Ethics in Community Association Operations

Ethics in Corporate America have taken a setback in recent years. Enron, WorldCom, and Martha Stewart are examples of highly-publicized cases where there was a failure of the corporation to maintain an ethical environment. Whether large or small, profit or not-for-profit, corporations have a responsibility to act ethically. When speaking of community associations, the standard of ethics applies equally to the management team and to the Board of Directors. Implementing ethical standards, an ethical code, and a code of conduct for volunteer directors can circumvent impropriety.

Ethics is defined as a system of moral principles and the rules of conduct with respect to a particular group or organization. There is a difference between a code of ethics and a code of conduct. The conduct code describes precautions on how one must behave. The ethical code describes statements of core values that indicate how one should behave. Ethics is about choice. Without choice, you have law rather than ethics. A person who is ethical acts with fairness, equity and impartiality and respects the rights of other people. Someone who is unethical chooses personal or professional gain at the expense of others. Most of us are somewhere in the middle, trying to do the right thing, sometimes unaware that we've done the wrong thing, and often surprised to find ourselves facing an ethical dilemma.

In order to understand how ethical standards can be applied, there needs to be an understanding of conflicts of interest. Conflicts of interest can best be described as situations where one’s own benefit or gain takes precedence over one’s duty to another. There are two types of conflicts – potential and actual. A potential conflict of interest exists when there is a possibility that a decision might be influenced by one’s personal circumstances. For instance, a director that has a relative in the landscape business might potentially alter a decision in order to help the relative get the contract. Potential conflicts of interest can become actual conflicts when the decision making process is subverted by the conflict. Most observers believe that actual conflicts of interest can be avoided by disclosure of the potential conflict. The argument is that known potential conflicts of interest will never manifest themselves as actual conflicts of interests as long as everyone understands that the potential exists.

Ethics for Management

Ethics for community management professionals are defined through the system of certification and designation. Managers (and management companies) strive to exhibit their standards of ethics by adhering to a professional code of ethics. Professional ethics are standard in professions such as doctors, lawyers, accountants, etc. Similarly, professional managers adhere to the ethics in several formats. The Community Associations Institute, through its system of designations and certification, requires observance to a code of ethics. Whether the designation is the AMS, PCAM or AAMC, CAI has an established ethical standard for the profession. The code for professional managers states:

COMMUNITY ASSOCIATIONS INSTITUTE
PROFESSIONAL MANAGER CODE OF ETHICS

The Manager Shall:

1. Comply with current standards or practices as may be established from time to time by CAI subject to all federal, state and local laws, ordinances, and regulations in which the Manager practices.
   
   
2. Participate in continuing professional education through CAI and other industry related organizations.
   
   
3. Act in the best interests of the client; refrain from making inaccurate or misleading representations or statements to a prospective client; not knowingly misrepresent facts to benefit the Manager.
   
   
4. Undertake only those engagements that they can reasonably expect to perform with professional competence.
   
   
5. Exercise due care and perform planning and supervision as specified in the written management agreement, job description or duly adopted Board policies.
   
   
6. Disclose all relationships in writing to the client regarding any actual, potential or perceived conflict of interest between the Manager and other vendors.
   
   
7. Provide written disclosure of any compensation, gratuity or other form of remuneration from individuals or companies who act or may act on behalf of the client.
   
   
8. Insure that homeowners receive timely notice as required by state statutes or legal documents and protect their right of appeal.
   
   
9. Disclose to the client the extent of fidelity or other contractually required insurance carried on behalf of the Manager and/or client and any subsequent changes in coverage, which occur during the Manager’s engagement if the amount is lower than the contract amount requires.
   
   
10. See that the funds held for the client by the Manager are in separate accounts, are not misappropriated, and are returned to the client at the end of the Manager’s engagement; Prepare and furnish to the client accurate and timely financial reports in accordance with the terms of the management agreement, job description or duly adopted Board policies.
    
    
11. Recognize the original records, files and books held by the Manager are the property of the client to be returned to the client at the end of the Manager’s engagement; maintain the duty of confidentiality to all current and former clients.
    
    
12. Refrain from criticizing competitors or their business practices; Act in the best interests of their Employers; Maintain a professional relationship with our peers and industry related professionals.
    
    
13. Conduct themselves in a professional manner at all times.

Compliance with the Professional Manager Code of Ethics is further amplified in the Code Clarification Document provided by the Community Associations Institute (available on the CAI website). Additionally, some states are now requiring licensing of managers. Ethical standards and enforcement are usually a prerequisite for maintaining the license.

Ethics for Board Members

While volunteer board members can feel very comfortable with the ethics of their certified, designated or licensed manager, there is a strong need in the industry for ethical standards and codes of conduct for a board. Most state statues only mention egregious acts (such as embezzlement) as the means for holding directors accountable. Few association documents require any form of ethical principles to be upheld by the elected directors. Self-policing is the only process to create and uphold any ethical standards.

In order to create the code of ethics and code of conduct for the Board, several steps need to be followed. First, the board needs to identify the core values of the community. These normally include preserving and enhancing property, safety, fairness and respect. It is more than just buildings, money and rules. It may also include protecting the environment and respecting diversity and individual rights of the homeowners.

Second, a community association board needs to understand that corporate ethics do not exist independently from social principles – they are in fact a reflection of basic human values.

Finally, while there is a difference between a code of ethics and a code of conduct, both need to be considered in a policy resolution. Ethics will detail how the board makes decisions and deals with outside influences. Conduct deals with behavior to facilitate effective decisions.

Here is a sample code for a board to consider. Certainly, the values and principles will be modified to meet the needs of the individual community. However, the concept remains the same.

CODE OF ETHICS AND RULES OF CONDUCT
BOARD of DIRECTORS and VOLUNTEERS
_______________ COMMUNITY ASSOCIATION

The Board of Directors of _______________ Community Association has the obligation and duty to make decisions for the entire community and is responsible to set a standard and a tone for behavior that is conducive to the best interests of the entire community. The Board of Directors of the _______________ Community Association hereby adopts the following code of ethics and code of conduct that are applicable to all volunteers serving the community:

1. The Board of Directors will use its best efforts at all times to make decisions that are consistent with high principles, and to protect and enhance the safety and property value of the residents.
   
   
2. No gifts of any type worth _______ or more will be accepted by any volunteer from any resident, contractor, or supplier.
   
   
3. No contributions will be made to any political parties or political candidates by the Association without a majority vote of the community confirming such action.
   
   
4. The Board Members will protect confidentiality of other Board Members’ personal lives, as well as all residents’ personal lives.
   
   
5. No promise of anything can be made to any subcontractor, supplier, or contractor during negotiations, unless approved by the Board as a whole.
   
   
6. No drugs, alcohol, or substance abuse will be tolerated.
   
   
7. Any Board Member convicted of a felony will voluntarily resign from his/her position.
   
   
8. Language at Board Meetings will be kept professional. Personal attacks against Co-owners and Board Members are prohibited and are not consistent with the best interest of the community.
   
   
9. It is understood that differences of opinion will exist. They should be expressed in a clear and business-like fashion.
   
   
10. Proper parliamentary procedure should be followed to have such dissenting positions stated clearly within the official records of the Association.
    
    
11. A Board Member may not knowingly misrepresent any facts to anyone involved in anything with the community that would benefit himself/herself in any way.
    
    
12. No Board Member may use his/her position into enhance his/her financial status through the use of certain contractors or suppliers. Any potential or actual conflict of interest must be disclosed to the other Board of Directors.

This resolution is adopted this ______________ day of __________________, at an open Board meeting where a quorum of the Board was present and will become effective immediately. Upon approval, each new community volunteer and board member will be required to agree to this code of ethics and rules of conduct.

(Thanks to Lance Govang, CMCA, AMS, PCAM for creating the model for this sample resolution.)

In conclusion, our society demands procedure, decorum and integrity from corporations. The community association board of directors should assure these traits by contracting with a certified, designated or licensed manager and should self-govern with a community code of ethics and conduct.

* Code of Ethics and Rules of Conduct - (pdf document)