Page 12 - CooperatorNews Chicagoland Winter 2022
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The Premier Landscaping Maintenance    Contractor in Chicago’s Western Suburbs  Preserving, Protecting, and Enhancing your communities values.  630-393-7373  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   CONFLICTS...  continued from page 11  “Directors must always   be seeking the best interest   of the association.”                       — Michael C. Kim

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