Corporate governance and ethics are essential and some of the main pillars in a condo corporation. Stratastic had the opportunity to attend the “Governance & Ethics: Decisions and Dynamics” session at the ACMO-CCI’s Condo Conference (2022), and will be sharing the key points that make corporate governance in the condominium industry so unique. Governance is the way in which directors and managers control a company and make decisions, especially decisions that are important and have an effect on unit owners or shareholders or stakeholders.
What governs a condo corporation?
Patricia Elia (Elia Associates) commented that when dealing with condominium corporations, the questions that arise are: What is corporate governance and what are the corporate governance requirements, if any? So what does the act require? A corporation receives its faculty from the statute, the act, the declaration, the by-laws and the rules. By-law #1 (the Operating Bylaw) is paramount; without it, the corporation would not have any powers and these would need to come directly from the Act.
Corporate governance lowers the risk of non-compliance with statutory and regulatory obligations. Good corporate governance includes regular board meetings, thorough meeting minutes, timely financial data, clear statutory compliance, as well as evidence of due diligence and debate from the representative board. “The act provided limited sort of parameters, but we've evolved and thanks to people like Armand [Conant] (Shibley Righton LLP), who had a positive impact on the changes legislatively,” Patricia remarked. Corporate governance is how ethical behavior can be implemented in a condominium corporation.
“Ethics is really defined as a set of external moral principles that govern a person's behavior or their conduct within the context of providing services” Patricia noted, “Property management is a perfect example.” she added. Some key examples that have an ethical obligation are: asset management, financial management, procurement, human resource management, community management, etc. The Act provides common principles that everyone can all adhere to in the context of managing a condo.
During the session Natalia (Lash Condo Law) surveyed the audience with a number of situations of guiding principles and ethics, and the audience overwhelmingly agreed that reliability, honesty, transparency, trustworthiness, and empathy are guiding principles in a condominium corporation. “The basic principles of corporate governance include accountability, transparency, fairness, and responsibility.” Natalia added.
Accountability, Transparency & Good Faith:
Maintaining an open line of communication with owners is imperative in accountability and transparency. Section 37 of the Act provides an objective standard on compliance and good faith, and all of these principles demonstrate good corporate governance. On the other hand, there are also elements of corporate governance which allow corporations to implement processes to ensure compliance. For example, Boards are required to act in the best interest of the corporation and not in their own self-interest, while also respecting confidentiality. One way to ensure directors are accountable and responsible is by signing a code of ethics, which a corporation can implement as a qualification or disqualification in the general operating bylaw.
As previously mentioned, another important aspect is accountability and transparency (ensuring that directors are conducting business ethically and in the best interest of the owners). For example, this may include declaring a conflict of interest when selecting a trade. Note that this trade may be the best option for the corporation, however, the conflict must be disclosed and the director’s conflict be dealt with appropriately. Victor (Elia Associates) added that directors are responsible for overseeing the management team and have to build that relationship of trust. As stated in S. 27 of the Act, boards are ultimately responsible as they are on the top of the hierarchy of the pyramid.
In order of ranking of faculty with the components of corporate governance, the Condominium Act is at the very top, followed by the corporation’s governing documents, such as the declaration, the bylaws and the rules, which differ from every corporation. Lastly, there are policies which are essential for a condominium corporation. Policies are processes that the condo follows to investigate, to enforce and to get to the bottom of a problem, for example a workplace harassment policy. “I think people forget that the policies are not technically enforceable,” Victor remarked. “The CAT said that if it’s not in the act, the declaration, the bylaws, the rules it can’t be enforced,” Victor added.
Victor provided an example where a condo had a specific requirement in a service animal policy. The CAT stated that since it was a policy it wasn’t technically enforceable and in that specific scenario, it was a human rights code issue. When a corporation is presented with a human rights accommodation, corporations can still place restrictions on what is called a “reasonable accommodation”. If a board wants to actually enforce a policy, the board needs to create a rule. A policy may be changed in a board meeting without an obligation to inform the ownership; however, if changing a rule, the board must disclose the proposed rules to the ownership and provide 30 days notice during which the owners may choose to challenge the proposed rule before it is adopted. This also ensures that owners and residents have the same understanding of the ethics and rules to be followed. If there aren't any requisitions with this rule, then it becomes part of the governing documents of the corporation. Of course, there are certain situations where it is better to have a rule than a policy.
A policy sets a list of procedures that ensures everyone is treated equally, and should be tailored to the community as each building is different. Victor provided an example where a unit owner was emailing management every day, non-stop. In this specific scenario it was advised to consult with legal counsel so they may draft a communication policy tailored to the situation. Another example is that if a board member is unethical, this person may be removed subject to a code of ethics included in the bylaws (and if the investigation demonstrates a breach in the code of ethics). In such and similar scenarios, it is good to have a policy in place to follow for political processes.
“If you have a human rights policy or workplace violence and harassment policy, you are using a tool for the corporation's benefit to manage the corporation's risk.” Victor commented. Since a corporation employs different trades serving the corporation, a workplace violence and harassment policy needs to formulate a plan and a process to implement in case of harassment (i.e.: Cleaning staff being harassed by the security guard). Such a policy and process is also important because it protects property management and helps the corporation retain its management staff.
Repair & Maintenance:
The Act is the governing source that dictates what the corporation is responsible for, and a huge aspect is the repair and maintenance of the building. Directors are obligated to to implement certain processes to ensure the corporation is properly maintained and repaired. It’s important for managers and directors to understand the specifics of the declaration which provides what corporations are particularly responsible for maintaining and repairing. There are circumstances where a failure to maintain the common elements or to repair certain items leads to nuisance complaints, and owners are able to seek an order through the CAT against the condominium corporation to repair, insulate or replace something that is causing nuisance. If the corporation fails to comply with this order, the corporation can be held liable and could be taken to court - a hefty expense that all Boards should try to avoid.
Duty to Comply:
In conclusion, there’s a duty to comply with the governing documents each corporation has. The directors as a governing body are responsible to make sure that there are rules and regulations in place and to ensure the ethics of the condominium are followed, while it is the responsibility of Owners and residents to follow the rules and oblige with the governing documents. All in all, ethical governance ensures that everyone in a collective condo community lives in harmony with one another.
What does ethical and/or effective governance mean to you? Tell us in the comments below!
Authored with Nabiel Ordonez, edited by Stratastic Inc.
“Governance & Ethics: Decisions and Dynamics” dealt with a handful of impactful and interesting topics, such as compliance, dynamics to maintain a successful relationship, and aspects of the governing documents. This session was moderated by Naseer Abbasi (District Manager at DEL Property Management Inc.) with panelists Patricia Elia (Senior lawyer Elia Associates), Natalia Polis (Solicitor Lash Condo Law), and Victor Yee (Condominium lawyer at Elia Associates).