Set ground rules for directors with code of ethics

Written by Shlomo Sharon | 12 September 2017

When a director joins the condo board, it is not uncommon to sense tension between the newcomer and the current members at first. Experience suggests this tension is usually the result of the new board member taking the position of “there is a new sheriff in town,” without even knowing how the board functions and what are the issues.

 

This kind of situation should be resolved as soon as possible in order to avoid conflicts among the board members. Left unaddressed, it may negatively affect the corporation if conflict distracts the board from looking after the affairs of the corporation in the best interest of all unit owners in a timely manner.

To avoid a conflict as much as possible, every board member needs to understand how the board functions. In this regard, it’s important that the new board members, as well as all the current members, acknowledge their role.

Having all board members read and sign a “Directors’ Code of Ethics” document can help. This document should cover the following major items:

1. Honesty and good faith

Require the board members to act honestly and not to violate the trust of owners.

2. Care and due diligence

Ask board members to try to attend all board and owners’ meetings and become familiar with the affairs of the corporation, as well as the declaration, bylaws, rules and regulations, policies and the Condominium Act.

3. Conflict of interest

State that no board member should ever be in a position of conflict with respect to any matter related to the affairs of the corporation. Further, require board members to immediately disclose potential conflicts to the entire board.

4. Confidentiality

Require board members to keep confidential any information discussed and decided upon by the board. Clarify that this information is not to be disclosed to anyone, including partners or spouses. If questions about this arise, have the board member confer with the board.

5. Good conduct

Require board members to act in a professional and business-like manner as well as other attributes of good conduct, such as an open mind, integrity and respect.

6. Support

Require board members to abide by the decision of the majority of the board of directors, even if they disagree. Also acknowledge that board members have the right to express an opinion to owners on non-confidential issues.

7. Defamation

Require the directors to not make any statements that would damage the reputation of the corporation or any owner, resident, director, officer, manager, staff or contractor of the corporation.

8. Minimize conflict

Ask board members to promote the good image of the corporation rather than defame it. It is unacceptable for a board member to put down the other board members. It is important for the sake of the corporation to display unity.

9. Education

Ask board members to enhance their knowledge by doing things such as attending condo seminars and reading trustworthy materials/articles regarding condo matters.

All of these items are geared towards ensuring that board members respect their role in governing their condo corporation. Board members new and old should review Directors’ Codes of Ethics before signing them. The property manager or the corporation’s legal advisor can help walk board members through this document to ensure that they’re all on the same page.

Is the signing of a Directors’ Code of Ethics sufficient? Does this mean that the board members do not have the right to express their opinion if they disagree with other directors? A recent court case showed that once a decision is passed by a majority of directors after debate, no directors should attempt to undermine the decision by disclosing their disagreement to the owners and thus advancing their own agenda.

However, at present, there are no consequences outlined in the Canadian Condominium Institute’s Directors’ Code of Ethics in the event that a director breaches the document. Nor are there consequences outlined in section 37 of the Condominium Act, which requires that a director act honestly and in good faith and to exercise the care, diligence and skill that a reasonable prudent person would exercise in comparable circumstances.

One alternative is to take legal action, which is costly and creates additional bad feelings among the condominium community. It’s important to remember that under section 37 (3) of the act, a director shall not be found liable for a breach of duties if he or she relies on a professional report rather than information which was provided to him/her by someone other than the board or property management.

Boards also have the option of passing a bylaw to permit a majority of the board to remove a director who is found liable for not acting honestly and in good faith. In the absence of such a bylaw, the board could also call an owners’ meeting and try to get the majority of unit owners to approve the removal of the director.

Having all directors sign a Code of Ethics should help prevent this type of conflict. In addition, it’s recommended that new board members take a mini training course within 90 days of being elected to learn about their duties and obligations.