncommon for board members to disagree about how something will or won't or should or shouldn't be done.

To be sure, on more than one occasion, I, myself, have "refused" or "disobeyed" a "request" (read: order!) of the President when I felt the "request" was not legitimate nor in the best interests of the association.

Given you are receiving this information from a past board member who may him/herself have an agenda against the woman, I would take it with a grain of salt.

For one thing, if it were even remotely as heinous as is being implied, you can be sure that this board would have something about it in the records to refer to.

We had a treasurer who was "suspected" of skimming. The board, as a whole, voted to dismiss him (he was appointed, not voted in by the membership), and made a formal entry into the records regarding the incident, including the copies of checks he had written to himself. Even though he paid the money back (after he was approached about it), and even though we did not pursue legal action, the history of the incident is in the corporate records.

Frankly, and this is just my opinion, it appears there is personal issues regarding this woman and her son and not legitimate issues of conflict of interest or "nepotism" or even illegal or unethical behavior and, again, my opinion, I don't recommend you need to do anything about it.

And, yes, the VP does not need to abstain from voting on his mother's nomination, any more than he would have to abstain if his next-door neighbor would be under nomination.

She is eligible and I have yet to see where either party will "benefit," monetarily or otherwise, from the vote or from the two being on the board.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By TiffanyC on 09/20/2009 10:53 AM
Our current board is doing some very shady stuff as in regards to Policies and Procedures. They are not voting before spending money and when questioned they say well it was already budgeted. When our By-laws clearly state that every expense must be budgeted and voted on by the board. There are situations when a financial committee should be called and times when a membership vote should be called. They have already sided stepped those processes and just spent the money stating that it is budgeted and was agreed upon by the membership then. The point being that our board is not exactly doing things by the book and we are having to constantly point out, this was not done by the book.

Oh, I forgot to address this portion.

Based on your own explanation above, I agree with this board's assessment that the budget and expenses contained therein have already been voted on. They are well within their power/duties/responsibilities to then spend the money in accordance with that budget. I don't think they are side-stepping anything, based on what you have shared so far.

Sorry. Just don't see the problem.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Tiffany,

First of all, IMO, it would not be nepotism since the VP isn't the only person voting on the issue. If the VP had the authority to make the appointment on his/her own then it could be considered nepotism.

Secondly, the board must go by exactly what the bylaws state. If the VP's mother does not reside with him/her but instead owns her own home in the assn then she has the right to be elected or appointed to the board regardless of whether any other family members not residing with her is a board member at the same time. A husband and wife cannot be board members at the same time because they own the same property. The bylaws are written to allow one property owner (member)-- not family member -- to hold a board position at the same time.

If you take a good, hard look at all the members of your board, you may find other board members who are easily swayed into voting the same as another board member, but have no relationship to that board member. In other words, how a person votes is determined by that person's convictions, personality, etc., etc. Some people have minds of their own; others rely on someone else to lead them. Just because two people are related (by blood or marriage) does not mean they think alike.

I think it would be wise to disregard all the hearsay. I believe you said you were not a member of the assn at the time this person was "fired" and some people accused her of theft. It would be wise to give her the benefit of the doubt and not listen to all the gossip being spewn by people who don't even know what happened at the time.

TiffanyC (Texas)
Posts: 11

Posted:

@Mary I guess I have a problem with it because every since the VP has been in office, she has been volunteered for every committee, and open position.

For instance she was nominated by her son for the open Secretary position, she did not volunteer for the Financial Committee (to which I am a member of, and was present at the board meeting where she was put there) but was given a position. Now that there is an open spot on the board they are trying to put her in there. It seems that there is something going on.

@Michele

According to our Financial Accountability, "
a. Expenditures of $1000.00 – $4999.99 shall be approved by a majority vote of the Board of Directors at a duly called meeting of the Board, except in cases of dire emergency, whenever possible, such expenditures shall be included in the budget presented and approved at the Annual Meeting
b. In the event of emergency situation requiring the immediate expenditure of $5000.000 to $7499.99 a vote of 2/3 of the board of directors shall be sufficient to approve the disbursement of an emergency contingent fund. Any such expenditure shall be included in the budget.
c. Any expenditures of $7500.00 to $9999.99 shall have the prior approval of 2/3 majority of the financial committee and shall be reported to the next meeting of the Association by that Committee
d. In no event shall any expenditure in excess of $10,000 be made without the prior approval of the membership."

Also a conflict of interest is defined as a personal or monetary gain. Hence the reason why two family members cannot work in the same department in the same company together. Whether one be in power over the other or not, it usually constitutes a conflict of interest.

TiffanyC (Texas)
Posts: 11

Posted:

@Michele - on the money issue again. There as no vote called at a board meeting for the last 3 out of 4 money transactions. 1 Was to repair the boat ramp (no vote), 2. Was to Repaint Playground equipment, 3. Was to purchase a golf cart for Water and Sewer. All three were not ever brought before the board to vote on. The last one was not even budgeted.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By TiffanyC on 09/20/2009 12:28 PM
@Michele - on the money issue again. There as no vote called at a board meeting for the last 3 out of 4 money transactions. 1 Was to repair the boat ramp (no vote), 2. Was to Repaint Playground equipment, 3. Was to purchase a golf cart for Water and Sewer. All three were not ever brought before the board to vote on. The last one was not even budgeted.

But the other 2 were. Those are valid and shouldn't require a board "vote" once they are approved in the budget.

Depending on the actual details around the last one, that may or may not be an issue. Again, I can only base my opinion on the information I have before me. In that vein, you still have not built a case that the board is acting in any rogue or nefarious way, as you are implying above. They may be making decisions one or several residents don't like or care for, but I'm not seeing a pattern of impropriety at this point.

It does sound to me a great deal like ideological differences that are manifesting in gossip-mongering, reputation tainting and common, everyday mudslinging.

I really am sorry, I know that's not what you want to hear, but I'm not seeing any flags here.

If you do, in fact, have a rogue board, then the only advice I can give is to follow what your governing documents prescribe in order to remove the board.

That will require a lot of hard work, and will also more likely require a great deal more "evidence" than presented here, but, assuming you have that evidence, then it should be a no-brainer for your membership.

But it will likely entail, as mentioned, a lot of hard work. It's a good bet you'll have to spend some time addressing individual owners and somehow convincing them there is a problem.

Then it would require those individuals to be motivated enough to want to work with you to remove the board.

Then you would have to do the work of getting the petitions, scheduling, noticing and arranging the special meeting, etc etc etc, again, check your governing documents for the procedure required in your community.

What I will caution you about, however, is to resist the urge to attempt to color the two related board members as engaging in either nepotism or a conflict of interest, and I would very strongly caution you against repeating any of the allegations that you presented here regarding the mom, given your complete lack of first-hand knowledge about any of it.

Because I kid you not, if I were the "mom" or the "son" and you tried to work these sorts of unproven and damaging allegations into a campaign to remove a board, I would bring a civil suit faster than you could lick an envelope.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Tiffany,

I urge you to read Michele's last message not once but twice. Let everything she says sink in. I reiterate her suggestion to refrain from spreading the gossip that is going around about the V.P.s mother and let go of the thought of nepotism and conflict of interest -- they hold no weight.

As Michele says, we've only heard your side of the story. I'm sure the info you've posted is the truth as you see it, but keep in mind: "there's three sides to every story; mine, yours and the truth".

TiffanyC (Texas)
Posts: 11

Posted:

The most I have said about "the mother" is that her employment was terminated before. That is a fact and there is no mudslinging about that. I have yet to say anything as to why. I have just asked members of the past board that were party to her dismissal.

We are contemplating getting a petition together asking for a policy that states that if you have been terminated for cause then you should not be able to hold any other positions of power without a formal board hearing.

So Are you telling me that if there is money in a category such as "Assoc. Maintenance and Repairs" that the board does not have to vote as to what is repaired and what is not repaired when the repair is over $1000? Nothing is specifically listed in the budget except for the Pool & Road.

We are a Small/Poor association, with fewer than 200 lots inside.

TiffanyC (Texas)
Posts: 11

Posted:

I guess it comes down to what is your Layman's (because I have posted the book version) of a conflict of interest and neoptism.

Nepotism according to dictionary.com is "patronage bestowed or favoritism shown on the basis of family relationship, as in business and politics: She was accused of nepotism when she made her nephew an officer of the firm."

I know that companies do not allow people of the same family to work together. That if you have a relative in HR then you are not allowed to be hired on.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Tiffany,

Have you really read the definition of "nepotism"? Take another look at the example given -- "she" was accused when "she" made -- in other words, as I posted earlier, if the V.P. has the right to make the appointment by herself then it could be called nepotism. But, in this case the whole board must vote on the matter so it cannot be called nepotism.

Conflict of interest generally involves a pecuniary (monetary) interest in the matter. I see no way the the VP would benefit financially by having his mother on the board with him.

TiffanyC (Texas)
Posts: 11

Posted:

I am really not trying to argue. I guess I am trying to get a better grip on what I believe now is a hapless situation.

Why would a conflict of interest be sited as a reason why two brothers could not work together? Doesn't that fall under the personal interest that no other board member would have.

GlenL (Ohio)
Posts: 5,491

Posted:

Tiffany working in the real world is different from serving on a Board of Directors. There are hundreds of small corporations where family members serve together on the BOD. I really think you're making a mountain out of a molehill here but that doesn't mean the BOD is not accountable to the H/O and if they're not following the CC&R's then get some people together and replace them next election. As Ronald Reagan said: "Trust but verify."

Studies show that 5 out of 4 people have problems with fractions

SusanW1 (Michigan)
Posts: 5,202

Posted:

Our bylaws say RELATIVES cannot serve on the board.

Your bylaws say members from the same household cannot serve on the board.

You need to see the difference.

MicheleD (Kentucky)
Posts: 4,491

Posted:

For the record, the Fortune 500 company from which I retired had a board of directors that contained 4 members of the same family.

Nepotism? Conflict of interest?

Keep in mind that the STOCKHOLDERS vote for the board of directors.

And this is a Fortune 500 company.

What you are trying to insinuate with nepotism and conflict of interest is really that there is something wrong with family members serving on either boards together or working together in the same company.

Again, it would be in your best interest to learn about and study the difference between a board of directors and a for-profit business that has a Human Relations department and that may or may not contain policies on family members working either in the company or within the same departments in companies.

I think you will find that nepotism is only a legitimate complaint if the governing documents of the organization, such as by-laws (for board members), or the Human Resources policies of the companies declare that no relatives may work in the same company, department, or work unit.

I think you will find that individual company policies will cover the entire gamut of possibilities.

The company my husband owns has absolutely no policy about relatives as employees, in any way, shape or form. It's a non-issue. The company can hire as many members of one family as the company wants.

In fact, one of my husband's partners has three of his sons working there and my own daughter worked there right out of high school.

On the other hand, another local company, UPS, has very precise regulations on family members working for the company. It makes it pretty hard. In fact, my secretary had to leave UPS when she married her husband, because they frown on family members working there. And they didn't even work in the same building, much less the same department.

The point is, "nepotism" is not illegal. But various companies (and boards) have varying rules and regulations regarding nepotism.

Yours does not. It only disallows members of the same HOUSEHOLD, significantly different than simply disallowing "relatives."

"Conflict of interest" is another animal altogether and the standard rule of thumb is that two parties may not benefit in some monetary way from the relationship.

A typical conflict of interest in regard to boards would more likely stem from contracts that the board may award, as opposed to any relationship fellow board members might have. For example, if the VP has a vested interest in a lawn company that is submitting a bid, it would be a conflict of interest for the VP to participate in the vote on that bid.

Again, I would still recommend that it would be in your best interest to refrain from promoting either nepotism or conflict of interest as a viable or legitimate case against either the son or the mother.

It simply doesn't exist in this case.

And, again, the details of the "termination" are apparently so vague and third-hand as to be rendered impotent as a means of using against this woman.

Regardless of what you think you know, you may well find out that the facts are entirely different.

I'm not trying to be harsh, I'm just trying to be realistic and pragmatic.

Focus on the things that are legitimate issues. The rest of the stuff could very easily blow up in your face.

TiffanyC (Texas)
Posts: 11

Posted:

@Michele,

I don't think you are being harsh. I understand what you are saying, does it make me happy no, but that is just the way things are.

When you said that there are several members of a BOD for a Fortune 500 company that were from the same family and that they were voted on by Stockholders. That is probably what gets my goat about this whole thing the most. She probably won't be elected by the membership, so they are going to nominate her and put in there on the sly. There is nothing against by laws or RONR(I see now) about it and there is nothing we can do about it per se. It does however give the look of impropriety. It would be very easy for "the mother" to give "the son" the benefit of the doubt that she wouldn't give to anybody else just because she is his mother, and visa versa.

The whole situation would not bug me as much if she was voted in by the association. However, to be placed there when we have specifically gathered approximately 30 people to ask that she not be nominated I believe is wrong and not properly representing the community's wishes.

Our by laws come up for a vote in 2012, so there is nothing we can do about it now. I saw a comment about the by laws and relatives,and I for one think that is a great idea. Generally speaking an immediate family thinks about the same on issues. For instance of my neighbors said "I am a republican, my wife is a republican, and my son is a republican. Chances are when something comes up for a vote we are going to be headed down the same path. We may miss something all together that a democrat may speak up about."

All of those arguments are a mute point if the board votes her on. Two of the other board members (currently 6 including the tie breaking President), have told me that if "the mother" gets elected then they are going to tender their immediate resignation, because nobody will be able to stand up to the board. This is based on my own witnesed voting record.

As you can tell I am not the happiest with our current board.

MicheleD (Kentucky)
Posts: 4,491

Posted:

But Tiffany, the association membership will get to have an up-or-down vote on her -- when the next election comes up.

And I seriously caution you against adding the "no relatives" part.

Most boards have periods (sometimes it's perennial!) where there is a severe lack of candidates available for the board. To limit LEGITIMATE owners, regardless of their relationship to other owner/members, is very short sited.

As many cases as you can bring that show relatives think in lock-step, any one of us on here can show you a plethora of instances where that simply is not true.

What is more likely is that next door neighbors, or owners who happen to have grown up together and hang out at the VFW every weekend would have more in-sync ideology than parents and children, albeit adult children.

If my sister moved into my neighborhood, and I'm on the board and she wants to run for the board, I can't think of anything more unfair or unreasonable as either her or my voice and abilities not be appropriate for working to the betterment of my own and her own community be denied, simply by accident of birth.

Oh, and by the way, she and I could not be further apart politically. I love her to death, but I can assure you that were we to view all things similarly would be such a mathematical impossibility, I'd rather take my chances buying into the lottery!

Please don't let your disappointment and your apparent dislike for these people to color all family relationships in business.

MicheleD (Kentucky)
Posts: 4,491

Posted:

. . . opps, "short sighted. . . "

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