In a recent CAMS "Ask the Experts" webinar, Attorneys David Wilson and Steven Black of Law Firm Carolinas addressed a multitude of topics that are crucial for board members - both old and new - to be familiar with. If you are a first-time board member, the nuances of the job may at first seem overwhelming. Not only are you getting used to a new position, but also being faced with new issues and challenges and learning all sorts of rules and best practices along the way. In this two-part series, we'll provide an overview of just about everything you'll need to know to have a successful tenure on your community association's board of directors.
HOA board members tend to fulfill many roles within their community - and not all of them are fun. Board members are community leaders, motivational speakers, parliamentarians, and budget and finance experts. Unfortunately, board members can also sometimes be mediators, enforcers, and even on occasion the community punching bag (figuratively of course). So, how do you successfully manage these roles? One important factor in juggling these responsibilities is understanding exactly what your role is within the board. Board members are elected by the membership and each board member has equal voting power on community business issues. Specific roles within the board - officers - are people like the president, vice president, secretary, and treasurer. Who will hold these offices is a decision that is made by the entire board - this isn't something that is part of the membership vote. The membership elects the directors; the directors elect or appoint the officers.
Standard of Care
As a board member, you are expected to always act in good faith and in the best interest of the association. This means that when addressing the business of the association, you should never act in your own best interest or in that of your friends within the community. In other words, board members should never be operating on their own personal agenda. To further this point, board members should always act with the care that a reasonable, prudent person would exercise under similar circumstances. Though this concept may sound subjective, the point is that you should always strive to be a reasonable person who thoroughly considers an issue through before making decisions.
Board members are expected to act uniformly when conducting the business of the association or enforcing community rules. Stated plainly, this means treat everyone the same. Not being uniform in your actions is always risky and can potentially lead to violations of the Fair Housing Act which presents another set of troubles.
As board members are tasked with carrying out the business functions of the association, they should keep in mind the "business judgment rule". This means that when you're making decisions, they must be solely business decisions as you are acting in a fiduciary role and dealing with other people's money. What is the opposite of the business judgment rule? Good-neighbor judgment. While that may sound warm and fuzzy, it isn't what you want to use - you aren't functioning as a neighbor when you're handling the business of the association.
Naturally, board meetings are a huge part of serving on your association's board of directors. These meetings themselves come with a host of rules and laws that must be adhered to. Where do these specifications come from? It depends - some come from your community's declaration and other governing documents, and some come from state requirements depending on where you live.
One of the keys to having a successful board meeting, whether in person or virtually, is to avoid having pointlessly long meetings. To achieve this, board members should stick to an agenda and closely follow the information presented in Robert's Rules of Order. In addition, board members should review documents, such as financial statements, proposals, contracts, etc., that will be discussed or voted on at the meeting prior to the meeting. Meetings should have someone acting as the presiding officer as that person will be in charge of keeping the meeting efficient and on topic. One piece of advice is to "park digressions" - don't let off-topic conversations take over the meeting. Meetings should also start and end on time and the discussion should always be equalized - no one person should monopolize the discussion, and everyone should be encouraged to speak.
Board Actions in the Absence of a Formal Meeting
Board members informally taking action outside of a meeting is addressed in both the North Carolina and South Carolina Nonprofit Corporation Acts. If an action is being taken without having a meeting, the matter must be approved by unanimous consent - every board member must agree. This also applies if boards are voting on an issue via email – unanimous consent must be achieved. If unanimous consent cannot be achieved, or you can’t get a response from all board members, you must conduct a duly called meeting and then a majority vote will be acceptable.
Closed sessions, sometimes referred to as executive sessions, are board meetings at which the membership of the association is not allowed to be present. Why have these? Sometimes board members must discuss sensitive issues that could potentially violate privacy laws, harm the association, or embarrass someone if discussed publicly. Circumstances in which boards may hold a closed session are consulting with legal counsel, conferring about contracts or purchases, reviewing employee/personnel issues, or handling disciplinary matters. In North Carolina, boards are required to regularly open portions of meetings to the membership; however, the law doesn't define how often "regularly" is. In South Carolina, there aren't any specific rules speaking to this. Overall, boards have the right to meet in closed session, but it is always best to maintain as much transparency as possible.
Legal Protections for Board Members
Being on the board of your community association means that not everyone is going to like every decision you make or action you take. Thankfully, there are some protections provided to board members in the event that legal action is brought upon them. Indemnification may be provided for in your community's governing documents - if you get sued, the association has the obligation to defend you. The non-profit acts in both states also carry indemnification provisions. Most boards also, and should, carry Directors and Officers Insurance which will assist in providing for legal defense should it be needed. It is important to keep in mind that these protections are only provided if the action or decision in question was made in good faith - if you get sued for an action that was taken to further your personal agenda, these protections may not apply. Also, you may not have protections if you are being paid to serve on the board.
Obviously, there is a lot to unpack when it comes to understanding your role as a board member. Stay tuned in the coming weeks for part 2 of this series which will address rule and covenant enforcement, ARC basics, and some caveats board members should keep in mind.
Questions about how CAMS can assist with your board with meetings and provide educational opportunities and trusted guidance? Reach out to our team of experts via our website or at 877.672.2267.