Page 12 - CooperatorNews Chicagoland Winter 2022

The Premier Landscaping Maintenance Contractor in Chicago’s Western Suburbs Preserving, Protecting, and Enhancing your communities values. 630-393-7373 pezzalandscape.net pezzalandscape@sbcglobal.net 12 COOPERATORNEWS CHICAGOLAND —WINTER 2022 CHICAGO.COOPERATORNEWS.COM should definitely be on the alert for actual sions as well.” conflicts, the pros also stress that even the appearance or perception of conflict can eventually disclosed or discovered, can be as toxic as the real thing. Hakim says be one of the biggest bones of contention that while it may be perfectly okay to hire between residents and their board-man- a board member’s second cousin to re-tile agement teams, because it goes hand in the lobby if that board member recuses hand with both a building’s finances, and him- or herself from the decision-making the trust that residents place in the people process around the project, “the optics of- ten do not play well with concerned share- holders and unit owners—so we often sug- gest disclosing that relationship prior to a tions about his or her ethics and disrupt vote to approve the company.” “In Illinois, an ownership interest by a manager, director, or a family member is flicts of interest by directors goes to the fi- automatically a ‘problem,’” stresses Kim. duciary duty of the directors—particularly “This comes up more in smaller associa- tions where it’s hard to find contractors be seeking the best interest of the associa- who want small jobs. In addition, man- agement companies often have vendor taint the relationship, they are in danger of subsidiaries. There are situations where repercussions, including removal from the this may be a problem, too. It’s even more board of directors. In Illinois, these mat- problematic when a company seeks to ters are usually put out to the ownership steer business to a particular vendor to get for a vote. If you don’t have that option, a direct remuner- ation. Actions of this type must be fully disclosed.” Indeed, legal pros agree that a policy of full transpar- ency and disclo- sure around these contracts not only reduces the likelihood of self-dealing, but ficult when the conflict of interest is with also goes a long way toward maintaining the managing agent,” Hakim continues. an atmosphere of trust and accountabil- ity between boards and the residents they in the operation of the building and are serve. Truth or Consequences In addition to being thrown off the a management company to use preferred board, “if a board member breaches their vendors or contractors to help obtain the fiduciary duty, they can be sued for it,” says best prices for the building. However, un- Brooks. “You must disclose any potential disclosed interests and kickbacks will cer- conflict. Don’t hide it—it will smell bad, tainly not sit well with the building, and and it will eventually blow up in your face. are likely illegal given the agency/principal Remember that when everything looks relationship that exists. To avoid any gray good and there’s a job well done, no one areas, all new management agreements cares. It’s when it goes the other way—and should include a clause prohibiting con- particularly when there is already unrest flicts of interest, kickbacks, and gratuities. in a community—that it can be a political Managing agents should have the build- problem.” Brooks says that conflicts can also be- come an issue between boards and man- agement companies. “It usually happens agement of their building or HOA will al- when a management company owns an- other company that does, say, mainte- nance work, and they refer the self-owned boards, owners, and management requires subsidiary \[for a project in a client com- munity\] without disclosing that relation- ship to the community. Inside dealing al- ways looks bad. “Conversely,” Brooks continues, “boards often don’t understand that most outside vendors will not bid on a $150 job. If no one else will do it, the management company will do it, but may not disclose it. For a board, the fact that they couldn’t find anyone else to do the job becomes second- ary to the fact the manager didn’t disclose it. This often happens with brokerage divi- Undisclosed conflicts of interest, when running the building. “It can easily de- stroy the trust that the board member has earned,” says Hakim. “It can raise ques- the daily operations of the board.” “The potential negative result of con- loyalty,” adds Kim. “Directors must always tion. If they permit a conflict of interest to recourse is fairly limited and may in- volve legal action. That’s expensive. As mentioned previ- ously, the alternative is a political solution, you can remove a di- rector.” “It’s a bit more dif- “Managing agents are entrusted to assist expected to do so with the building’s best interest in mind. It’s not uncommon for ing’s best interest at all times.” The expectation from shareholders and unit owners is that the board and man- ways be thinking of the property and its residents first. Maintaining trust between full disclosure, which can quiet concerns when a board member or management company offers what might appear like an inside deal. As always, transparency and accountability are key. n AJ Sidransky is a staff writer/reporter for CooperatorNews, and a published novelist. He can be reached at alan@yrinc.com. CONFLICTS... continued from page 11 “Directors must always be seeking the best interest of the association.” — Michael C. Kim