Wednesday, October 28, 2009

Director conflicts of interest.

The term "conflict of interest" gets thrown around a lot but I often wonder how much is understood about the hurdles a conflict may present and how they can be surmounted.

There is a difference between a true conflict of interest and a public relations problem. A director who owns the landscape company that the board is considering hiring, clearly has a conflict of interest; that does not mean, however, that the board cannot hire that company. It does mean that the conflicted director must disclose the relationship or interest to the board prior to the vote and the approval must be obtained without counting the votes of the interested director.

A separate issue for that director is whether or not it makes sense to do business with one's own community. Even if the director does everything right in terms of disclosing the conflict and abstaining from voting, the resulting contract will still be viewed with a certain amount of suspicion by some members.

At what point is a conflict not really a conflict at all? If that same landscape company is owned by the director's third cousin whom he's never met, is that still a conflict? Typically, a conflict is present when someone is receiving something of value either directly or indirectly as a result of a relationship or an interest and his or her position on the board affords an opportunity to advance that interest.

If you think you have a conflict of interest, you probably do. Disclosing a potential conflict that turns out not to be a conflict after all is not nearly as bad as failing to reveal a relationship or interest that is later discovered to be a true conflict.

Thanks to all of you who logged on today to the Sun Sentinel's live chat on condominium and HOA issues. We were amazed at the number of participants and there were so many fantastic questions that we simply did not have enough time to answer. If any of your unanswered questions can be addressed as a future blog topic, please email me at dberger@kgrlawfirm.com.

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