Board members of community associations juggle three different hats. One is the “I am a homeowner hat.” Another is the “I want to be a good neighbor hat,” and the third is the “I am a board member hat.” It is sometimes difficult for board members to always know which “hat” they are wearing at which time. Even when not physically at a board meeting, a director must consider which “hat” he or she is wearing when speaking with other homeowners, making notes about issues of concern to the community, writing an article for the community newsletter, and the like. It is easy for a director to feel badly for a neighbor who may be having tough financial times and wish to extend some hardship accommodation, as a good neighbor might want to do. However, what about the owner who no one likes, isn’t suffering a financial hardship, but is looking to play the angles and wants a similar accommodation? This is a not an altogether uncommon dilemma. This is where an understanding of not only the statutory duties imposed upon a director is essential, but also having a framework for making the correct ethical choice as well.
The California Corporations Code at Sections 7231, et.seq. outlines the fiduciary duties of due care, loyalty and avoidance of conflict rules applicable generally to directors of California Mutual Benefit Corporations, such as community associations. Most directors are familiar with these statutory pronouncements and the protections afforded by the business judgment rule, codified at California Corporations Code Section 7231.5. Ask most board members and, while they may not be able to cite the applicable statutes, will tell you in general terms that they understand they have fiduciary duties to the community. Nevertheless, boards and individual board members continually make wrong, improper and unethical decisions. It may be time for boards and their managers to develop a Code of Ethics. This has nothing to do with one’s personal ethics. Instead, it is an opportunity to understand and create an ethics for the organization. By having such a Code, board members and their managers may better be able to make the tough choices and to catch themselves before going astray which could lead to a violation of the Governing Documents or the law. The services of the board of directors require honesty, impartiality, fairness and equity. But more is also required. The board of directors must also perform under a standard of professional behavior that mandates adherence to the highest principles of ethical conduct and decision-making. If your Association or other nonprofit would like assistance in developing a Code of Ethics, please contact the non-profit attorneys at Schneiders and Associates.