Is Transition to Self-management In Trouble? Part 2 of 3

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Is Transition to Self-management In Trouble? Part 2 of 3

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    Rana Goodman
    Keymaster

    This is part 2 of James Mayfield’s statements, completely UN-edited.

    The purposes of my three articles on transition to self-management are to summarize frequently expressed perceptions by homeowners about the transition to self-management (Part 1), to express my assessment of the root cause driving these perceptions (Part 2), and to examine the role of homeowners in insuring better governance and management at SCA (Part 3).

    Part 2—Improper Governance is the Root Problem

    Background

    Transition from developer control of governance of a HOA to homeowner control is commonly a difficult period in the life of a HOA.  But, transition at SCA has had periods that were particularly acrimonious and left a legacy of discordant stories and bitterness that impaired the ability of SCA to develop an organized governance structure focused on maximizing homeowner benefits.

    About six years ago, the Board, led by President Jim Long and comprised of highly qualified Board members, initiated a process to develop a documented philosophy and structure for Board governance at SCA. The device used to create a documented governance structure for SCA was a Board Policy Manual (“BPM”).

    I participated in the initial stages of the process as the chair of the Finance Committee and then as a Board member during the final stages of completion and adoption.  I observed multiple admirable attributes of the process:

    • Patience
    • Thorough research
    • Collective participation by the whole Board
    • Broad community input
    • Respect for diverse ideas
    • Transparency
    • Professional input.

    The development of the BPM took many months and spanned the work of two Boards. The end product—the BPM– reflected the use of theoretically sound governance principles as well as the practical effects of compromise and recognition of the unique SCA culture.   As a result of the hard work and process attributes described above, the adopted BPM received widespread approval throughout SCA.

    Unfortunately, the implementation of the use of the BPM to achieve consistent, effective governance was progressively undermined by

    1. Unreliable management services provided by FSR,
    2. Misinterpretations of the BPM by Board officers for self-centered personal reasons, and
    3. The shift to self-management.

    As the effectiveness and acceptance of the BPM declined as a regulatory structure, the last two Boards attempted to patch observable defects on an ad hoc basis.  The patches were usually created by a small group of Board members, appointed by the President, without substantive involvement by all Board members or affected volunteers. This approach left homeowners, volunteers, management, and certain Board members confused, frustrated and lacking confidence in the overall usefulness of the BPM for the governance of SCA.

    This brief history of the governance at SCA is presented to support the premise that neither management services provided by a management company nor management services provided by SCA direct employees will achieve cost effective, operational excellence until the root of the problem—inadequate Board governance—is fixed.

     

    If Inadequate Governance Is the Root Problem, What is the Solution?

    The solution to inadequate governance is straightforward.  The next Board must develop and adopt an effective governance model reflective of the requirements of self-management.  I deeply regret that the majority of the current Board members did not support a concurrent process to the implementation of a new management approach to address a new governance approach. This task will now fall to the new Board elected in a few weeks.  I hope the next Board addresses the governance issue using the same methodical approach used to develop the governance model reflected in the original BPM.

    Specific Elements of a Solution

    Changes to Organizational Concepts 

    During the examination of whether or not to become self-managed, the Board was repeatedly advised that a successful transition to self-management would be dependent upon the adoption and implementation of a new governance model. What are the specific differences that need to be addressed under self-management?

     

    OLD MODEL                                                             NEW MODEL                        

     

    Board Organized as a Management Team           Board Organized as Independent Governors

    Directed by the President/CEO                            with Equal Authority & Accountability

     Board Officers Provide Direction to the              Board Officers Communicate Decisions

    GM/CAM/CFO Without Board Action                 Resulting From Board Actions

     Board Focuses on Micro Management                Board Collectively Focuses on Setting

    of Operational Activities                                       Policy, Fiduciary Duties, and Assessing the Performances of the GM/CAM/CFO

     Minimum Transparency to Prevent Public           Maximum Transparency to Provide Homeowners

    Debate and Disclosure of Controversial             Insight Into Controversial Issues and Actions Issues or Management Breakdowns             to Correct Management Breakdowns

      Changes to Commitment to the Community

    A governance model must reflect the values and expectations of the governed—SCA homeowners.  Failure to do so inevitable results in a lack of support for Board governance and management operations as well as engagement in community service. Therefore, the governance model and resultant BPM must reflect more than a set of rules.  It must reflect five commitments by those who are elected to govern SCA.

     Commitment to Equally Shared Governance. The officers of the current Board, particularly the President, adopted a model that mirrors a management model (versus a governance model) in which the President and Treasurer make decisions without the effective participation of all Board members. This model subjugates other directors to a role of being treated as employees of the President, and Treasurer for financial matters, who are expected to rubber stamp their decisions or “pound sand”.  Those who support this model missed a key principle:  The CEO and Treasurer of an organization report to the Board, not the other way around.

    This model has resulted in homeowner disengagement from serving on the Board, committees, and service groups.  It also encourages a culture in which homeowners perceive of themselves as consumer of services perspective versus owners with responsibility.  Evidence of this problem is reflected in the fact that

    • only approximately 500 residents participate in community service in a community of over 12,000 people,
    • only half of the homeowners vote in the Annual Board election or voluntarily return the age restricted community survey, and
    • few homeowners volunteer for election to the Board or committee service.

    .Commitment to Effective Governance Under Self-management. The existing Board Policy Manual was created to support the role of the Board and its officers under a management concept organized for the use of a management company.  While the transition to in-house (self- management) management has proceeded effectively, the Board has not taken actions necessary to implement a revised governance process that reflects its role and additional obligations under self-management.  The lack of a process to evaluate and revise the BPM has led to an ad hoc approach to development of a concept of governance.  This approaches patches situations as they arise versus one to create a strategic, comprehensive, holistic concept for SCA governance.

    Commitment to Management Oversight. The current culture on the Board focuses on the concept that the Board is a “team” which should act in unison to support management and portray an “all’s well” perception in the community.

    I support the concept that the Board and its committees must support the GM and other management employees. But, the Board also has a fiduciary responsibility to be an effective employer responsible for open, assessment of the performance of management.  One example of the failure of the current Board to implement this concept is the fact that the Board has never adopted a job description for the GM or a documented, structured review process.

    Commitment to Law. Board members have a responsibility to understand and follow the law, including SCA governing documents.  Using loopholes to circumnavigate the intent of laws to avoid transparency, public accountability, and homeowner rights must be unacceptable. Certainly, the probability of getting caught and being held accountable under the law should never be the basis for legal compliance.

    1. Commitment to Service. Being on the Board requires time and a commitment to learning the laws and governing documents of SCA.  New members experience a steep learning curve in their first year of service.  It also requires a commitment to resolve conflict and accept accountability for individual decisions.  Being on the Board is not about personal authority or recognition in the community.  It is about public service.

     

    Good Governance Is a Practical Issue That Affects You

    State laws and SCA governing documents provide your Board and GM with extensive powers to make decisions that are binding upon you.  Failure to implement a well-designed system of governance that protects and serves homeowner needs leaves homeowners vulnerable to

    • Management running SCA for the convenience and benefit of employees instead of you, and
    • Board members implementing personal agendas instead of community expectations.

    As a result, homeowners will experience adverse effects upon

    • Levels of service and quality of life within SCA,
    • Costs of ownership (e.g., assessment costs),
    • Your property rights, and
    • Home values.

    In Part 3, I will present actions you can take to insure that the governance of SCA serves you.

     

     

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