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Board Member conflict

Started by PamelaR3 • 7 replies • 1815 views

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PamelaR3 (Florida)
Posts: 3
Posted:
Can a Board Member just take over the landscaping contract from our present Lawn Maintance company just because he wants to start his own Buisness and see's what the income is that he can earn, Isn't this a conflict of interest and isn't it something that again should be bidded out on?
SusanW1 (Michigan)
Posts: 5,202
Posted:
What do you mean "take over"?? Is the contract with the current company up for renewal?

The board needs to flex its power and insist open bidding on this project.

Strict adherence to all insurance regulations should be followed for any contractor that does work for your HOA. A person "just starting up" may not have all the credentials.

Besides, yes, this could be construded as a conflict of interest. People should not get on boards in order to worm their way into getting business contracts.

MichaelK11 (Texas)
Posts: 432
Posted:
It certainly could be put out to bid, and that Director (member of the Board) could bid on it. But they should not win the bid, if just starting up.

In general, it's really up to the BoD. They may feel that Members should have priority in getting HOA business. That would have to be a general policy applied evenly on all HOA Members. I would think if they did so, they must still take bids or do some shopping, to make sure that a Member's bid is reasonable or even cheapest -- again according to a fixed policy applied evenly, not according to who the Member is in each case or how well-liked they are.

In any event -- whether they give any priority to Member businesses or not and whether he is just starting up or running an established, legitimate business -- this Director has a clear conflict of interest (CoI). Any time a Director divulges a potential CoI (or if someone suggests a potential CoI related to a Director) with respect to a particular issue, then the BoD (excluding that Director) must determine if an actual conflict exists. It's pretty obvious that they would have to establish CoI in this case. Then that Director would be excluded from votes on that issue (bidding, selecting, managing lawn maintenance). Might also be excluded from discussions on that topic; again, the BoD should establish a fixed policy on that.

That's my understanding of how potential CoI and allegations of CoI should be handled.

Some posters may have suggested that any friends of a person with a CoI must also be treated as having a CoI. My opinion is that's a load of hooey.

However, I don't know the particular details of this situation. If this is handled at arms-length, as suggested above, a diligent and conscientious BoD should arrive at the right decision.

Put simply, I agree with everything Susan wrote.
DonnaS (Tennessee)
Posts: 5,671
Posted:

Pamela,

Simply put---NO!! he may not.

617.0832 Director conflicts of interest.--

(1) No contract or other transaction between a corporation and one or more of its directors or any other corporation, firm, association, or entity in which one or more of its directors are directors or officers or are financially interested shall be either void or voidable because of such relationship or interest, because such director or directors are present at the meeting of the board of directors or a committee thereof which authorizes, approves, or ratifies such contract or transaction, or because his or her or their votes are counted for such purpose, if:

(a) The fact of such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves, or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors;

(b) The fact of such relationship or interest is disclosed or known to the members entitled to vote on such contract or transaction, if any, and they authorize, approve, or ratify it by vote or written consent; or

(c) The contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the board, a committee, or the members.

(2) For purposes of paragraph (1)(a) only, a conflict-of-interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors, or on the committee, who have no relationship or interest in the transaction described in subsection (1), but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no relationship or interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director having a relationship or interest in the transaction does not affect the validity of any action taken under paragraph (1)(a) if the transaction is otherwise authorized, approved, or ratified as provided in subsection (1), but such presence or vote of such a director may be counted for purposes of determining whether the transaction is approved under other sections of this chapter.

(3) For purposes of paragraph (1)(b), a conflict-of-interest transaction is authorized, approved, or ratified if it receives the vote of a majority in interest of the members entitled to vote under this subsection. A director who has a relationship or interest in the transaction described in subsection (1) may not vote to determine whether to authorize, approve, or ratify a conflict-of-interest transaction under paragraph (1)(b). However, the vote of that director is counted in determining whether the transaction is approved under other sections of this chapter. A majority in interest of the members entitled to vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section. As used in this subsection, the term "majority in interest" refers to a majority of the voting shares or other voting units allotted to the members.

PamelaR3 (Florida)
Posts: 3
Posted:
The board of director I am speaking abput is our present President. The landscaper just signed on with our development and is only a 30 contract. He has only had his feet in the development for 2 weeks but our President wants to take over the Landscaping job for the money, and he also wants to take over the management company..
PamelaR3 (Florida)
Posts: 3
Posted:
The Landscaper Just signed on with us, his contract is a thirty day notice contract. He has been with us only 2 weeks and doing a great job, the President just wants the contrat for his own landscaping buisness inwhich is not even started yet, he has no license or insurance just brought it to my attention and I feel as though it is a conflict of interest with the homeowners
MichaelK11 (Texas)
Posts: 432
Posted:
Quote:
Posted By DonnaS on 10/14/2009 7:20 AM
Simply put---NO!! he may not.
Actually, Donna, I think this means: Yes, the Director can bid get the HOA's lawn business, and even vote on it along with the rest of the BoD.
Quote:
Posted By DonnaS on 10/14/2009 7:20 AM
617.0832 Director conflicts of interest.--.
Is this a Florida statute?
Quote:
Posted By DonnaS on 10/14/2009 7:20 AM
(1) No contract or other transaction between a corporation and one or more of its directors or any other corporation, firm, association, or entity in which one or more of its directors are directors or officers or are financially interested shall be either void or voidable because of such relationship or interest, because such director or directors are present at the meeting of the board of directors or a committee thereof which authorizes, approves, or ratifies such contract or transaction, or because his or her or their votes are counted for such purpose, if:
Business done between the Association and a Director (or his Company) is not forbidden or repudiated just because he is involved in deciding he gets that business, if:
Quote:
Posted By DonnaS on 10/14/2009 7:20 AM
(a) The fact of such relationship or interest is disclosed or known to the board of directors or committee which authorizes, approves, or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors;
(b) The fact of such relationship or interest is disclosed or known to the members entitled to vote on such contract or transaction, if any, and they authorize, approve, or ratify it by vote or written consent; or
(c) The contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the board, a committee, or the members.
the BoD (or Committee or Members) knows it's his business and
(a) enough vote for it that it would not matter if the one with the CoI voted or not OR
(b) the Members approve it by vote or written ballot OR
(c) it's a good and fair deal for the Corporation when it is approved.

The last point is sufficiently subjective that it looks to me like it pretty much covers all the bases for giving business internally as long as the guy getting the business doesn't just authorize it by himself and undeniably rip off the Association while doing so.

Donna, do you think I misunderstood either this statute or your point?

I don't like this statue. I my opinion, it's not fair or reasonable. I think it gives too much power in favor of personal business interests and does not protect the Association. I would promote Bylaw amendments and policies to specifically handle CoI situations, rather than depend on this statute.

But if this is a FL statute, and if there are no such rules within a FL Association, and if the BoD decides to give the Director the lawn business, then I think this statute appears to give them such authority.
MichaelK11 (Texas)
Posts: 432
Posted:
Quote:
Posted By PamelaR3 on 10/14/2009 7:41 AM
The Landscaper Just signed on with us, his contract is a thirty day notice contract. He has been with us only 2 weeks and doing a great job, the President just wants the contrat for his own landscaping buisness inwhich is not even started yet, he has no license or insurance just brought it to my attention and I feel as though it is a conflict of interest with the homeowners
From what you wrote, I think you have the right idea. The President's proposal entails unnecessary risk, is self-serving, is not an arms-length transaction, and removes checks and balances offered by separating interests of vendors, management and executive authority.

We don't know the actual situation, of course; and in any event it's probably up to you BoD's discretion, but it looks to me like you have a very strong argument. I think the insurance and experience issue alone should be sufficient, even if your BoD does not want to consider CoI.

Please let us know what happens.

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