Mary and Tom own a condominium in upstate New York, where they live with their three young children. The couple's otherwise idyllic suburban enclave has been shaken with recent allegations that their association's current board of directors has been working to hide evidence that their previous president may have embezzled thousands of dollars from the association. The president under suspicion has since resigned and moved, and a full investigation was ostensibly conducted. Once the residents got wind of the possible cover-up and the total lack of communication between board and association members, however, many—including Tom and Mary—lost faith and trust in their remaining appointed board members, and are demanding answers.
Of course, the residents at Mary and Tom's condo complex are upset—and rightfully so—at the alleged crime committed by their previous leader, but in this case, the remaining board members made the additional mistake of trying to cover up the problem. Perhaps they believed they could remedy the situation on their own, or perhaps they were afraid of the potential legal ramifications if residents were to find out. In any event, it is this cover-up and lack of communication that has soured the current board's relationship with the association members—perhaps even more so than the alleged embezzlement.
Boards of directors are usually made up of ordinary people, elected or appointed by their neighbors to run their community smoothly and efficiently. Unlike the former president of Mary and Tom's board, most board members do their utmost to fulfill that expectation, but occasionally, even the most well-intentioned board members make mistakes. Some errors are minor, but others can have serious ramifications for their building communities, as in Mary and Tom's case. A few of the most common—and most preventable—board mistakes are discussed here, along with tips on how to avoid making them in your own board.
Mistake #1: Covering Up
It's never a good idea for a board to bury its head in the sand like Mary and Tom's board did. "We all know from experience that if you try to cover up something it only gets worse," says Calvin K. Clemons, CAE, CMP and author of The Perfect Board, (Synergy Books, 2005). "It's always better to admit your mistake, make it public and then find a cure or solution. There may be legal and financial problems along the way, but admit the mistake anyway."
More than almost any other factor, communication is key to becoming a successful board. "Your relationship with the shareholders is very important," says Clemons. "Communicate back and forth and get that message out, no matter how serious it is. Let's say, for example, that you don't have money to repair the roof, and the roof is leaking. Don't hide that from the shareholders or unit owners. Tell the residents and work on a solution to raise the dollars and deal with it. There's only so long you can put off the inevitable."
By covering up or omitting important information and keeping residents in the dark, a board sets itself up for big problems down the line. Even if an omission or hush-up is done to spare association members worry, or to buy time in order to correct a problem, secrecy and censorship only serve to make the board look bad—particularly if any kind of litigation enters the picture.
Mistake #2: The Wrong Management Team
A team is only as good as its strongest player, and if your management team—or any of the professionals working for your HOA—isn't playing to its fullest potential, it can cause serious issues along the way.
"Seek out professional, well-trained community managers just like you choose accounting firms or law firms," says James Magid, the 2005 president of the New Jersey chapter of the Community Associations Institute (CAI), and regional vice president of Lawrenceville-based Wentworth Group. "You get what you pay for."
Magid also suggests periodically reviewing your management services and re-bidding the job, just to confirm that you are in fact getting the best service for the best price you can get. "You have a responsibility to do that with your management company just like you do with other services that you use, such as landscaping, for example."
Mistake #3: Caught Unprepared
Like a business needs a business plan, it is vital for a board to have a plan in place to accomplish their annual goals.
"One common mistake is having a board that is not properly prepared to fulfill its functions," says Clemons. "They do everything off-the-cuff, instead of performing what's expected of them."
Clemons explains that the board should be working with an existing plan and mission, and should revisit it annually, or whenever new members come on to the board. By revisiting bylaws, rules, and regulations on a set schedule, boards can keep their governing documents up-to-date and in sync with the culture of their community. By mapping out important points on the annual schedule such as tree care, opening or closing the community pool, tax preparation deadlines, and elections, for example, the board can plan out its time and know what needs to be done now, versus what's on the horizon. This allows for better time management, more time to make sound decisions, and fewer surprises during the year.
Without a plan or board schedule, members and management can find themselves rushed, disorganized, or confused about what needs to be done.
Mistake #4: Lackluster Leadership
Theorist Peter F. Drucker once said, "Management is doing things right; leadership is doing the right things." This pithy quote illustrates another important board mistake—not being in it for the right reasons.
"Sometimes board members fail to be leaders," says Gary Wilkin, president of Wilkin Management Group in Mahwah. "Some members won't address financial needs because they are worried about what their neighbors will think [if they vote to raise fees or have an assessment.] People also sometimes get on the board to prove a point, instead of doing what's good for the community."
Wilkin suggests that all board members treat their association as a business and be professional about their responsibilities. A community association board is no place for petty squabbles, politicking, or personal axe-grinding. The board is there to work with each other and their managing agent to maintain—if not improve—the quality of life in the community. Personal issues and agendas should be checked at the door, and the good of the association placed above all other considerations. To do otherwise risks bogging down the board and sliding into negligence territory.
Mistake #5: Poor Orientation for Newbies
A new board member has come aboard and although you may have your board mission spelled out and all be there for the right reasons, the new member sits there clueless and hasn't been brought up-to-date on how the process works or what issues the HOA is currently facing.
"Often boards don't take the time to educate and inform the new board members what their responsibilities are," explains Clemons. "Depending on the size of the board, you need to encourage an actual orientation session by bringing in an outside facilitator to talk about role of your board in the community," Clemons continues. If you have a smaller board, often you can handle orientation by giving the new member an orientation binder full of important relevant materials. "Include the past minutes, financial statements, bylaws, and any pertinent documents that the new person needs to know about," advises Clemons.
Mistake #6: Bad Budgeting
A penny saved is a penny towards fixing the roof, but many boards aren't fiscally fit, and even after a routine maintenance project, pennies are all they end up with.
"Most boards run on very tight budgets, so they don't keep extra cash and try to keep maintenance as low as possible," says Gerald Marsden, a partner with Eisner & Lubin LLP, a New York City-based accounting firm specializing in co-ops, condos, and HOAs. "Boards don't create enough cash to take care of up-front needs, and then they run into cash flow problems."
These cash flow issues can in turn lead to special assessments that could've been avoided with proper planning and proper budgeting. Assessments are never popular, but without them, an association with cash flow issues can quickly accrue debt that may spiral out of control.
For example, explains Paul Bettano, CFO of Symes Associates, an accounting firm in Beverly, Massachusetts, boards often spend themselves into debt or spend down their reserves. "Then next year, they raise their fees to cover what they should've done last year, but they didn't budget anything to make up the shortfall they had that year in the first place. Many associations do this year after year."
Another fiscal faux pas is to not have a capital needs assessment plan or reserve study done for your association or building. "Some boards get sticker shock [at the cost of repairs, or the amount of a proposed assessment] and they don't have the money to fix the problem, so they put the assessment away and ignore it," says Bettano. "The problem with that approach is that you are guaranteed a special assessment a few years later."
Planning for the financial future can prevent any unnecessary, and often costly, errors later.
Fool Me Once
Although these are just some of the most common mistakes a board can make, there are hosts of smaller errors that can interfere with the smooth operation of an association. But how is it that the big mistakes are so common? There are a variety of reasons, according to Bettano, including economics, lack of experience, personal agendas, and old-fashioned apathy.
"I've worked with 100 different condominium associations and for many, some of these mistakes—especially the financial ones—are made because of simple economic reasons," says Bettano. "For example, in some cases, board members will vote 'no' on a fee increase that they know they need for, say, a $150,000 repair simply because they can't afford it."
Bettano also says that those who are most often qualified to serve, such as architects, accountants, and attorneys, and those who are best equipped to make decisions and stand up to unit owners, don't want to serve.
"Also, many co-op and condo owners buy these properties because they don't want to do the outside work or maintenance; they want someone else to do it," says Bettano. "As a result, they also want someone else to do the board work too."
If your board is making mistakes, what is your best weapon? Take it to the polls. "Your biggest weapon is the elections," says Clemons. "Participate in the elections; it's your house, and the mistake that shareholders, tenants or condo owners make is that they leave these important issues to the board and then just walk away. Pay attention, ask questions and make them listen to you."
Lisa Iannucci is a freelance writer based in Poughkeepsie, New York.