Associations Are Required to Operate through a Board
Governed by Boards of Directors. Associations are governed by elected boards of directors who have general duties and authority. (Civ. Code § 4080.) Corporations are required to have a board of directors: "Each corporation shall have a board of directors. . . . the activities and affairs of a corporation shall be conducted, and all corporate powers shall be exercised by or under the direction of the board. . . . the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board." (Corp. Code § 7210.) Boards must manage the affairs of the association in a manner consistent with the CC&Rs. (Pinnacle Museum Tower Association v. Pinnacle Market Development (2012) 55 Cal.4th 223, 239.)
Board of Directors Defined. A "Board of Directors" is the elected body that governs a common interest development. The Corporations Code defines "directors" as "natural persons designated...elected or appointed...to act as members of the corporation's governing body. A person who does not have authority to act as a member of the corporation's governing body, including through voting rights as a member of the governing body, is not a director..." (Corp. Code § 5047.) "Board of Governors" is an older term rarely used today. It was used in early common interest developments when they were unincorporated associations. As the industry evolved and the Department of Real Estate required developers to incorporate all new associations, they added bylaws to their CC&Rs and were defined as "boards of directors" instead of boards of governors.
Number of Directors. The number of directors elected to a board is established in an association's articles of incorporation and repeated in the bylaws. The number is almost always odd to avoid dead-locked boards. The number is usually five. Very small associations sometimes call for three directors, and very large associations may have seven or more. See Changing the Number of Directors.
Association's Authority
"Unless the governing documents provide otherwise, and regardless of whether the association is incorporated or unincorporated, the association may exercise the powers granted to a nonprofit mutual benefit corporation, as enumerated in Section 7140 of the Corporations Code." (Civ. Code § 4805(a).) Corporations must have a board of directors who conduct the corporation's affairs. (Corp. Code § 7210.) Because of their positions of authority, boards (and individual directors) are held to a higher standard as fiduciaries. Unless the governing documents provide otherwise, boards can:
Board Limitations
Boards of directors oversee operations and set policy. Just as boards have limited authority, so do individual directors.
Vendors. Directors do not have the right to individually contact vendors, give vendors instructions, or sign contracts without board authorization. Allowing multiple directors to interact with vendors will result in higher costs to the association, conflicting instructions to vendors, and potential loss of vendors. It also creates the potential for ultra virea acts by directors. The proper procedure is to direct matters through the president to the association's vendors or through its managing agent to vendors. Boards may censure directors who violate these procedures and disrupt operations and may be subject to personal liability for their acts.
Personnel. Directors are similarly restricted in their ability to interact with employees. Individual directors do not have the right to direct or discipline employees. That function is reserved for the board or delegated to the president, manager, or managing agent. Allowing individual directors to take such actions invites potential liability via Labor Code violations, harassment issues, and constructive termination actions.
Records. Directors have a right to review books and records of the Association, but various factors, including privacy rights, limit that right.
Volunteer Limitations. To maintain their protections as volunteers, directors cannot receive pay for serving on the board. To limit exposure to the association, directors must be cautious about the activities they undertake for the association.
Duties of Board Members
When a homeowner becomes a board member, he/she assumes certain obligations as a director that must be carried out in the association's best interests.
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- Oversee Operations. Boards manage the association's day-to-day operations. It includes retaining (as needed) management services, legal services, landscape vendors, pest control, operating amenities (pools, tennis courts, clubhouses, equestrian facilities, golf course, etc.), purchasing insurance, etc.
- Limited Transparency. Because a board's primary duty is to protect the corporation and its assets, complete transparency with the membership is not feasible. Some information must be kept confidential, which is why the Davis-Stirling Act provides for executive session meetings that allow boards to review matters in confidence. For that reason, the minutes of these meetings are not subject to review by members.
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Delegating Board Duties
Boards can delegate many of their duties to others. For example, boards can hire a managing agent to conduct the association's day-to-day operations.
The board may delegate the management of the activities of the corporation to any person or persons, management company, or committee however composed, provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board. (Corp. Code § 7210.)
[D]irectors may delegate their authority to a committee (Corp. Code, §§ 300, subd. (a), 311, 7210, 7212, subd. (a)). (Finley v. Superior Court (2000) 80 Cal.App.4th 1152, 1161.)
There are various types of committees, any of which the board can delegate authority to or make advisory only. If a board delegates authority to a committee, it should be recorded in meeting minutes. While boards may delegate duties, they remain responsible for the actions of managers and committees acting at their direction.
Duties That Cannot Be Delegated (Nondelegable Duties)
Some duties are nondelegable, i.e., they cannot be assigned or transferred to a person or committee. They include the following:
Miscellaneous
Judicial Deference. Courts will defer to board decisions, even if they are not the "best" decisions, provided the board made a reasonable investigation and its decision was in good faith with the association's best interests in mind (Business Judgment Rule). Members who are unhappy with board decisions always have recourse.
Additional Information. See Selecting Officers, and the Open Meeting Act.
Membership Rights. See Membership Rights and Responsibilities.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with community association issues, subscribe to the Davis-Stirling Newsletter.