Capture the Good, Mitigate the Negative

by Julie Adamen
 

The other day I was relating to a colleague the story of why, way back in the day, I wasn't a member of the large-scale managers group, HOAPOA.  It was all because a member of that group, made a casual comment to the then-President indicating that I shouldn't be eligible because although I did manage, on site,   1000+ units and a $5.4M budget, I worked for a management company (horrors!). With that simple comment, I was rendered politically ineligible to join. In response to this tale, my colleague said, "I wonder how many dumb decisions are made by just such a casual comment?" Yes, indeed, how many?

 …Which got me to thinking about Boards of Directors, and their decision-making process. How many decisions are affected by either a casual comment such as the one above, or are made formally without thinking about the long-term ripple effect? My experience, and yours, says: Many, and not necessarily for the good. Yet, it is a reality of the business. The challenge for associations is to harness those good ripples and mitigate ripples that are negative.  To do so, a community needs the following; 1) a strong foundation of governance keeping them on the path of community well-being, consisting of good governing documents, 2) a good fiscal policy and 3) a strategy for positive communication between the Board and the homeowners. They are what I call the Three Pillars of Community Strength. Not only must they have each of these Pillars in place, every Board must review, adjust where needed and maintain these "pillars" so communities will reap long-term benefits from good decisions and suffer as little damage as possible from bad ones.
 
Pillar 1: Good Governing Documents

CC&Rs and By-Laws. CC&Rs and By-Laws provide the overall definition of the community and the basis for its government. You can have the most beautiful house on the block, but if your foundation is weak, the rest of the house will crumble.

Associations live and die by the CC&Rs and By-Laws. For the layperson and the professional, even good sets of these documents can be confusing.  Bad ones can make the Board and manager's job a nightmare as they try to navigate the labyrinth of gobbledygook, some of which may be contradictory due to the "cut and paste" nature of their creation. So one of the most positive and effective things a Board can do is to have outdated and/or poorly written CC&Rs and By-Laws revamped to reflect the current - and future - needs to the community.[1]  Yes it costs money, and it takes time (and sometimes many votes for approval by the membership), but Boards who undertake this effort find it well worth it, as they see immediate, tangible results.  Documents that reflect current law and community administration realities make the business of governing much easier without conflicting directives or those open to vastly different interpretations.  Even more importantly, future Boards will reap vast benefits from the removal of  voluminous, confusing, outdated developer-related verbiage or any other superfluous language,  by making the framework of association responsibility as clear and concise as possible. 

Rules & Regulations.  Rules & Regulations provide the structure within which the community operates on a day-to-day basis and in a safe and sane manner. That is, if the following were never said by an early Board member:  "Let's not get too complicated with our Rules, because there's only a few homes here.  If there's a problem, we'll just knock on that person's door, and discuss it neighbor-to-neighbor."

Poor or non-existent Rules lead to innumerable problems, not the least of which is overt micromanagement: The Board becomes the judge and jury for every detail of community life, as actions that typically would be handled by the manager must be raised to the Board. Simple issues such as,  Should we send a letter on Mr. Brown's barking dog? Should that owner get two parking spaces? Should we foreclose on Mrs. Smith, but not on Dr. Roberts? This level of micro-administration is very costly,  immensely labor intensive and destructive. Here's why:

• The sheer volume of work is exhausting for the Board
•  The manager lacks clear direction, putting him squarely in "no win" situations leading to manager turnover
• Micro-administration will make the Board deeply unpopular as each decision rendered "for" one owner will be "against" another
• There will be little-to-no corporate memory for decisions made, as they were not based on a formal rule, guideline or procedure 
• As time goes on the basis for  decisions, even if well-thought out,  will become fuzzy, allowing for all kinds of interpretations by subsequent regimes some of whom may have less common sense
• The community will have a very difficult time finding and keeping volunteer Board members

In short: A nasty mess that started way back when some early Board member made a casual statement mistakenly hoping to avoid too much structure.
 
Updated, reasoned Rules & Regulations[2] will make the day-to-day lives of the Board and management much easier well in to the future by providing a means of rational and equitable decision making that can be articulated to, and accepted by, the community.
 
Architectural  Guidelines.  The Guidelines execute the Design Review provisions that are in the CC&Rs, but they also must be written in such a way that allows reasonable interpretation of community aesthetics, as well as a common sense application.
 
Some Boards and ACC's (Architectural Control Committees) think (again) they don’t need too many "rules" or "guidelines" when it comes to architectural issues. They believe decisions can be made without the restraints of reasoned principles.  That sounds good, except for these inevitable two occurrences:  1) The current ACC and its corporate memory is replaced by another group with no corporate memory, and 2) The ACC (and association) finds itself embroiled in a lawsuit due to inconsistent,  arbitrary or lack of enforcement of architectural guidelines. Why do I say "inevitable?
 
Typically, the Architectural Control Committee (ACC) has jurisdiction, through the CC&Rs and the guidelines, over the look and feel of the community's common areas and limited common areas, from the color of patio furniture to the carpets in the common hallways to exterior finishes - you name it.  More so than Rules issues, architectural issues can become very personal to the owners affected, who look at that carpet (or paint, or patio furniture) every day of their lives and feel some connection to its aesthetics. In the best of times, members of the ACC can find themselves embroiled in controversy every time they make a decision based on published guidelines, let alone when they make them while flying by the seat of their pants.

Just as important and many times far more visible than Rules and Regulations, well thought-out and well-written Architectural Guidelines provide communities with visible, long lasting effect. For the ACC to be a successful instrument for design review it must have a documented basis for its decisions, taking in to conformity and consistency with allowance for common sense. Adoption and execution of those Guidelines by the Board with ACC input will go a long way towards not only keeping the community harmonious, but in making the jobs of the volunteer committee members easier now and on down the road.

Pillar 2: Fiscal Responsibility 

Reserves. "If we fund the reserves this year, we'll have to raise assessments, and that will make us very unpopular. Let's table it until next year." [3]
   
Reserves are the association's savings account for repair and replacement of the common elements. And just like your own savings account… It's very easy to justify not funding it. The big difference being, of course, that your savings account is yours. An association's is - every members'.  If Boards don’t budget to fund reserves, there will be hell to pay when the roof fails or the pools require new plaster. It's easy not to fund reserves (but not wise and possibly not legal) while the developer is still involved and/or the association is new. As time marches on the problems grows exponentially as the common areas age and the fixes become more urgent and expensive. Each subsequent Board elected is faced increasingly grim choices: 1) Do nothing like past Board members and hope and pray it doesn't fall apart of their watch, 2) Get a loan and risk the ire of the populace, 3) Raise assessments and risk the ire of the populace, 4) Special assess and raise assessments and risk… Well you folks get it.
 
Each choice is rife with political danger when things are going relatively smoothly, but the choices become even more restricted and the political danger more acute when the inevitable crisis occurs and that unlucky Board must act. Then - out come the torches and pitchforks as the masses react to the notice of a dues increase and a special assessment.  All could have been avoided if earlier Boards had made the decision to not only 1) Contract for a realistic reserve study (and updates as required), 2) Develop a plan to communicate, and expand support for, the needs and financial requirements of those studies to the community, and 3) Make the decision to fund properly documented reserves, and not kick the can down the road.
 
Community associations are like families: When there is no money to pay the bills,  unhappiness occurs.  Sound financial planning makes for happy families and happy communities. Nowhere will the long-term ramification of a short-term decision be felt more keenly than by an association with underfunded reserves.

Pillar 3: Communication and Consensus Development

 "If communication from the association is more like a stick than a stroke, then all the members are going to feel is that they are being beaten. A positive perception of the association will result in increased rules compliance, more timely assessment payments, a more educated and informed resident base and a more respectful attitude towards the Board and Management." [4]- Mike Pierson

Key ingredients for great communication: Consistency, relevance and a positive spin. We live in an instant information society. If you want an answer to just about anything, you can go online and find it straight away.  Associations should be no different. When Boards make it a policy to communicate relevant information regularly and in a positive fashion via regularly published, well-written newsletters and updated websites, they are making a decision to bring the owners in to the process of administering the community. Good people want to be a part of something positive (and Board members don’t want to serve forever - just a thought…). As decisions are made, contracts awarded, committees formed, requests for volunteers made and good works praised, the Board is promoting trust between themselves and the owners. Why? As Mike Pierson says: "Because members no longer feel used, uninformed, manipulated or abused, all symptoms of a community with little or no positive communications from the Board and management."

Good communication is the foundation for consensus building. The community always has a need to know and a communication strategy with a big dollop of positive transparency fosters a community that understands and supports the Board.  This policy of openness and communication will especially pay back dividends when a crisis envelopes the community by mitigating a sense that the Board acted wrongly or in secret.

The Wrap Up.

The overarching task of the Board of Directors is to provide careful direction for the maintenance and well-being of the structures and infrastructure of the community they serve (preserve, protect, maintain  and enhance). An onerous task, indeed, yet many Boards view their participation as something strictly rooted in the present, i.e., their term of office. When  Board members become wholly aware that every action or decision, and even the casual comment, can have a lasting effect on the community, it becomes readily apparent they must have a strong foundation of good governing documents, a responsible fiscal policy and relevant, positive communication for the development of consensus.  Having these elements, or pillars, will go a long way towards shepherding good decisions in to action, and keeping bad decisions from taking on a life of their own, maybe for years. That foundation will also make the lives of the Board, the manager  and communities, much better.

Millions of Americans have served on a volunteer Board of Directors at least some time in their lives.  I have and do, many of you managers have done so, and of course, all of your past, present and future Board members, have, do and will serve. Sadly, at the end our experience as volunteers, many of us feel as if we contributed little, if anything to the organization for which we served. And that is an incorrect assumption. Each and every action and non-action has an effect. Sometimes subtle and sometimes profound, nowhere do the flaps of the Butterfly's wings[5] have a more direct and effect than in the Board of Directors of any community association. 

Footnotes:

1. This process should be undertaken by qualified industry counsel only. 
2. Yes, Rules and Regulations are not written in stone.
3. Paraphrased quote said by hundreds of Board members.
4. Mike Pierson, Community Association Publishing Services, author of  Taking Control: Time Management and Communication Tools for Community Association Management http://myhoa.com
5. In a chaotic system, the ability of miniscule changes in initial conditions (such as the flap of a butterfly's wings) to have far-reaching, large-scale effects on the development of the system. www.answers.com

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