By Laura Lee, RCM
Previously published in Condo Business Magazine
The board of directors in a condominium is elected to represent the best interests of the entire community. Once elected, they are required to make some difficult decisions and have a fiduciary responsibility to follow the advice of professionals.
Running a condominium is like running a business with a multi-million-dollar budget. Unfortunately, in many cases, the decisions are personal. For example, if a building needs a budget increase to meet its financial commitments, and a board is adamant about having a zero increase, often the same building will have a deficit the following year, or a few years down the road will require a double-digit increase.
Directors are reminded that they are only board members in a duly called board meeting. They should avoid speaking to residents or contractors on behalf of the board and always refer them to management. This helps avoid personal liability. Directors’ and officers’ insurance will cover a board member, as acting on one’s own may result in a personal lawsuit.
Who are the professionals? The lawyer, engineer, auditor and the property manager (yes, the manager). These individuals bring a wealth of experience and knowledge. Ask their opinions before making major decisions. This is another way to shelter from personal liability.
Board members also bring talent, knowledge, and experience and should take time to get to know one another. After each annual general meeting, take five minutes for everyone to introduce themselves, including education, skills and what they hope to bring to the board.
Include the manager in this process. The industry is facing a manager shortage crisis, with more than 11,000+ condominiums and less than 4,000 licensed managers. Give managers an opportunity to explain their background, education, and experience. Many have worked in a multitude of diverse properties over the years, have immigrated to Canada or have taken on property management as a second career.
In addition to the on-site manager, the management company also has a team of specialized individuals who provide extra services to the corporation behind the scenes as a free resource. Managers with an RCM designation from the Association of Condominium Managers of Ontario (ACMO) have completed a minimum of four college courses and successfully passed a rigorous exam attaining a minimum 75 percent. An ACMO 2000 Certified management company has been independently audited and successfully demonstrated a strong foundation to guide boards on governance. It is essential to work together as a team while treating everyone with respect. Everyone has value.
A board that practices good governance will come prepared to the meetings, having read the meeting package in advance, sought answers from management and reviewed the financial position of the building. Meetings should be scheduled between 1.5 to 2 hours as most individuals (board and management) have already put in an 8 to10-hour day at the office.
Start with a Good Agenda
To enable full participation of the board, the manager asks at least one week before preparing the board meeting package if anyone wants to add something to the agenda. This will equip the manager with information so the item can be discussed effectively. Each task on the agenda should have an allotted time assigned to the topic.
In most buildings, the minutes of the previous meeting are circulated to the board within 7-10 days of the meeting.. Everyone should read and advise management of edits beforehand in order to quickly approve and sign the revised minutes at the meeting.
A highly effective tool is a consent agenda, which would contain items to easily make decisions in a single motion. Samples would include approving the minutes, approving purchases where three quotes have been obtained, and where there is a recommendation from management, and it is within budget. The consent agenda should include items discussed and approved via email between board meetings. These would be called decisions to be ratified.
Some boards will also include changes to policies on a consent agenda. This may be a scary mind shift for some boards. The key to a consent agenda being effective is asking the entire board at the meeting if they want to move anything from the consent agenda to the main agenda for discussion.
A consent agenda allows the board to avoid dwelling on the minor items and instead remain focused on discussing important things (or ones in which there will be a debate). Do not hesitate to invite the contractor or another professional to the meeting to better understand the problem and proposed solution.
Read the Financial Statements
Finally, take the time to understand how to read the corporation’s financial statements and reserve fund study. The balance sheet will provide a snapshot view of the assets (what you own), liabilities (what you owe) and equity (net worth). The income statement provides details of the budget and expenditures and how you are going to budget (variances).
It is essential to have an explanation of variances and have a plan to get back on budget. For example, if there was a particularly hard winter, and the utilities are over by $20,000 to $50,000, determine if one window cleaning, rather than two, will make up the shortfall.
The reserve fund is a plan for long-term expenditures; it is not to be taken lightly and needs to be realistic. Monitoring operating expenditures—for instance, several pinhole leaks— may mean bringing forward that pipe replacement project. The reserve fund and its items should be moved forward or back to ensure financial stability and overall upkeep.
The essential key to board good governance is effective decision-making, both in and out of the board meeting. Be prepared, take time to be informed, and seek the input of others and the counsel of the professionals.
Laura Lee, RCM, CCP, GL, is an ACMO Board Member and Executive Assistant at Duka Property Management.