Governance tips for condo directors
By AdvocateDaily.com Staff
Condominium directors on the board could benefit from additional training in governance issues beyond what mandatory education courses provide, Toronto condominium lawyer Warren Kleiner tells AdvocateDaily.com.
The Condominium Act 1998 requires that all directors appointed, elected, or re-elected on or after Nov. 1, 2017 complete a training program provided by the Condominium Authority of Ontario (CAO) within six months to assist them in understanding their obligations and best practices for good governance, according to the CAO website.
“That gives directors a better understanding of how condos work, but there are often other issues we are asked to comment on when the board is having problems,” says Kleiner, a partner with Shibley Righton LLP in Toronto.
The Condominium Director Training Program, provided by the CAO, consists of 21 short modules, one of which specifically addresses “The Role of Directors and Their Key Responsibilities.” It covers the statutory obligations and corporate governance principles that guide directors, but Kleiner has some extra tips for prospective and current board members.
“Some people get on the board with the intent of putting forward a particular platform. A big problem I often see is when one board member tries to make a unilateral decision,” he says.
“When it comes to the authority of directors, it’s really important to understand that all decisions have to be made at a duly constituted board meeting where there is a quorum. A director does not have the authority to unilaterally make a decision without board approval.”
Kleiner says this problem occurs when directors have a preconceived view of what they want to do.
“All issues must be approached with an open mind to make the best decision on behalf of the corporation,” he says. “Once the decision is made, all the directors should support the decision of the majority.”
Rogue directors with an agenda will often do everything they can to implement their own plan, including taking steps to thwart the board’s decisions, Kleiner says.
“They know the action is contrary to the position of the board, but they work against the board, and say they are doing it in their capacity as a unitholder. Once you’re a director, you are obligated to act in the interests of the corporation and unit owners as a whole.”
Kleiner reminds his clients that the standard of care under the Condominium Act imposes a duty to act honestly and in good faith.
“Directors are protected for actions taken as board members, but they will be open to personal liability if they don’t act honestly and in good faith,” he says.
There is also a duty for directors to be prepared with respect to their responsibilities, Kleiner adds.
“You should review the minutes and management reports, and come to the board meeting prepared to make decisions and discuss topics,” he says. “Otherwise it is a waste of time, and the board might make a bad decision.”
Kleiner says there’s also a requirement that board members rely on the advice of experts.
“Boards can be penny wise and pound foolish,” he says. “They should get proper advice before making big decisions. For example, if they are starting a big renovation contract without appropriate advice, they might save $5,000 in legal fees on a million-dollar contract. It doesn’t make sense. Board members are everyday people. We don’t expect them to be experts.”
Another area covered by the mandatory education is around strategies to maintain healthy relationships with owners and residents, but Kleiner thinks this issue requires extra effort by the board.
“The biggest concern from owners is communication. No matter how well the board communicates, it can always be improved on,” he says.
Kleiner emphasizes the need to keep owners involved both at the time of a decision and beforehand.
“Owners often get upset, not about the actual decision, but about the lack of communication while making the decision. Why not solicit input beforehand? The benefit from owner information sessions cannot be overstated.”
Kleiner suggests that a helpful tool for current board members is an ongoing issues list that details how issues were resolved.
“If the same issue comes up 10 years later, and no one from back then is still on the board, newer directors can look back and see what issues came up, how the board dealt with them, and what the results were. It is a living document that provides continuity.”
Another common problem Kleiner sees is a failure to differentiate between the role of management and that of the board.
“Do not micromanage your manager,” he advises. “It’s the board’s responsibility to make decisions. Management is required to carry out those decisions. In most cases, no director should interfere or communicate instructions directly to contractors, staff or potential staff. Managers manage. Directors direct.”