One of the trickier problems to deal with when you live in a co-op or condo is dealing with board members who sometimes let the power go to their heads. Even though they are entrusted with a great deal of responsibility to keep their association board running efficiently, it’s important that board members don’t cross the line and use their position to unduly influence the building’s day-to-day operations.
“The most common place where conflicts of interest arise is when you have vendors of equipment that the building wants to use and that vendor happens to be on the board,” says Jim Peterson, board president of a Lake Shore Drive condo in Chicago. “If the board wants to use that particular vendor because what he has to offer is very good and very reasonable and very reliable, it can be a big conflict. It happens all the time. You’ll have suppliers with high quality stuff and good prices and they live in the building and sometimes they are on the board.”
In these cases, the board member stands to profit financially from mixing his two interests and may be tempted to put the interests of his business ahead of the interests of the building. When that happens, the board member runs the risk of breaching his fiduciary obligation to the building. “What happens in that instance is that the board member should recuse himself from voting,” says Peterson. “In certain cases, we will use them because it could be in our own self-interest. You don’t want to shoot yourself in the foot to avoid conflict. You don’t want to avoid conflict—you want to deal with it.”
Nothing undermines a community’s faith in their leadership faster than things like impropriety and self-dealing amongst the board/management team, or even the implication that these things might be going on.
Living in close proximity to others, along with a sense of loss of control, gives rise to a whole host of different types of disputes. Adding a conflict of interest problem into the mix can make the situation even more volatile. Common sources of conflicts of interest are directors and management companies who directly or indirectly are connected to companies that the association may currently use or consider hiring.