CONDOCENTRIC: Where were the Directors? Highlights of Bad Boards

Where were the Directors?  Highlights of Bad Boards

In 1994, the TSX sponsored the committee that published the report “Where Were the Directors?”. As set out in the TSX Company Manual, this report wondered out loud where the stewards of corporate Canada had gone and reflected on how they had failed in their corporate governance duties. These failings sparked reform. My sense is that the condominium industry is ripe for revamping.

From my years of experience participating on Boards of Directors, including a condominium board, and from working for numerous condominium corporations as counsel, I realize that some boards are succeeding and some are failing. Why? The article below outlines some of the behaviours, mindsets and values that hinder boards from being effective. 

2. Failing to Comply with the Law

Boards that fail to enforce the Condominium Act, 1998, the declaration, by-laws and rules in the short and long run cost unit owners money. The Act is the law and is put in place for the protection of unit owners, there is no opting out and practically, section 176 of the Act confirms that the Act applies in spite of any agreement to the contrary. “Do we have to comply with the Reserve Fund Study? Why don’t we save a few dollars and ignore the funding plan”. “Let’s not lien the unit, times are tough for the unit owner.” Some directors, unfortunately, do not always appreciate that the board has a duty to enforce the legal obligations set forth under the Act. Failing to see the impact of myopic decisions potentially leads to economic disaster because after a period of time, the Corporation is too far down the hole to catch up. Corporations can benefit by adhering to laws and having strong policies and corporate governance procedures.

2. Misunderstanding the Agenda:

A condominium corporation is a separate legal corporate entity. The object of the Corporation is to manage the property and assets of the Corporation. The duty of the Corporation is to control, manage and administer the common elements and assets of the Corporation. The board are the stewards of the Corporation and are responsible for directing the corporation in ensuring that the Corporation fulfills its duties under the Condominium Act, 1998. This does not mean micromanaging and doing property management’s role. Some directors would rather ensure the popularity vote by making decisions that make their constituents happy. Leadership requires critical thinking and the making of reasonable decisions that need to be made.

3. Making it Personal and Playing the Politics

Directly or indirectly, condominiums create relationships between people. Often people with diverse mindsets, values, experiences and beliefs, end up living under the one large roof of a condominium corporation – a Global Community on a Micro Scale. So whose values, beliefs or mindsets should trump?  In chaotic corporations, this “war” risks becoming personal. Chaos, distrust and division ensue at the board level sometimes even on racial lines. The reality is that no one’s values, beliefs or mindsets should trump. Board meetings are not about the director, they are about the best interests of the corporation within the statutory framework of the Act. Thus, Boards need to create a point of view, beliefs and mindsets for the Corporation within the framework of the Act. 

4. Being a Bully:

Directors who use force or coercion, physically (we know of one Board that has actually thrown chairs at each other!) and/or psychologically, are to say the least not fulfilling their duties on the board and are in fact creating a risk to Corporation’s well-being. Sources state that bullying is alive and well amongst adults and is more prevalent than discrimination or workplace violence. Bullies have some common characteristics, they like to dominate others and they are generally focused on themselves. They often have poor social skills, and poor social judgment. They lack emotional intelligence, especially in empathy. Boards must get rid of bullies so that business can be property conducted. So how do you stop the bullying? DON”T GIVE IN - GET EMPOWERED: KNOW YOUR RIGHTS AS A DIRECTOR, have an anti-harassment policy and get counsel involved if necessary to either mediate solutions, provide warnings or to work on a court application. Bullying is mentally and physically stressful and negatively impacts the Corporation’s well-being.

5. Failing to Live in the Real World  A.K.A. “Pennywise Pound Foolish”:

I have been stunned when I have heard unit owners tell me they have not have a common expense increase in FIVE years in the City of Toronto. Where has the cost of a litre of gas gone in the last five years? Food? UP, UP, UP. So how can the operational cost of an organization stay unchanged? Often, Board members who do not want to have common expense increases for personal reasons, thereby ensure that the Corporation does not. However, this causes the economic downward spiral for a condominium corporation. One of the hardest roles of a director is looking at the numbers and making sure that the Corporation will operate without a deficit. Practically, no board ever enjoys delivering an increase but it is sometimes better to deliver small doses of increases that at least keep up with the cost of living. This is particularly a concern for me for those in our community who may be on fixed incomes, we must be thoughtful as directors as to the impact of dramatic shifts in common expenses but we still must be realistic. Ask yourself if your Corporation is keeping up with the costs of living.

If you experience any of the foregoing behaviours your board, I strongly recommend a “time out” to come up with ways to counter these behaviours. Facilitating a group discussion around this is not easy and a third party with no vested interest is probably a good choice. The role of a director is hard work and each director has different skills! I commend all of those directors of boards, who roll up their sleeves and immerse themselves in caring about their communities and investments with integrity. Being elected is not where the job ends but it is where it begins. It is not always a glamorous job, the pay is rather low, but the rewards of great community, service, great fiscal health, marketability and a safe living environment can make it easier to sleep at night and all worthwhile.

From The Condo Voice, Vol. 16, No. 4 - Summer 2012

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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