Given the reality that most people who serve as the volunteer directors of a homeowners or condominium owners association have little or no experience in serving on a corporate board, or in managing a complex business, or dealing with employees and/or a management company, a Code of Conduct can serve as a useful reference tool for directors and a reminder of their duties and responsibilities. A Code of Conduct also provides the rest of an associations board members and management personnel with something to refer to when issues arise concerning a particular board members conduct.
A Code of Conduct for the directors of a homeowners or condominium owners association should include:
- A statement of board and director responsibilities;
- Prohibitions on self-dealing;
- The obligation of directors to maintain the confidentiality of sensitive or privileged communications;
- Standards of deportment in any interactions with the association’s employees or the management company; and
- Remedies available for a director’s violation of the requirements of the Code of Conduct.
Typically, the range of sanctions or disciplinary responses to alleged violations of an associations Code of Conduct begin with a simple reprimand by the board, and progress to a formal resolution of censure, and perhaps removal from office for particularly egregious violations.
A central question for boards to consider is when adopting a Code of Conduct is whether the Code is intended to be advisory in nature, or a statement of principles and requirements that all directors are bound, in good faith, to observe. It is believed to be a better practice for associations to adopt a Code of Conduct for directors that is a binding statement of the principles and requirements for serving as a director, otherwise the Code would have no clear legal significance and issues pertaining to a directors conduct that willfully violates the Code would have no remedies.
If the Code of Conduct is intended to prescribe qualifications for service that could result in removal from office, it must be in effect at the commencement of the director’s term of office. Additionally, if a violation of the Code is intended to constitute a violation of the individuals qualifications to serve as a director, the Associations bylaws should contain consistent language relating to the removal of directors and refer to the board authority to remove a director for a violation of the association Code of Conduct for Directors. The bylaws should also make it clear whether the vacancy that would be created on the board by removal of a director by the remaining directors should be filled by action of the remaining directors, or by a vote of the members of the association.
Following the adoption of a Code of Conduct for directors, associations should require all newly elected directors to sign a copy of the Code in order to have clear evidence that the Code was presented to the director and acknowledged by the director as having been read and understood, along with a pledge by the newly elected director to comply with the Code during the entire period that he or she serves as a director for the association.
When adopting new policies, it is always a good practice to have legal counsel for the association, who is familiar with the applicable state laws and the associations governing documents, oversee the process.
A sample Code of Conduct for Directors and a resolution by an associations board of directors adopting the Code can be viewed via the below links.