Director Code of Ethics Fails to Deliver

September 2016

Increasingly condo directors are being asked to sign a code of ethics. Some condo corporations are being encouraged to pass a Code of Ethics bylaw.

It remains unclear if a Director Code of Ethics provides value or if it simply opens the door to future problems.

The request for a Director Code of Ethics may come from a condo corporation’s accounting firm, legal counsel or property manager. Each may suggest different wording.

Generally, a Director Code of Ethics includes a series of seemingly innocuous phrases that any honest condo director should be willing to agree to.

If ethics are poor at the top, that behaviour is copied down through the organization
Robert Noyce

Phrases such as “minimize conflict”, “abide by decisions”, “maintain confidentiality”, “act honestly and in good faith”, “integrity”, “respect” and “avoid conflict of interest” may sound appealing and appropriate. Unfortunately, such phrases are rarely defined. This allows them to be misused or abused to further less sincere interests. Another problem is that a Director Code of Ethics rarely includes a distinction between major offenses deserving of removal as a director and minor offenses.

The intent of a Director Code of Ethics is to protect against problem directors. Those who break the Director Code of Ethics could be subject to removal from the board. This can be seen as a tool allowing good condo boards to deal with a problem director. A director in breach of a Director Code of Ethics could be exposed to personal liability with no protection through the condo corporation’s liability insurance.

Conversely, a Director Code of Ethics could be used as a tool for bad condo boards to get rid of a good condo director. It creates an opportunity for a director to be accused of improper conduct and forced off a board without proper oversight or evidence. It can be used to oppose a democratically elected director looking out for the interests of condo owners.

An effective Director Code of Ethics should include rules for hearing and deciding on violations. These rules could be in the form of a bylaw allowing for disqualification of directors who have breached the Director Code of Ethics and a process for conducting an ethical review.

The implications and potential for abuse of a poorly written and considered Director Code of Ethics appear to be greater than if such a document did not exist.