What makes for an effective nonprofit HOA board of directors?

(For the record, I am not a lawyer nor work for a lawyer and I am not providing legal advice or opinion.)

First and foremost, an HOA is  a chartered nonprofit corporation given authority to function as such under the AZ Constitution.   The association’s Governing Documents, an agreement between the HOA and the members, gives the HOA the authority and powers to function as the governing body of the subdivision.

As you are well aware, both nonprofit corporation law and the Governing Documents place the ultimate authority and responsibility for managing the HOA – in the true meaning of “managing” and not CAM — in the board of directors (BOD).  CAM keeps the HOA functioning smoothly delivering the services and providing for “groundskeeping.”  In order for the HOA to accomplish its mission and goals, which provide the necessary guidance and direction for performance, it is the BOD that must decide 2 important questions: What is our purpose?  What should it be?

What then makes for an effective BOD? To start at the beginning and get right to the point, my emphasis at this important juncture (Managing the Nonprofit Organization, Peter F. Drucker, p. 171-172, 1990),

“The board needs to know that it owns the organization. But it owns an organization not for its own sake — as a board — but for the sake of the mission which that  organization is to perform.”

“If you find that the board has become inflexible, you have to look for ways of renewing the board with fresh appointments. The more power is concentrated in a few people on a board, the more likely the situation will turn unhealthy.”

And this is where the BOD has failed the members!

As pointed out in earlier posts, “mgmt case study #1”, SCG’s continues to widely publish its nonsensical vision and mission statements providing no guidelines to act or of any value to measure effective performance. What we have witnessed is a BOD deciding on its own where to go and what to do, cleverly masked as fulfilling the wishes and desires of the members.  In actuality, all those meet the board, chats, Q &As, etc. allow for a presentation of grievances without binding the BOD to action.

There is no provision to require the BOD to hold a vote on a member’s proposed amendment to the governing documents as permitted by state law with respect to removing a director or all directors.  Or to nullify an act of the BOD.

Drucker continues with, “Ducking controversy or minimizing difficulty, snowing people with reports that are not realistic either about the quality of the programs . . . or whatever . . . that’s terrible leadership”

It’s well beyond time for a necessary change in attitude and culture before SCG descends into chaos. Adoption of a new approach, as recommended in A Plan toward Restructuring the HOA Model of Governance is needed, today!

HOAs against protected member speech on social media

In contrast to the authoritative evidence supporting free speech for HOA members criticizing their BODs, the Tinnelly Law firm blog states up front in big letters, “HOA LAWYER BLOG.”  As for the content, the following quote sums up the view of the Tinnellys.

“The lack of regulation on social media communications can cause neighborhood tensions and smear the reputation of a community, causing a negative effect on property values.  This has led many homeowners associations to develop protocols and guidelines with regard to social media. “

(Some research shows Tinnelly is solid CAI with the owners, Richard and Stephen Tinnelly as members, as well as Director Acosta and article attribution to lawyer Kim.)

Read the full 4-page paper at social media free speech

Effective HOA board governance

This commentary follows up on my plan to restructure HOA governance[1] that first requires addressing the attitudes and views of BODs, the members, and the public in general.  The conditioning and indoctrination by the biased views of the national pro-HOA special interest entity must be de-conditioned by a program of reorientation.

  Once again I provide valuable information on the proper functioning of HOA boards in serving their “constituents,” their members.

The management[2] of a country, a state, or a local government, including the private HOA association, is commonly known as politics.  Politics is:[3]

“the practice and theory of influencing other people on a civic or individual level. More narrowly, it refers to achieving and exercising positions of governance — organized control over a human community, particularly a state.

“exercised on a wide range of social levels, from clans and tribes of traditional societies, through modern local governments, companies and institutions up to sovereign states.

“A political system is a framework which defines acceptable political methods within a given society.”

Managing a government disguised as a nonprofit association has its unique requirements and demands that, for the most part, have been ignored.  The commonly found guidelines from the national pro-HOA lobbying entity speak to an authoritarian government with member interests and concerns being secondary to the survival of the association. It’s an unacceptable deviation from the intents and purposes of our constitutional government.[4]

First, let me address the requirements for the sound management of a nonprofit association. Drucker[5] focuses on the overall, broad purposes and responsibilities of the board of directors (BOD) or board of trustees. 

The general term “nonprofit” does not apply to HOAs because it is not a business nor a public government, but “government controls.” The reality of the HOA association is that it controls as does a public government.

Drucker asks, what is the mission of the nonprofit?  A mission statement has to focus on “what the nonprofit really tries to do.”  It cannot be “a kind of hero sandwich of good intentions.” Strategies “convert intentions into action.”

Most HOAs, especially the smaller HOAs, do not have a sound strategy that addresses their mission, goals, and values. But the HOA has an explicit mission and purpose as set forth in the CC&Rs[6] and need to be revisited and made consisted with Drucker and Batts (see below).

Second, in an excellent book on the need for director orientation,[7] the author feels board orientation is lacking and instituting a guideline will improve the nonprofit’s mission and goals. In his succinct book, as applied to HOAs, Batt’s makes the following important points:

Key areas of board action are “strategy, oversight, and policy.”  In keeping with Drucker, “boards and board members should not micromanage the affairs” of the HOA. 

The BOD has “full and final authority” over the HOA association; they are “not merely advisors” to the manager, other wisely known as the CAM. It’s regrettable that all too often the BOD abdicates to the manager and/or attorney who often are members of the same business trade group advancing their own self-agendas.

There is “no individual authority” of a board member to act and the president can only act based upon the authority set forth in the governing documents. Most presidents act, especially in the small HOAs,  without board approval.

There is  a “duty of obedience” to the laws and governing documents that all too often is ignored by not only rogue BODs, but by BODs who falsely believe to do so is in the best interests of the HOA.

Notes

^[1] George K. Staropoli, A Plan Toward Restructuring the HOA Model of Governance, StarMan Press, 2020.

[2] Peter F. Drucker, “Management  is the application of a set of principles relating to the functions of planning, organizing, directing and controlling an organization to effectively achieve organizational goals,” The Practice of Management, Harper Row, 1954.

[3] “Politics,” Wikipedia.

[4] See Roger L. Kemp, “Forms of Governance,” Managing America’s Cities: A Handbook for Local Government Productivity, McFarland & Co., (2007).

[5] Supra, n. 1.

[6] See  “Restructuring HOAs – intents and purposes,”  supra n.1.

[7] Michael E. Batts, Board Member Orientation, Accountability Press, 2011. It’s a short, to the point, and  easy to read paperback.  Batts has over 25 years on nonprofit boards and has served on several Washington panels.

How authoritarianism operates in an HOA

The HOA legal structure and scheme is basically authoritarian in nature: strong central power, limited political freedoms, no accountability, and under the rule of man, not law. 

CCHAL[1] argues be careful of   “’rules’ put in place in the name of ‘health and safety.’  Yes, some – but not all – may be necessary, but the pandemic creates an environment for putting in place some repressive rules too.” And reading the Golden Rain proposed rules, yes, in my opinion also, they are repressive.

 1. Pay a $500 deposit to get the ball rolling;

2. Apply for a permit at least three days before a planned protest;

3. Pick a maximum one-hour time slot during the day for the demonstration;

4. Ensure all participants social distance and stay out of roadways;

5. Plan on paying for any damage and cleanup costs;

6. Host protests only in an area bounded by three roads.

Proposed only rule 4 can be argued as in the interest of members health, safety and welfare as the GR CEO stated to the East Bay Times “This comes back to safety.”[2]  Rule 5 comes across as intimidation as this topic is already contained within the governing documents, and assumes violence will occur. According to the article, indicating another overly broad sweep at restrictions, GR’s intent was directed at dealing with protestors, as occurred in May in regard to BLM, yet the rules apply to any gathering of members. Rules 3 and 6 appear to be arbitrary restraint on free speech.

Rule 1 is punitive and is in violation of California law enacted in 2017, SB 407,[3] as pointed out by CCHAL. In general, the GR board/trustees seem to have ignored the law and cannot say that they didn’t know the law.

According to East Bay, “Golden Rain CEO Tim O’Keefe told the committee that the Davis Sterling Act doesn’t apply here because the foundation is a private organization, not a ‘common interest’ area like a homeowner’s association.”  That’s an unbelievable and irresponsible falsehood by the GF CEO!  In the 2017 directly involving Golden Rain, the appellate court held,

“The court found that GRF is an ‘association’ subject to the Davis-Stirling Common Interest Development Act (Civ. Code, § 1350 et seq.) (the Davis-Stirling Act). fn. 1 We agree, and affirm.”  (Golden Rain Foundation v. Carol Franz, 163 Cal.App.4th 1141 (2008). (Plaintiffs were Leisure World members).

HOA members should understand that the common defense of BODs is “upon advice of attorney,” and in this case we hear that “the proposed rules had been reviewed by the organization’s attorney.”[4]  Are you aware of attorney rules of professional conduct?  You would be surprised what they have been getting away with as I inform readers in my post.[5]

Two things stand out in my mind, from years of studying and analyzing BOD motivations and defenses, many times supported by the HOA attorney’s opinion: these HOA boards/trustees are rogue BODs functioning with complete disregard of the laws.  HOA members BEWARE of your BOD and the opinions of its attorney!

Relevant sections of SB 407 include:

4515.  (a) It is the intent of the Legislature to ensure that members and residents of common interest developments have the ability to exercise their rights under law to peacefully assemble and freely communicate with one another and with others with respect to common interest development living or for social, political, or educational purposes.

(c) A member or resident of a common interest development shall not be required to pay a fee, make a deposit, obtain liability insurance, or pay the premium or deductible on the association’s insurance policy, in order to use a common area . . . .

(d) A member or resident of a common interest development . . . may bring a civil or small claims court action to enjoin the enforcement of a governing document.  The court may assess a civil penalty of not more than five hundred dollars ($500) for each violation.

There is no legitimate justification for GF’s proposed rule changes except to assert its power and control over the members. In general, including GR, HOA boards are authoritarian and supported by too many members who are authoritarian followers.  In order to successfully deal with the unjust powers and authority of BODs,  the legislators, the public, and HOA members in particular  need to read and understand the social and political culture of HOAs. Visit my posts on authoritarianism in HOA-Land.[6]

References

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[1] Marjorie Murray, email letter of July 26, 2020,  Center for California Homeowner Association Law (info@calhomelaw.org).

[2] Annie Sciacca, “Want to protest at Rossmoor? Schedule it during business hours,” East Bay Times, July 10, 2020.  

[3] Chapter 236, California Revised Code (2017), SB 407. http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB407

[4] Id.

[5] See my post,  A lesson in professional conduct for HOA attorneys (2020).

[6] George K. Staropoli, HOAs undermine principles of democratic America (2020); Authoritarianism in the HOA-Land Nation (2020).

 

Rigged HOA elections create a false democracy

Long ago in 1994 Professor McKenzie wrote, “HOAs currently engage in many activities that would be prohibited if they were viewed by the courts as the equivalent of local governments.”[i]  There is no better example of HOA independence than prejudiced HOA election procedures.  In 2013 I wrote,

“HOA members have been repeatedly told that they can change things in their HOA by voting for board members and even by changing the governing documents; that HOAs are democratic because members can vote to make these changes happen. . . . Without fair elections procedures that contain enforcement against HOA board wrongful acts, including retaliatory acts and intimidation by the board, voting in an HOA is a mockery of democracy.[ii]

CAI, on the other hand, maintains in its Public Policy statement that,

“Community associations are one of the most representative and responsive forms of democracy in America today. Residents of a community freely elect neighbors to serve on the board of directors of the community.[iii]“

Let me give a prime example of far these pro-HOA procedures can go to deny members a fair and just voting process, one that subtly favors the HOA Board.  In this large scale HOA in Arizona with over 9,000 homes and some $20 million in revenues, amendments to the CC&RS and bylaws are needed to be approved by 67% of the membership.

The governing documents have an unusual, non-standard voting procedure that allows for “consent” by the members, in addition to an actual vote, which constituts a vote and are counted in the approval requirement. Members just have to fill out a form and submit it.  Surprisingly, in contrast to the public voting procedures, this procedure contains

• no mention of a “cutoff date,” the date that the Consent Form needed to be received by the election committee. A start date, date form first distributed, is mentioned and currently is 5 months ago.
• no opportunity for a “no” vote, just the wording that not submitting the form would be seen as choosing “ not to consenting to the documents.”
• A biased, pro-HOA “advertising” on the form itself without any mention of opposing views. “ Moving Forward to the Future.” Other advocacy by the Board is prominent.
• An annual membership meeting scheduled some 6 months after the ability to submit a Consent Form, but the agenda was silent on actual voting for these amendments instead of submitting a Consent Form, or announcing the results of the “vote.”

This method of voting by the HOA would not pass muster in the public realm.  So much for democracy in action. This election process is rigged in favor of approval, is unjust and negates any choice by the members who may wish to submit a NO vote.  It’s a no-lose approach for the Board since the Form does not allow for NO votes!  It would never fly under the public realm’s fair elections requirements.

In Wittenburg v. Beachwalk HOA,[iv] the California appellate court held that a board is engaged in advocacy when it supported and  urged an approval vote in its materials and communications. The Court’s view was that opposing parties must be given equal opportunity to advocate against the proposition, which is being denied in the above instance, by not allowing a no vote and the open-ended voting process of form submissions with only YES votes.

The Court held that the relevant statute was in the public interest and it sought to

“provide substantial new voting protections” to members of homeowner associations designed to “guarantee that basic democratic principles are in place during elections,” which had previously been “contaminated by manipulation, oppression and intimidation of members, as well as outright fraud.”[v]

Yet, overwhelmingly, according to the CAI surveys, HOA members standby their HOA even though it operates outside of constitutional protections and the laws of the land.  They seem to believe that, like a King, their board can do  no wrong; that, contrary to James Madison’s view that “If angels were to gvern men, neither internal  nor external controls on government would be necessary,” their board must consist of angels.

The HOA legal scheme as set forth in the governing documents and pro-HOA state laws, does not contain a fundamental principle of our constitutional system of government:  checks and balances. The HOA board basically has, for all practical purposes, a free hand to function as an authoritarian government.

By: George K. Staropoli

 

References

[i] Evan McKenzie, Privatopia: Homeowners Associations and the Rise of Residential Private Governments, Yale Univ. Press, 1994.

[ii] “Democratic Elections No. 5,” George K. Staropoli, HOA Common Sense: rejecting private government.

[iii] Section 8 in An Introduction to Community Association Living (2006).

[iv] Wittenburg v. Beachwalk HOA,  217 Cal.App.4th 654 (2013).

[v] Id.