 This is Think Tech Hawaii, Community Matters here. Good afternoon. Thank you for joining us for another episode of Condo Insider. My name is Jane Sugimura and I'm your host today. And this is the show where we talk about condominium living and we deal with issues for people who live and work with condominium associations. And I have as my guest today David Thompson. And David is from Hawaii Management. Yes. And he is a senior management executive. And thank you for coming. Thank you. I really appreciate you having me on today. And you are a senior management executive. So tell me what you do. Oh, what that means is I've been in the industry for a while. And as noticed by my accreditation to PCAM and the ARM and the CMCA, I've been in the industry for a while. I've had education within my industry. So what that does is it allows me to work with the board of directors on a real professional level, work with the owners, help them achieve their goals. Okay. And tell me what a PCAM designation means. So a PCAM is the third level in the education process under CAI, Community Associations Institute, which is a national program. The PCAM study is a special case study that we do in which we have to examine the entire building. We have to interview the board members, the insurance agent, the attorney, the resident manager. And we have to do a complete study on a particular project. Mine was done in Chicago. Oh, okay. Yeah. And so you have to learn on how a building operates and the different pieces of how to manage a building. Yes. And how to deal with the residents. Yes. And as an account executive for Hawaiian management, you basically assist condominium and co-op and plan community development association. Yeah, as well as commercial projects as well. Okay. Yeah. And in all of those cases, Hawaiian management is the managing agent for the association. Correct. Okay. Let's focus on condominium. So if it's a condominium association and Hawaiian is the managing agent, what does that mean? Well, the board hires us to help them manage their financial matters, as well as a system with the board meetings. We help them with any vendor liaison issues, government liaison issues, help them with their tax returns, their association meetings, their budget. There's a lot of things that we help them with. And with condominium boards, they're all volunteers, right? Yes, they're all volunteers. And they all own units in that particular building. Yes. And how often do they meet? It can vary. So some of them meet once a month, some meet every three months, some twice a year, some even one month. Okay. Yet under their documents, the board is charged with managing and operating the building. Correct. Yes, they have the final decision-making. And so exactly how does this work? Because they only meet once a month or once every few months. And they hire Hawai'iana to be their managing agent. So what exactly does Hawai'iana do to assist the board in their obligation to manage and operate this building? Well, the board is organized in a situation where they have a president, vice president, secretary, and treasurer, and in addition to the other directors. And we work directly with the board president in establishing an agenda for the upcoming meeting. We help pull all the materials together for their board packet, pull together all the proposals for contracts and maintenance items, financial reporting system with any types of financial matters such as investment of savings accounts, house rules, issues, anything that they have going on at that given moment. And so the board basically when they meet at their monthly or their regular meetings, they look at their various issues and they make decisions. And they're not involved in the day-to-day implementation, are they? Not generally. We do keep them informed on a regular basis. So as needed, we will keep them informed and involved. We mainly work with one person on the board. Sometimes we work with the entire board at the same time. And with most associations, there's a site manager or a resident manager. And then they, in fact, supervise a staff, a maintenance staff, a security staff, or maybe they're outsourced. These are decisions that the board makes and the managing agent helps implement these decisions. Yes. So the board can choose to have a contracted site manager which would be a separate management company that would help assist with the data matters on the site so that they can hire an employee. The employee works for the association, not in Hawaiian management. And that employee is tasked with everything and can oversee all the other employees on the property. And you know, there's been a misconception, you know, because I've been involved in a lot of legislative issues. And, you know, recently we've had some bills that keep coming up every year. And what they want, and these are from residents who, you know, live in condominiums. They want property managers, you know, which would be the account executives who, you know, serve the board to be licensed. Are you aware of those bills? I've heard about it, yeah. And, you know, the misconception, I think, is that the owners who want this type of legislation, they've gone to their legislator and say, oh, you know, you need to license the property managers. They think that the property managers' task is to tell the board what to do. Is that true? That's not exactly true. No. Exactly. Explain what's wrong with that concept. So we help them with a lot of matters on a day-to-day basis. But we can't do much more than give recommendations to the board and the board has to make decisions. A lot of times our recommendations is they need to go to a consultant, whether it's a construction management consultant or their attorney or something along those guidelines. And so the property manager or the account executive from the managing agent, that is the contact with the board. That person, it's not that person's function to tell the board what they should be doing. No. We give them the tools that they need in order to make a good decision. And then it's up to them to make that decision. And then what you do is they set the policy. They decide, okay, we want to use contractor ABC to do this work. You then implement it, right? Yes. You contact that vendor and say, okay, the board has signed your agreement. When can you be on site and what's your schedule? And this is a person on site that you coordinate with. And you basically do that work. And then the person on site will then coordinate. It's not the board who's doing all of this. No. So before the board meeting, I'll gather multiple proposals with a comparative bid and I will bring it to them and allow them to choose between that person. We may have a little bit of negotiation going on if they have a question about something and I'll assist them in that matter as well. And then they will choose one vendor. They will sign the contract and then I will implement what's been decided to do. And then if it's a huge job, then there's the issue of hiring a project manager. Always recommend a hiring a project manager for large projects. Right. And this would be for things like if you want to replace your entire pipes since incoming or if you're putting in a PV system. I mean, something that costs a lot of money and takes a lot of time. You want somebody with expertise. Expertise, yes, because we don't have it. You know, I'm not a plumber, right? Board members should not be making those decisions on their own even they are a plumber, right? Right. They should be getting an outside consultant to help them make those decisions. And so if these issues come up, I mean, you said that you make recommendations. So if the board is undecided and you manage because of your expertise in managing buildings, you can then recommend, well, this is the course of action you should take or the statute 514B says that there's a business judgment rule. If you don't know, you've got to ask. Yes. Right? If you don't know, you need to ask. Yeah. Right? And so if it's a legal issue, it would be, well, you need to contact the association's attorney and get a legal opinion. Get it in writing and you pay for it. Right. Or if it's an engineering issue, you hire an engineering company because the board people don't have that expertise. Right? If you have a building that's leaking like a sieve and they're saying, oh, we need to figure out what's wrong. And they come to you and they say, OK, what do we do? And you're going to say, why don't we get a consultant? I'll get you a list. And we'll get you some people that because of our expertise and we deal with all these buildings, we have lists of people we use on a regular basis and we know that you're going to get good advice from them. And so we'll give you a list and you can vet them. You can talk to them, interview them like you would. Exactly. Right? And you find somebody to then go and look at this problem and get you an opinion. And what if the board member says, oh, but that's going to cost some money? Yes. What would your response be to that? Well, a lot of times, if you don't do it correctly, then it can cost you more down the road. Because this thing about if you replace all your pipes and there's a problem, you've got to reopen all the walls. Right? It can be a much bigger problem. You know, spalling is another one where you want somebody to monitor the work, right? You don't necessarily take the contractor's word that they did such and such. You want somebody to follow the work and make sure the specifications are followed. And what if the contractor is the board president's cousin? And the board president says, oh, but my cousin Joe, I mean, he knows what he's doing. And I mean, what would your response be to that? So if a board member is related, so then we'd have a conversation about disclosing that relationship and also a conversation about maybe they shouldn't be voting on the matter and they maybe even should leave the room as an option. Ultimately, they should go to the attorney and discuss the situation because each one has a different nuance. Right. And if it's a huge project, especially replacing pipes, you really want to bring in a professional and if the board member says, oh, but we don't want to pay for it. But you can remind them about the business judgment rule that says it's part of your fiduciary duty. If you don't know, you've got to ask. And you've got to pay for that report. Because if that report is wrong and you've gotten a professional to do the work, that professional's got errors in omission. Yes. Yeah, so we can go a little bit further on that. So there's like I had one project that was pipe replacement, painting, spalling, almost 100% replacement of parking deck, as well as replacement of the recreation deck and pool. Major million-dollar project that was going on. And so they went and they interviewed the consultants. I gave them a list of consultants. They interviewed each one, picked one. And then they went and they did their study and looked at each different project individually. And the consultant helped them through that project. So you've got to think about it. When it comes time, the contractor says, we want our payment. Here's a million-dollar bill. We need you to pay it. Well, I'm not the consultant. I can't necessarily say, yeah, they did the work according to specifications, right? The resident manager, they have to manage the building. They can't be managing a million-dollar project, right? So you need a consultant who can monitor the work on a regular basis and verify as well as speak their language. A consultant needs to be able to have that contractor lingo and they can understand each other when what's being said and they will know what the specifications are and follow the specifications and make sure that the association is only paying based on the specifications. And if a change order is needed, you have somebody there to fall back on, yeah. Okay, well, you know, we're going to take a break now. When we come back, we're going to be talking about, you know, how do board members, I mean, do they get training or some kind of education to help them make these decisions because they're the ones, like you said, they're the ones making the decisions. You guys are the ones who implement those decisions, right? Yes. Okay, so we're going to take our break now and when we come back, we will be talking about educating the board. All right. This is Think Tech Hawaii, raising public awareness. This message was brought to you by UnitedHealthcare and AARP Foundation. Hey, Aloha. Standard Energy Man here on Think Tech Hawaii where community matters. This is a place to come to think about all things energy. We talk about energy for the grid, energy for vehicles, energy and transportation, energy and maritime, energy and aviation. We have all kinds of things on our show, but we always focus on hydrogen here in Hawaii because it's my favorite thing. That's what I'm talking about. This is my favorite thing. It's what I like to do. But we talk about things that make a difference here in Hawaii, things that should be a big changer for Hawaii. And we hope that you'll join us every Friday at noon on Standard Energy Man and take a look with us at new technologies and new thoughts on how we can get clean and green in Hawaii. Aloha. Okay, welcome back to Condo Insider. Jane Sugimura. I'm your host today and we have, as my guest, David Thompson from Hawaiian Management, and we're talking about how boards make decisions. And we were talking about all these very complicated decisions that board members have to do. This is a voluntary board, right? They're elected to their positions on the board. Is there a requirement now that they have to be certified or have some minimum level of education? No, the state law does not require. All they have to do is be an owner. Okay. And so, right now, there is talk about, I mean, in fact, there has been for years, in fact, Senator Baker many years ago and every so often when she has a tantrum, decides that she's going to require every board member to pass a test before they can serve because she's tired of hearing from condos constituents that these board members are bullies and they're just, you know, they're condo Nazis, I guess the term she uses. But anyway, do you think that training, that there is a requirement that board members need to be trained or certified? Well, I don't think it's the role of the managing agent to decide in terms of if there needs to be training, but we do always recommend education. I know our companies, as well as the other property management companies, have a board seminar every year. We educate the resident managers as well on different topics. There's CAI classes, there's HCCA classes. I think the state still does the class. Condor Adams. Yeah. Condor Adams. So there's, we always advocate the education. Correct. Okay. And you know, right now we're hearing about a proposed bill that would require all board members to go through an orientation, a short orientation of maybe two hours and with their association attorney. And basically the two hour orientation would cover things like fiduciary duty, conflicts of interest, the business judgment rule, and the director's obligation to practice independent judgment, code of conduct, and confidentiality of executive session matters. Do you think that this would be helpful to board members who have to do this? I think that all board members need to be educated. I don't think the managing agent should take a role in terms of legislative matters, right? That's not our role. We're here to follow the law and help board members achieve their goals and all those topics in terms of conflict of entry, fiduciary duty, business judgment rule, independent judgment. All those are important topics that should be covered during education. And you've worked with enough boards. I mean, do you see a need, would you see an issue where some of the board members may not know what fiduciary, that they have a fiduciary duty or the business judgment rule? I mean, first of all, these things are all in the statute. And I guess there's no requirement that the board members when they are elected, you know, read the statute, although I think I know in our association when you're elected on the board, you get a copy. We actually give, besides getting, we prepare a packet for new board members, we give them a copy of the declaration, the bylaws, the current house rules, and the current version of 514B. That's what we give them. And they're told to read them. So I don't know if they actually do read them, but there seems to be an issue, I think, amongst the industry, that there is a need to educate board members because we have things like lawsuits. And I mean, there was one in Maui where it turned out that the president of the board and the board members ended up in a jury trial. I watched that show two weeks ago. And it was amazing, some of the stuff that came out about, and it was clear that they weren't familiar with fiduciary duty, that they had a fiduciary duty to the other members of the association. Also, it turned out that they didn't understand that they had to act independently. In other words, they couldn't blindly follow the board president who turned out to be a bully. And so this was a situation where you have a board president who's a bully and eight members who are sheep and just blindly following... As an unfortunate. Yeah, and what happened is that this association ends up paying, I think the judgment is over 2 million, and it's getting appealed. But in the meantime, I think one of the insurance companies is paying, which means that the insurance premium for that association will likely go up. And we heard at the seminar, Sue Saville who represents so many associations say that all of our D&O insurance coverage, the policy is going to go up because there's only two or three carriers in this state who even offer that coverage. And so when you have a huge lawsuit like this happen, then it affects everybody. And I think for that reason, it would behoove the board members who are listening to this show and to talk to their colleagues and other people who sit on boards to find out what their obligations are. And it would make your job a lot easier too. Yes. So we do a lot of education, not only with the board members, but also the owners where we're always... They have a question about something and we always try to coach them along and help them understand how all this works together. When we buy a condo, we get all those documents through escrow. We're supposed to be reading it at that time. A lot of us didn't read it, right? We just initialed and moved on because we were more interested in moving in our unit than we were about reading the governing documents. And if you were like me, shortly after I moved into my unit, I had somebody come up to me and say, hey, would you please join the board? And then a lot of times it's like, well, we'd be the board president, right? So you can quickly get into this situation where you have governing documents that you may not have read, in charge of the association. So we always try to educate and keep people informed and let them know where those education sources are. And when you're talking about... We, you're talking about Hawai'iana and the other management companies. And those courses are usually free. You don't charge for those courses, right? No. The CAI courses are not free and neither are the HCCA ones. Yes, but you can put that in your budget. We always plan for that in the budget. Usually, you know, we'll put in $55 a month for one or two people to go on a monthly basis, but you can do, yeah. And the cost of going to these seminars is covered by statute. In other words, if a board member wants to go through these seminars, all they have to do is tell their account executive to sign me up. Yeah, we let them know ahead and advance it. You know, here's the next seminar. This is the topics that's going to be discussed. Right. And you encourage them to go. Absolutely. And, you know, and one of the things that we hear a lot about, and it comes up every time, you know, Senator Baker has one of her rants because she's gotten all these phone calls and she decides she's going to, you know, make everybody take a test. The response she gets is, but Senator, if you do that, nobody will serve. If you make people, you know, attend mandatory classes and be certified and be, you know, pass a test, who's going to want to serve? And then we already have issues trying to get people to serve on the board. And this is a voluntary board. Do you have a response to that? Well, that's a question for the legislature to work out. But I think there's already a hurdle just to get on the board in the first place, right? Although a lot of people want to serve the board and serve their community, but it's also there's a commitment level, you know, that you know that you're going to be doing, you know, every month or every three months and get involved. So I think that's probably a bigger hurdle than actually education. Okay, but you know, but a lot of the problems that end up in these lawsuits and one of the big hurdles and one of the disagreeable parts about being on a board is that, you know, there's a dispute. And when you have, when you live in a building, a multi-family building with 100 families or 300 families or 400 families or the Marco Polo 600 families, I mean, there's bound to be a dispute, whether it's between the neighbors, whether it's between the owners and the board, whether it's between the owners and the resident manager, you know, with a community that size, you can't, you know, go, you know, it's going to happen. And so you need to figure out how you're going to resolve it. And to me, if people were educated and they knew about fiduciary duty, they wouldn't, you know, and the business judgment rule. I mean, these things are all there to protect them. You know, and if they knew about it, they should take advantage of it. And you know, so for those of you who are listening, if you haven't been on our or to Condorama or to your management agents, free seminars about condominium laws and board responsibilities, you need to think twice about it because, you know, one day, I mean, you're going to get a dispute where the board is going to be sued and it's not pleasant because what happens is they sue all the board members, right? Right. They sue all the board members and that means that then you have to call you personally, if you're on the board, you need to then tell your carrier, your homeowner's carrier, that you've been sued. You know, so it does affect you as a unit owner and as a board member. So in order to avoid all this, I mean, you know, I would really think that educating yourself on the condominium statute and what a board is supposed to do, you know, and recognize that you've got a fiduciary duty, you cannot make decisions based on conflict of interest and if you're not sure, you have to ask. That's what the Business Judgment Rule says. If you don't know, you need to ask. You need to ask a professional and you need to get a written opinion and you need to pay for it. And yes, it's painful because, you know, attorneys are not free, engineers are not free, accountants are not free, they do not work for free. The good thing I tell people, when you pay for their opinion, I mean, just make sure that you're, the consultant that you're dealing with, the attorney or the engineer, that's got errors and omission because if they're wrong, you sue them. Yes, everybody has to be insured. Right. They want to work for the association. Yeah, so this is why, and then when you get an opinion and you act on that opinion, even if you're wrong and you get sued, the insurance will protect you because you follow the Business Judgment Rule. Yes. Right? Yeah, as long as you do your best you can in order to make a good sound judgment, then you should be okay. Right. And that's one of the reasons for the Business Judgment Rule. If you don't know, you need to ask. You need to ask a professional in that area get a written opinion that you pay for and when you get that, and if you don't like that opinion, you can get another opinion. Yeah. You can get another opinion. You can get several opinions and you need to pay for them. You need to pay for them and then based on all these opinions that you have, you make the best judgment and even if you're wrong, you're protected under the DNO because you follow the Business Judgment Rule which says if you don't know, you need to ask. Yes. And then once you ask and get it in writing and you act on that, even if you're wrong, you're protected. Yes. And so that's, I think, the best reason, I think, for going to these education classes and if we had everybody going to these classes and educating themselves, even self-education, we wouldn't have a need for this legislation and we wouldn't have to listen to Senator Baker's rants every three or four years when something blows up and she wants to know, how come? Why is this happening? And the only way we can fix this is if we make everybody, you know, go and take classes and pass a test which, you know, we just don't think it's doable. But anyway, thank you for... Thank you very much for having me on. Thank you for coming on our show and thank you for being our guests and talking to us about decision-making by Council Boards. And next week, please join us for another episode of Council Insider and if I don't see you next week, have a happy holiday. We're getting close to Christmas. So have a merry Christmas. Thank you and aloha.