Ethics and Conflicts of Interest

By Betsy Barbieux, CAM, CFCAM, CMCA / Published July 2019

In recent years, there seems to have been a lot of new legislation (probably driven by the 35-page Final Report of the Miami-Dade County Grand Jury, 2016) regarding suspicious behaviors and conflicts of interest of condominium board members and management companies. The Report noted issues of owners’ access to the official records of the association, conflicts of interest by board members and management companies, election procedures, and recalls. It could be said that some of these issues were ethical in nature, and some have apparently been deemed criminal (not civil). In short, there were many areas in which the Report found that board members and managers acted without integrity and violated their fiduciary duty to the association.

     Granted, there are some board members and managers who do trample on their fiduciary responsibilities, ignore conflicts of interest, and commit harmful and—sometimes—criminal acts against those they purport to serve; but most do not. Rather, they are confronted regularly with ethical decisions, which can be complicated.

     The board members and managers have a duty to the members of the association to perform their duties in an ethical manner and not to succumb to benefiting from conflicts of interest and taking advantage of their positions. Board members and managers have both a duty of care and a duty of loyalty.

    Most of us like to think of ourselves as ethical, both in personal practice and in business. We also like to believe we act with integrity. It seems being ethical and having integrity are often thought of together. You think of them as doing what is right, or being consistent with your actions both publicly and privately, or keeping your promises, or being true to yourself.

     Webster’s Dictionary defines ethics as “the science of morality and ideal conduct,” and ethical as “a set of moral principles and conforming to a moral standard; honorable.” Ethics could be described as knowing the difference between what you have the right to do and what is right to do. Integrity is defined as “the quality of possessing and steadfastly adhering to high moral principles or professional standards.”

     Business or organizational ethics addresses the honorable, moral, and professional standards of a company. Ethics for community association management would be concerned with the structures, systems, practices, and protocols necessary for management to inspire, encourage, support, and require its owners to abide by its values and rules in order to achieve their shared purposes. Standards for managers are spelled out in Section 468.4334, Florida Statutes, and Rule 61E14-2.001, Florida Administrative Code.

     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
• 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 who 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 not manifest themselves as actual conflicts of interests as long as everyone understands that the potential exists.

     However, recent legislation has muddied the waters on how to resolve a potential conflict of interest by enacting procedures that contradict each other.

     Most directors, officers, and managers do not deliberately put themselves at risk of conflicts of interest. However, directors and officers often do not understand what a conflict of interest is or do not interpret what they are doing as a conflict.

     Common conflicts of interest include:

• Kickbacks

      Director or officer receives remuneration from a vendor for influencing the board to select a particular vendor or contractor.

• Separate interest

      Director or officer has an interest in a vendor the association uses.

• Self-dealing

      Director or officer uses the association’s assets, or his position within the association, for personal gain.

• Secret profit

      Director or officer benefits from a third party with whom the association is doing business and in which he has an undeclared interest. 

• Bid rigging

      Director or officer informs a favored vendor of other bids.

• Third-party clients

      Director or officer represents the association and another party, who is doing business with or has a conflict with the association.

     While Section 617.0830, Florida Statutes, does not actually use the words “fiduciary duty or ethical,” it certainly seems to describe it by saying, in part, that directors serve “in good faith,” “with the care an ordinarily prudent person in a like position would exercise under similar circumstances,” and “in a manner he or she reasonably believes to be in the best interests of the corporation.”

     Section 718.111(1), Florida Statutes, uses these specific words and phrases to describe inappropriate behaviors of directors and their agents:

• if such officer, director, or agent breached or failed to perform his or her duties shall be liable for monetary damages
• constitutes a violation of criminal law
• constitutes a transaction from which the officer or director derived an improper personal benefit
• constitutes recklessness or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property
• forgery of a ballot envelope or voting certificate
• theft or embezzlement of funds
• destruction of or the refusal to allow inspection or copying of an official record
• tampering with physical evidence
• obstruction of justice

     For a manager, here are two questions to ask yourself if the issue of a potential conflict of interest arises:

• Is the transaction which results in a benefit to the management company or manager directly or indirectly related to management’s relationship with the community association?
• Will management directly or indirectly receive some benefit from the community association, or a third party, other than the compensation described in the management contract or employment agreement?

     If you answer “yes” to either of these questions, do not proceed; or, check with your attorney!

Betsy Barbieux, CAM, CFCAM, CMCA

Florida CAM Schools

Betsy Barbieux, CAM, CFCAM, CMCA, guides managers, board members, and service providers in handling daily operations of their communities while at the same time dealing with different communication styles, difficult personalities, and conflict. Effective communication and efficient management are her goals. Since 1999, Betsy has educated thousands of managers, directors, and service providers. She is your trainer for life! Betsy is the author of Boardmanship, a columnist in the Florida Community Association Journal, and a member of the Regulatory Council for Community Association Managers. For more information, contact Betsy@FloridaCAMSchools.com, (352) 326-8365, or www.FloridaCAMSchools.com.