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!

HOA management (BOD) is more than property management (CAM)

I continue to be baffled as to how real estate attorneys and property managers, unlicensed in most states, have been allowed by state legislatures to advise and dictate to HOA boards (BOD) on how to govern a community by an Association that  is very similar to a local government body.  Governing a community is more than managing a property in a subdivision.   

 Many other experts and authorities have attempted to explain this complex concept of “what is management”  — including the renowned Peter F. Drucker. (The Practice of Management and Management). My take is a simple, down-to-earth explanation as part of “Reorienting the BOD and its followers,” the first step in A Plan Toward the Restructuring the HOA Model of Governance. 

Management (noun) – Management is an entity — an organization whether a business, a nonprofit, an HOA, a charity, a club, a group, or a person. It applies to any person, or organization, or entity at all levels with respect to its level of authority and responsibilities — CEO, president, division director, department manager, supervisor, or committee chair. The difference in organizational type is related to their purpose and mission. Businesses  are to make a profit for their stockholders. Nonprofit membership organizations, like HOAs,  have a mission or goal as  laid out by the founders and initial directors that is designed to attract and maintain members — for $$$$$  — who identify with the mission.

Management (function) —  Management is a practice (as first described by Drucker in 1973). It’s an actual application by practitioners/managers — whatever the designation: manager, governor, administrator, board of directors, trustee, etc. — of the set of beliefs, principles, and values held by the organization. The quality and success of the management function is measured by its performance in attaining its mission, objectives, and goals. They may set by its constitution, charter, bylaws, Declaration of CC&Rs, or by department/section/committee descriptions.

Executive level management — at the state legislature through its lawmaking authority or at HOA board of directors level — has final and total responsibility for the successful performance of the organization and sets the mission, goals, conduct and operation of the entity. It has the duty to 1) set policy, plans, rules, regulations, controls, procedures, etc., and 2) organize and structure the entity. All in keeping with its powers under the legal documents and laws granting it the authority to so act.

The very first task for the BOD is to determine just what is the purpose of the entity, and what should it be. Once this reason for being has been determined and stated in terms that permit the evaluation of performance, a valid mission statement can be issued.  From the mission statement a single goal  or set of goals can be issued that permit a measurement of the entity’s performance.  Value statements can be adopted to guide the BOD and members with respect to acceptable means and methods for achieving the goals.

A mission  statement has to be operational; otherwise it’s just good intentions. A mission statement has to focus on what the institution really tries to do.” (Managing the Nonprofit Organization, Peter Drucker, 1990).

The mission statement by the HOA Management Case Study #1 subject, SCG for example, speaks  in the present tense using the word “IS,” making it more of a propaganda statement — it already exists or has already been accomplished — rather than a condition, an ideal,  to be achieved.  Consequently, SCG’s mission serves no value for the establishment of goals that can measure performance, leaving the HOA essentially without any direction.

* * * *

Cautionary note:

Management when it fails to abide by the authorizing documents and marketing materials that appeal to the wants, desires, and wishes of the members will result in members exiting  the organization, taking their future member donations, dues, fees, etc. with them. With businesses, except small, closely held businesses, exiting is a simple task of selling one’s stock and buying another.

HOAs are more like a small, closely held businesses where exiting is not a simple task primarily due to the need to find some other private buyer (investor) willing to ignore why you are leaving. The status and situation of members can be viewed as a form of indentured servitude: you can’t leave unless you have  money to leave (like having paid off your servitude obligation), or you die.

Consequently, management in membership nonprofit organizations, like local governments, must keep the members happy.  Any changes or  modifications to the purpose, or mission, or goals of the organization must consider  the effect on the members.  And must follow the law and the controlling documents – the CC&Rs in HOAs.  The BOD is not a free agent to do as  it pleases as if the HOA were its own private club.

Publications on HOA constitutionality and legal structure

Peter F. Drucker was an internationally renowned management consultant in the 50s and author of the management “bible,” The Practice of Management. “A classic since its publication in 1954, The Practice of Management was the first book to look at management as a whole and being a manager as a separate responsibility.” Bob Woodward you should know. 

View publications here: Amazon.com: George K Staropoli: Books, Biography, Blog, Audiobooks, Kindle

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.

Reorienting the HOA board and its followers

Mentoring: Reorienting HOA board – mission

Review of StarMan Group Mission

    • to establish the climate and culture of the HOA enabling the restoration of the lost constitutional principles of democratic government — individual rights, justice and fair play — for its members within the confines of a private contractual government, and
    • to remove the very strong external influences of the special interest vendors and lobbyists who are the primary causes of this deviation from the general societal norms and values.

In earlier papers I described the Cultural Dynamics[1] of and the domination of HOA-Land[2] by industry “stakeholders” who claim a special interest in your HOA controlled home. I maintained that the Community Associations Institute (CAI) dominates and heavily influences the decisions and functioning of boards (BODs) through its strong influence on state legislatures that adopt biased and unjust laws detrimental to the members. CAI’s effect on the BOD, the members — especially the loyal “followers” — and the public in general stems from 45 years of indoctrination by means of the CAI School of HOA Governance.[3]

This series, “Restructuring the HOA Model of Governance,”[4] offers a plan, conforming to the principles of organizational development,[5] to return HOA-Land to democratic constitutional government and cease being a protected outlaw government functioning outside the Constitution and laws of the land. Having introduced my positions on the role of the BOD in its policymaking capacity and the heavy hand of CAI, I now address the need to reorient the BOD with its huge authoritarian[6] powers that would not be allowed under municipal governments.

“HOAs currently engage in many activities that would be prohibited if they were viewed by the courts as the equivalent of local governments.”[7]

I wrote, “The policy makers have failed to understand that the HOA CC&Rs have crossed over the line between purely property restrictions to establishing unregulated and authoritarian private governments.”

BOD reorientation

Addressing nonprofit organizations, eminent management consultant Peter F. Drucker wrote: “The first job of the leader is to think through and define the mission of the institution. . . . One of the most common mistakes is to make the statement [a series] of good intentions.[8] It has to be operational, otherwise it’s just good intentions. Using my prior example of a large-scale active adult HOA in Arizona, I contrast the mission, goal and values statements that illustrate an effective and productive community.

HOA vision statement: [HOA] is the premier active, age−restricted community in Arizona.

Restructured Vision Statement: To become the premier active, age-restricted community in Arizona.

HOA mission statement: [HOA] provides residents with a high−value community, with resort−style amenities, in which every person can choose to participate and live well, based on their needs and desires. This high standard will maximize our investments and promote our well−being in an active close−knit community.

Restructured Mission Statement: To provide residents with a high-value community with resort-style amenities to maximize our investments.

HOA values statement: In support of our Mission Statement, we hold to these values:

      • We foster relationships built on respect, trust, and effective communications.
      • We listen to understand.
      • We are open−minded, collaborative, and always look for ways to improve our community.
      • We believe in life−long learning and a desire for active well−
      • We are a forward−looking, fiscally−sound community
      • We encourage an environment of empowerment and personal responsibility.

Restructured Values: We believe in a community culture having high standards and principles of conduct and behavior.

These HOA views and attitudes came quite as a surprise considering that it is a $20,000,000 revenue operation, and one would expect it to do better than that. My impression is that they are a prime example of the BOD’s mistake of using lofty, high and mighty statements lacking focus and aimed to give the appearance of good intentions, as Drucker explained above. These HOA statements read very similar to CAI’s propaganda and its advice and training offered by its School of HOA Governance.

The time is well passed for the BOD to drop CAI as an advisor, as CAM and as its HOA attorney. It’s well passed the time for BOD’s to learn about the effective and healthy council-manager form of local government.[9] Not that public government is perfect but it is far better in upholding the principles of democratic government lost under the adhesive CC&Rs “constitution.”

(Part 2 of the Reorienting HOA BOD will discuss BOD failure to attract member commitment as volunteers).

Notes

[1] George K. Staropoli, HOA-Land Nation Within America, Part 1, “The Cultural Dynamics of HOA-Land” (2019) and High RWA followers can be found in HOA members. (2019).

[2]HOA-Land is a collection of fragmented independent principalities within America, known in general as HOAs, that are separate local private governments not subject to the constitution, and that collectively constitute a nation within the United States”, Defining HOA-LAND: what it is (2017).

[3] George K. Staropoli, Restructuring HOAs: “CAI School and member benefits” pt. 2 (2020) and CAI School faculty advice – managing HOAs (2020).

[4] George K. Staropoli, Restructuring the HOA model,(2019).

[5] See in general, “Organizational Development,” George K. Staropoli, (2019).

[6] Supra n. 1.

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

[8] Peter F. Drucker, Managing the Nonprofit Organization: Principles and Practices, HarperCollins (1990).

[9] See in general, Roger L. Kemp, “Forms of Governance,” Managing America’s Cities: A Handbook for Local Government Productivity, McFarland & Co., (2007). They are: Strong Mayor, Council-Manager, Town Meeting (direct or representative democracy), and Commission.