Fiduciary Duty Is Broken: Boards Are Ignoring the Rules They Swore to Uphold

There’s a moment that happens in almost every board meeting I’ve ever attended. Someone reads the agenda item labeled “Financial Review,” everyone sits up a little straighter, and someone else clears their throat with great ceremony. Then… nothing meaningful happens.

A few numbers are read aloud.
Someone nods.
Someone else says, “Looks good. I move to accept the financials”
And the meeting marches on.

Meanwhile, the association’s future is quietly drifting into dangerous water. After nearly five decades of doing this work, I can tell you something most people won’t say publicly: Fiduciary duty is being ignored every day… not loudly or dramatically, but silently, through inaction.

It’s not because boards don’t care. They do, and most members try to do their best. It’s because this fragile “volunteer” based system is still structured to encourage avoidance, fear, and unfortunately for many communities, short-term thinking. And many homeowners are now paying the price for this paralysis by analysis.

Fiduciary Duty Isn’t a Fancy Phrase… It’s a Legal Obligation

Many board members think fiduciary duty is a ceremonial idea, something polite, official, and symbolic, like high school marching band uniforms. But fiduciary duty is as serious as it gets.

Let me put it plainly: When you sit on a board, you are responsible for other people’s

money! (OPM) Not theoretically. Not casually. Legally.  You must act in the best interests of the community and seek to safeguard their assets, make informed decisions, seek professional guidance, follow the reserve study, and document the process.  

You must not act in the best interest of the loudest homeowner. Not in the best interest of your personal preferences. Not in the best interest of “how we’ve always done it.” But in alignment with what the law calls the highest duty of care.

And yet…most violations of fiduciary duty happen quietly and unintentionally.

The Most Common Breach Happens in Silence

Fiduciary failures don’t usually come from dramatic misdeeds. They come from

comfortable habits. I’ve seen boards violate fiduciary duty by skipping reserve study updates, ignoring professional advice, avoiding assessment increases, leaving reserves idle, concentrating millions in uninsured bank accounts, making big decisions without documentation, choosing popularity over responsibility and deferring maintenance because “owners will be upset”.  The most dangerous words in any board meeting are: “Let’s table that for now and wait until next year.” That phrase has sunk more communities than any storm, lawsuit, or economic downturn.

The Current System Has Trained Boards to Play Defense, Not Lead

Most board members step into their roles with good intentions, they want to serve, protect, and improve the value of their communities, and their own home.  But many unsuspecting boards immediately step into a culture of fear, a fear of raising dues, afear of transparency, a fear of upsetting homeowners, a fear of taking responsibility, and a fear of asking for help…So, what do some of these board members do? Sometimes they stay quiet, sometimes they delay decisions, sometimes they approve the bare minimum and sometimes they avoid rocking the boat.

When you took that seat on your board, fiduciary duty becomes something you promise to uphold… yet are afraid to enforce. This leads to many unsuspecting boards immediately stepping into a culture of fear with an environment of fear of raising dues, a fear of transparency, a fear of upsetting homeowners, a fear of taking responsibility, and fear of asking for help. 

So, what do some of these board members do? They stay quiet, they delay decisions, they approve the bare minimum, and they avoid rocking the boat.

The Business Judgment Rule Isn’t a Magic Shield

Boards often believe: “We’re just volunteers, so we’re protected.”

That’s true only if you follow the advice from experienced professionals, statutory obligations, documented processes, the reserve study data, the investment policy (if you have one) and a standard of care.

If you ignore experts and data.  If you let reserves sit idle, dismiss recommendations or warnings, underfund intentionally or choose convenience over compliance.The business judgment rule won’t save you.

The end of that story is… You’re exposed. Your board is exposed. Ultimately, your community is exposed. And I’ve seen associations learn this the hard way.

When Communities Collapse, Literally, It’s Rarely Because of One Big Failure

People often blame storms, insurance spikes, broken pipes, failed roofs, emergency repairs, lawsuits and the previous Board.  But those aren’t the causes. Those are the symptoms. And unfortunately, the cause is the years, or sometimes decades before the crisis, when fiduciary duty was quietly ignored communities crumbled from neglect, not catastrophe.

So, Who’s Responsible for Fixing All of This?

Everyone has a unique role in this complex tapestry. Board Members, Managers, reserve specialists, investment advisors and homeowners. But your board of directors holds the pen. Strong boards usually embrace transparency, welcome and encourage expert input, follow structure and professional Management and communicate early and often supporting their fiduciary duties. You should also document everything, make the hard decisions and remember, don’t treat reserves like political landmines.

Weaker boards tend to avoid conflict by becoming complacent.  They rely on habit and fear owner backlash which leads to shrinking from responsibility.  They also delay maintenance and hope problems solve themselves.

Hope is not a fiduciary strategy.

The Path Forward Requires Spine, Not Magic

The solution isn’t complicated, it’s just uncomfortable for many of us:

Update and review the reserve study every year.
Follow the recommendations.
Adopt a formal written investment policy statement (IPS).
Invest reserves according to specific cash flow requirements and timelines.
Use multi-bank FDIC strategies.
Include professionals on your team.
Stop trying to make everyone happy.

You can’t protect and enhance property values while running from reality.  Leadership demands nerve.

One Question Every Director Should Ask Tonight

“Can I look at our homeowners and my neighbors, and honestly say I’ve upheld the duty they entrusted me with?”

If the answer is yes, keep going. You’re on the right track.

If the answer is no, please start fixing it tomorrow morning. Not next year, not “when things calm down.”, not after the next election. Do it Now.  Because fiduciary duty isn’t a slogan. It’s the foundation of community stewardship.

A Final Thought

Boards don’t fail because they’re unqualified, or uninterested. Boards fail because they’re afraid. But communities don’t need timid leadership. They need courageous leadership. The kind willing to speak the uncomfortable truth.
The kind willing to act while others stall.
The kind that understands that the safest path is the one with structure, transparency, and follow-through.
Fiduciary duty isn’t broken beyond repair.
It just needs boards that are brave enough to reclaim it….