Governance Control

Directors must not let the manager control

Each association board director is obligated to research issues and reach his or her own conclusions.

By Stephen Glassman, JD and Donie Vanitzian, JD

January 29, 2012

Question:I was elected to the board of directors because owners were fed up with a controlling manager. After election, the manager handed me a “board member tool kit,” which instructs how to join in lock step with other directors and not make waves. It espouses the importance of listening to industry “experts” such as property management companies and attorneys who, it says, know much more than board directors about how to run an association.

Answer: Regardless of who’s responsible for the so-called tool kit, it could be evidence of a board’s illegal delegation of its obligations and duties, and its use should be stopped immediately. Directors are to make decisions after due deliberation and independent investigation, not in accordance with an instructional kit. The independent decision this board must make is whether the manager or management company’s actions interfere with the board’s obligations and should be terminated.

A few simple, uncomplicated pages with director job descriptions and contact telephone numbers is all that many boards need. Include California Corporations Code section 7231, which states, in part, a “director shall perform the duties of a director … in good faith … with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.”

Using good common sense rarely fails any director, whereas an instruction to march in lock step with the majority runs contrary to the law. When a director fails to act reasonably and in a prudent manner, his or her breach of duty subjects owners to damages.

In Lauriedale Associates Ltd. vs. Wilson, California’s courts recognized that a special fiduciary relationship exists between the association and its titleholders, meaning that directors are to act in the best interests of the owners and the association, not the board, not the manager and not the management company, which is just another vendor. A director cannot delegate his or her duties to anyone, and although a majority decision will govern how a board acts, you are not obligated to sit back and do or say nothing. You have a duty to speak honestly at meetings and with owners.

Make your own inquiry into facts pertaining to any vote and share that information with the other directors before voting. In certain circumstances, if you abstain from voting, it results in a “yes” vote and you will be liable for the consequences of that vote, so it is vital that the minutes record your vote accurately.

No law prevents directors from seeking opinions from experts on occasion, but the final decision is the director’s alone. Each director is responsible for reaching an independent, well-reasoned and logical decision without any external interference.

Glassman is an attorney specializing in corporate and business law.

Vanitzian is an arbitrator and a mediator in the Los Angeles city attorney’s Dispute Resolution Program.