A Board Member's Fiduciary Duty

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Have you ever heard someone on TV or radio advertising that they're a special someone because they are a "fiduciary?"  The term has come into full vogue.

 So what is a fiduciary, and why would this ever show up on a blog about HOA management?

Because your HOA board members are required to act as fiduciaries, too!

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A "fiduciary," as defined, is, "A person having duty, as created by his [or her] undertaking, to act primarily for another's benefit in matters connected with such undertaking."*

To boil this down, a fiduciary puts the interests of someone they represent above their own interests and desires.  And yes, directors of homeowner associations are required to exercise a fiduciary duty when conducting the business of the HOA.  It's not just written into Villages North's governing documents, it's a state law.  Read it:

With these three simple clauses, the State of Arizona has required that the directors of any non-profit company comply with this, or face liability.  Villages North falls into that camp.

This concept is pervasive all over the state.  I attended a HOA financial management seminar today at the Mustang Library (and I'm not even on the Board), where counselor Beth Mulcahy reminded everyone in attendance of this.  She's been in practice for 2 decades:  it's a deal.

The fiduciary duty can be summarized in these three duties:

1. The Duty of Care.  HOA board members are required to act with due care.  They must act in good faith for the betterment of the HOA, they must review and apply relevant facts, the must possess sound judgement, and make prudent decisions.
2. The Duty of Loyalty.  HOA board members must act in the best interests of the HOA, above their own perceived interests.  They must avoid conflicts of interest, prevent themselves from personal financial gain, act objectively, and within the authority given them.
3. The Duty of Confidentiality.   Board members must respect the private (and sometimes sensitive) information of Owners.  They must safeguard private documents.  And most importantly, they must continue to do so even after they leave a board.

Villages North has even added to this, and in 2021 passed a Code of Conduct Resolution for board members and owners.  It holds board members accountable for dealing fairly and respectably with owners, not enforcing the governing documents unreasonably or inconsistently (ever gotten a violation letter when someone else didn't?), and reinforces the principles of fiduciary duty.

I made a point of asking the Board to re-affirm this Code of Conduct in the two years I was a director.  In reviewing old meeting minutes, and I haven't seen that happen since then.

 

You should have certain ethical expectations of your board members.  They are not just there to fill a space.  They should not be there for their own self-image.  I take the concept of fiduciary duty seriously.  

 

You should too!