As many Associations enter budget season, it’s a good time to reflect on a phrase that is thrown around, but seldom understood and all too often not taken seriously enough – Fiduciary Duty. Be it the approval of a budget, the granting of a homeowner request or the selection of a contractor, as an elected Board member and representative of your community association, it is your legal obligation. So, what does it mean?
According to Webster Dictionary, Fiduciary Duty is “the legal duty of a fiduciary to act in the best interest of the beneficiary.” Yeah, OK. That’s well enough. In the context of your role as a Board member, however, we can dig a little deeper.
As a governing body, the Board of Directors has three primary functions:
- A policy making body (creating Rules)
- An approval body (approving a budget, managing architectural controls or contracting services)
- An oversight body (reviewing financials or evaluating vendor services)
According to our industry resource, Community Association Institute, as an individual Board member you work to fulfill these functions and meet your all-important fiduciary obligations under two doctrines.
- Duty of Care – making reasonable and informed decisions; regularly attending and participating in Board meetings; exercising independent judgement; relying on experts, but still exercising good business judgement; and acting in the best interest of the Association as a whole.
- Duty of Loyalty – putting aside all personal interests; eliminating conflicts of interests; and exercising power in good faith to benefit the best interests of the community.
In summary, to ensure you are fulfilling your Fiduciary Duty – remember your primary functions as a collective Board and individual Board member, and ensure you are guided by the principles outlined in Duty of Care and Duty of Loyalty. To be even more succinct – work smart and don’t be selfish!