Mixing Business with Association Duties – Should You Hire a Board Member?
Donald is a board member who owns a snow removal and landscaping business. Jan is a board member as well as the owner of an insurance agency. Every year for the past ten years the board has voted unanimously to hire Donald’s company for their landscaping and snow removal. They buy their apartment association insurance policy from Jan. And both instances could be violating the terms of the association bylaws or worse, state laws.
That’s because associations are often required if not expected to keep an arm’s-length distance between their personal businesses and that of the association. If the bylaws state that the association will entertain bids for the various services, it is in their best interests to prohibit board members from submitting bids themselves. It smacks of nepotism and can set your board up for an unsightly lawsuit, one that could be waged against the association board as a whole, as well as individual members. If you’re not insured for directors and officers risks, a lawsuit could drain both association coffers and your own bank account.
Even unrelated business dealings should be avoided. For example, if your board member owns a home inspection company, imagine the commissions to be had from residents! For that reason, the board member should not do business with residents in communities in which he or she holds a board position.
Likewise, using your connection as a board member to obtain resident lists in order to solicit business is also bad form. The reasons are many, primary being that boards could find themselves named in lawsuits waged by unhappy clients of the board member in question. Insurance coverage will not extend to individual board members’ outside business dealings.
Talk with your association insurance broker to understand the limits of your current coverage. And review your bylaws and state laws to ensure your board members are operating within the law.
Flickr photo credit: crystaljingsr
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