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May 2012

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HOA Interests in Conflict



The headlines read, "Politician Denies Conflict of Interest Allegations." What exactly is "conflict of interest" and how can you avoid one? A conflict of interest is "a situation in which a person such as a public official, employee or board member has a personal interest sufficient to influence the objective exercise of official duties." There are three key elements in this definition: 


Personal Interest
Often this means a financial interest, but it could mean providing a special advantage to a spouse or child. Taken alone, there is nothing wrong with pursuing personal interests like changing jobs for more pay or helping your daughter improve her golf game. The problem comes when this personal interest comes into conflict with the second feature of the definition:


Official Duty
By stepping up to a directorship, you acquire obligations to the homeowner association (HOA) and the other owners. These obligations are supposed to trump personal interests.


Influences Objectivity
Conflicts of interest interfere with objective judgment. A major reason people value professionals is that they expect them to be objective. Personal interest that interferes with that objectivity is a matter of legitimate concern. So it is also extremely important to avoid "apparent" and "potential" as well as "actual" conflicts of interests. An "apparent" conflict of interest is one which objectivity is likely to be compromised. A "potential" conflict of interest may develop into an "actual" conflict of interest.


With this in mind, consider five types of conflicts of interest identified by political scientists Ken Kernaghan and John Langford (using homeowner association examples):


As Board President, you arrange to have your unit painted first even though others need it more or you hire your son to do the HOA landscaping work.

Accepting Benefits


You accept an all expense paid trip to Cancun from the HOA's painting contractor. Money kick backs qualify as well.


Influence Peddling


A board member asks for money in exchange for using influence to get a particular vendor's contract approved.


Using HOA Association Property for Personal Use


Usually called "stealing"...taking office supplies and postage or using equipment for a personal project.


Using Confidential Information


A board member discovers a structural dry rot problem that will cost many thousands of dollars per owner to repair. Instead of disclosing the problem, the director quietly resigns and puts his unit up for sale.

How do you determine if you are in a conflict of interest situation? The proof is whether the situation is likely to interfere with your independent judgment as a director. Try the "Trust Test." Ask "Would the owners trust my judgment if they knew I was in this situation?" Trust is at the ethical heart of this issue. Conflicts of interest involve the abuse of trust.

The Trust Test suggests a way of dealing with a conflict of interest called "disclosure." If we disclose what might influence our judgment, others are informed and can be on guard. But disclosure is not enough. Board members are expected to avoid conflicts of interests. So in the case of potential self-dealing, the smart director abstains from participating in the discussion or voting. Since conflict of interest can cloud objectivity, it's often easier to see it in others rather than in one's self. As a precaution, it's wise to speak to a friend or colleague when in doubt.

 "Situational ethics" arise when loyalty is split or there are moral concerns that muddle the decision. "Whistle blowing" is an example of when a director must choose between loyalty to a director (and personal friend) who is embezzling.

 Conflicts of interest can rear their ugly head at any time. Be vigilant and prepared to respond quickly and appropriately.

 Excerpts from an article by Dr. Michael McDonald of the Centre for Applied Ethics.

 Source: Richard Thompson 

The Regenesis Report







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Terra West

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Black Mountain


Chalet Village Resort Condominiums
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St. George, Utah 
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