LOSING ENTIRE BOARDS

QUESTION: What happens if no owner, none, zero is willing to serve on the board? That is my situation in an association I manage. Help!

ANSWER: Finding owners willing to serve on boards is a growing problem. Some of the reasons include:

• Owners are too busy working and raising families to devote the time required;
• Stress caused by "crazies" who constantly harass and threaten boards; and
• The increasing number of laws that must be followed, making directors feel vulnerable.

Business Without a Board. By law, corporations must have boards to function.

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)

Without a board, an association cannot conduct business, which means insurance coverage will lapse, maintenance ceases, rules enforcement ends, the association's corporate status lapses and lawsuits cannot be answered. This exposes each owner to potential liability. Resignations by all directors without appointing replacements may also be a breach of the resigning directors' fiduciary duties.

Management Companies. Management companies have no independent authority to oversee associations. Managers can try to persuade owners to volunteer, but managers have no authority to appoint directors. Without a board, the management company should immediately resign the account or face potential liability itself.

Receivers. If necessary, courts can appoint a third party (a receiver or custodian) to oversee properties. This is a costly solution and results in higher dues for all members, since the membership would be forced to pay the receiver's fees and associated legal expenses.

Incentives. Creating incentive, positive or negative, for owners to serve on the board is problematic. Associations cannot penalize owners for refusing to serve on boards. Nor can they reward owners for serving, such as waiving their homeowner dues, since this makes the directors "paid" professional directors and removes the protections afforded volunteer directors.

Only One Director. If the bylaws call for five directors but only one is willing to serve, that one director may not have any authority (by law and the association's bylaws) to conduct any business except to appoint additional directors. Once a quorum of directors has been appointed, the board may then conduct business.

Unfortunately, there is no real solution to the problem. California continues to enact laws that increase the burdens on directors, and every association seems to have its allotment of "crazies." Even so, when push comes to shove most owners realize they have an investment to protect and will reluctantly volunteer their service.

Updated by ADAMS KESSLER 10/8/2008