GDI

The cases for and against professional directors

Panelists square off in a debate over the merits of replacing volunteers with paid experts
Thursday, November 19, 2015
By Michelle Ervin

Through the course of Ontario’s Condominium Act review, volunteer board directors took a lot of heat for their perceived part in the problems proliferating in this unique housing type. Whether the assessment was fair or not, the resulting recommendations to the provincial government, which is now considering amendments to proposed legislative changes, included mandatory basic education for first-time directors.

“Is this going to have a chilling effect on people who want to be on the board?” condo lawyer Richard Elia asked rhetorically. “We don’t know, but what’s coming up a lot is this idea of the professional director.”

Elia, speaking at the ACMO/CCI-T Condo Conference last Friday, served as moderator of a debate on the subject. As background, he indicated that it’s arguably possible to hire a professional director now, but that the current and proposed updates to the legislation lack specific provisions for such a move.

Bill Thompson, president of Malvern Condominium Property Management, and Christine Dunn, a past board president, argued in favour of professional directors.

“Condos across Ontario are finding themselves with massive special assessments, leaky roofs, aging infrastructure and out-of-control policies,” said Dunn in her opening statement. “They’re going to court to fight battles in record numbers. And everywhere, requisitioned meetings to remove directors are popping up like dandelions.”

Ian Waldron, a current board president, and Carol Dirks, a condo lawyer at Fogler Rubinoff, argued against professional directors.

“A competent amateur board of directors can accomplish as much as any professional paid board of directors, and in fact, it can accomplish so much more,” Dirks said in her opening statement. “These persons have the pulse of the community, and for them, this is not just a job, but it’s a home, it’s a community, it’s a lifestyle and it’s an investment.”

“You have to own and live here to know what’s best.”

In round one of the debate, Elia posed a statement to the panelists that spoke to the extent to which directors should be objective versus subjective.

The pro side contended that directors need distance from the condominium community to make difficult but necessary decisions. For example, Dunn raised the hypothetical of a director facing the prospect of a fee hike who ultimately delays the fee hike considering many of her neighbours are on fixed incomes. And for the director who fearlessly does what needs to be done, there’s the potential for backlash.

“Try and go in your elevator after you’ve just told people maintenance fees are going up,” said Thompson.

The con side countered that directors require closeness to the condominium community to meet its unique needs. Dirks noted that many decisions are community specific.

Waldron pointed to his own corporation’s experience as a party to the well-known Skyline cases. His board ultimately ignored the advice of many professionals who were advocating for accommodation and compromise, which is what he suspects a professional director would have recommended.

“We decided that that was not good and that was not right, and we engaged in a three-year court battle to get the hotel group out of the building,” said Waldron. “We were novices, complete novices, but it was the only route we could take because it was the only way we could serve the owners.”

“I’ve been running my home for years. Why not a condo?”

In round two of the debate, Elia asked the panelists a question that spoke to the role of education and experience in the complexities of running a condo corporation.

In her opening statement, Dunn had already argued that proposed mandatory director education would be no match for the experience of a professional.

“Can you think of what it’s like to be a director in the first two years?” she asked rhetorically. “You’re going to be facing things like Tarion, performance audit, first reserve fund study, first budget management, turnover responsibilities and legalities.”

In his opening statement, Waldron had already made the case for directors to consult advisers as necessary. He believed that putting a professional director on the board would have one of three results: The volunteer directors would always defer to the professional director (hurting democracy), the volunteer directors would always outvote the professional director (making his or her fees a waste of money), or the volunteer directors would turn to the professional director for an expert opinion on major challenges (so why not instead consult advisers as necessary?).

Back to the question: Thompson was quick to distinguish the difference between running a home and running a condo. The consequences of a homeowner’s decisions start and end with the homeowner, he said, while costly mistakes in a condo setting are borne by all owners.

“The board can pass votes, but surely anything of significance goes to the owners for discussion and consideration,” countered Waldron. “We get feedback all the time because we don’t feel that we want to make a mistake.”

And Dirks added that the directors can turn to their professional property management firm for advice.

The con side also repeatedly advocated for director education and succession planning, with Waldron underscoring that volunteer directors have transferable skills from their personal and professional lives.

The pro side pointed out that once directors reach the end of their three-year term, the corporation begins all over again with green volunteers. And the many small corporations outside of the GTA may not have as deep a talent pool, Dunn said.

“I purchased care-free, turnkey condominium living.”

In round three of the debate, Elia posed a statement to the panelists that spoke to what level of involvement owners ought to have in the running of their community.

Thompson agreed that condo living should indeed be care free, saying that owners ought to hire professional directors to run the corporation just like they hire professional cleaners and landscapers to maintain the building and grounds.

“How many times do you go and say to your owners, ‘Okay, we’re painting the hallways this week; everybody’s going to be issued a paintbrush’?” he quipped.

Waldron, however, said anyone looking for care-free, turnkey living should go rent. He also argued that owners should be more involved in their corporation and that the proposed changes to the Condominium Act fail to address apathy.

Dunn commented that it’s impossible to legislate owners to participate in the affairs of their corporation.

Dirks, meanwhile, was more optimistic, contending that owners want to be apprised of their corporation’s business, which would not qualify as turnkey living.

“How many condominiums have you been in the annual general meeting where the owners don’t want a say in what’s going on in their own building?” she asked. “I can’t think of one.”

“Administrators cause fees to increase.”

In round four of the debate, Elia posed a statement to panelists that spoke to the issue of cost by way of the court-appointed administrator, which he described as an extreme version of a professional director.

In his opening statement, Thompson, who serves as a court-appointed administrator, had contended that professional directors would result in cost savings. He suggested their fees would represent around one per cent of the budget and that those fees would be recouped by avoiding expensive mistakes.

In his opening statement, Waldron had said he found Thompson’s figures “intriguing,” firing back that they amounted to less than minimum wage.

Back to the round four statement: Thompson refuted the idea that court-appointed administrators lead to fee increases.

“No, they don’t,” he said. “The volunteer directors cause the maintenance fees to increase because they didn’t set the fees at the right place.”

Dirks rebutted this, saying that court-appointed administrators can absolutely cause fees to increase.

“They’re only there for a short time, and they’re trying to cram everything in in two or three years, until the court releases them,” she said.

Waldron, whose condo was under court-appointed administration after the Skyline case, found that his corporation’s overseer essentially rubber-stamped the board’s work, which indicated to him that the exercise was of little value. But Dunn suggested that perhaps the exercise is precisely what enabled Waldron’s corporation to run the way it does now.

“Is there some middle ground to be found?”

To conclude the debate, Elia asked whether there was some compromise to be reached.

All of the debaters conceded that there may be room for a mixed solution: professional and volunteer directors at the same table. They just disagreed on how it should look.

Said Dunn: “I think it would be great if we could hire a professional director to sit on the board with us in a collaborative fashion — not the administrator, but someone who could bring something more to the table, someone who could help us think about things like succession planning.”

Thompson advocated that the majority of the board be selected from a list of professional directors, with a view to their skills and the challenges that would be coming up for the corporation in a particular three-year term.

Dirks was open to the idea one professional director sitting on the board, but contended that hiring three professional directors would be cost-prohibitive. What’s more, she said, the amount the corporation would spend on three professionals could pay for a lot of expert advice from other professionals, including accountants, engineers and lawyers.

Waldron offered that corporations with inexperienced directors could benefit from the assistance of a professional adviser after turnover.

“If you don’t have somebody who’s had condo experience, preferably condo board experience, it might be very, very useful to have someone available to help you through that first year,” he said. “After that, I think you need to stand on your own two feet.”

Michelle Ervin is the editor of CondoBusiness.

6 thoughts on “The cases for and against professional directors

  1. I am a ‘first-year’ voluntary director voted in by the owners. As a retired professional civil engineer, I have dealt with many situations and decision-making occurrences similar to ones a condo board sees. My board has met all the requirements of the condo act… getting reports on reserve-fund studies, etc. It seems that so-called ‘professional’ directors will work for management firms but OWN no condo units, and would over-ride owners’ wishes and decisions with no recourse. They get paid fess (who sets the amounts?) for which the boards may not get proper advice. Also, my condo facility (96 new units) is run as a self-managed board and with advice from lawyers or engineers as needed, carries on duties without red-tape and ‘outside’ interference. I am firmly against so-called “professional directors” but think that educational courses for volunteers may be useful (again, who is the “god” that sets out course content, and why?).

  2. In debating for or against professional directors, the debaters seem to forget the role of the professional property manager who should act as first source of expert advice to the directors. He/she should have a fiduciary duty to insist on outside expert advice (of a lawyer, accountant, engineer or architect) in cases where the directors are not able to take proper action on their own. In my opinion a professional director might be considered to assist the novice board of directors in the first 2-3 years of a new building. Educating new volunteer directors might be a good idea but their dedication cannot be matched by an outsider no matter how knowledgeable…

  3. I have been managing condominiums since 1988 and am now semi retired. I can tell you from first hand experience that self managed corporations not only do not safe money but actually spend more than needed. Their boards do not have the economies of scale and clout a management company has, the majority of them don’t have the technical knowledge to understand maintenance and repair issues and they don’t have the long term planning experience, to name just three points. Yes, there are many “managers” out there that unfortunately should not be in the position that they are in. That is why a truly professional board member would be of great value to a condominium corporation whether professionally managed or self managed.

    Tom Deutsch

  4. Of course there will be some problems running Condos. My main query is, what constitutes a “professional director” and how would one be created.. In my situation, being familiar with one’s condos and its owners is a great advantage to making the “proper” decisions. Again, with advice (when needed) from actual “real” professionals (lawyers, accountants, engineers, etc), we keep on a straight track. Those pushing for “professional directors” seem mainly to be existing management firms. I suspect if we asked the unit owners if they wanted “professional directors” [definition to be described later] and that their condo fees will rise by “???” dollars, enthusiasm would be lacking. Surely unit owners in a condo are the only stake-holders here and must approve the ‘imposition’ of such an outside “nanny” state on their assets, so as to have it democratically occur. Let’s abandon this concept of “professional?” directors.

  5. Had $600,000. charge for fixing fire hazard mistake from builder 16 years ago. Board 13 years ago signed off with builder on this for less than $10,000. Property Mgr. apparently didn’t tell Board it was code issue and had to be done immediately. President at time was experienced in Engineering. This not only disaster but biggest. Professionals could not possibly cost as much as mistakes can.

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