Good Board Conduct: Knowing Your Obligations and Fiduciary Duties
Serving on a board of directors for an association – a voluntary job – has stringent requirements. The below list identifies for the board of directors their obligations and fiduciary duties to the association. Failure to fulfill these obligations could lead to a lawsuit against the association, the board, and even you personally. The obligations are as follows:
1. Act in the association’s best interests at all times.
Your decisions must be based on what is best for the association as a whole. Making decisions or taking actions that put the interests of yourself, your friends, or your supporters above those of the association or its members is a breach of your fiduciary duty to the association. At times, you will make decisions that benefit you (such imposing a rule that allows pets and you have a dog), however, the decision should be based on the benefit of the ownership of the whole, not your individual agenda. In particular:
- Do not take personal advantage of business opportunities that should benefit the entire community.
- Do not engage in business with the association unless you disclose that fact and get the appropriate approval to do so.
- Do not give preferential treatment to family, friends and supporters, or expect it for yourself from others.
- Do not accept gifts from vendors or others doing business—or seeking to do business—with the association.
2. Do not exceed your authority.
Your powers are identified in Chapter 514B, Hawaii Revised Statutes, the Declaration, the Bylaws and the House Rules. These laws are the limits of your authority. If you do not know whether an action is beyond the scope of your authority, ask the managing agent and/or counsel.
3. Act with care, including seeking advice from experts when appropriate.
When making decisions or taking actions, you must exercise the degree of care that an ordinarily prudent person would under the circumstances. For example, if the board must make a decision involving an issue that no one on the board is an expert on, the board should consult an expert.
4. Refrain from unilateral action.
No director is allowed to have a contract implemented that has not been duly approved by the Board, nor promise anything not approved by the Board to any contractor, supplier, or otherwise. You should not interfere with the duties of management staff or any contractor executing a contract in progress. The communications with contractors should go through one designated Board Member or property manager, or follow the Board protocol.
5. Maintain confidentiality.
Board members shall at all times maintain the confidentiality of all legal, contractual, personnel, and management matters involving the Association. Board members shall also maintain the confidentiality of the personal lives of other Board members, Association members, residents, and management staff. This means that you cannot share association matters with anyone other than the managing agent, board members and counsel.
6. Disclose conflicts of interests.
Maui is a small place and conflicts of interest are likely to arise. You should immediately disclose to the Board any perceived or potential conflict of interest regarding any aspect of the business operations of the Association.
7. Act as a director of a corporation.
Although you are an unpaid volunteer, you are running a corporation that maintains hundreds of thousands of dollars and is responsible for operating extremely valuable assets – peoples’ homes. You must make informed and reasonable decisions, as you are impacting your neighbors’ lives.