Problems of Conflicts of Interest, Accountability, and Qualifications

The problems with the management industry are threefold: the issue of allegiance and conflict of interest;  the issue of accountability to owners/corporation rather than just to boards; the lack of expertise and training of managers and administrators. The first two issues are rarely discussed but are very prominent in the letters received. Therefore, we begin with these.

Problems of Conflicts of Interest

There are two sorts of potential conflict of interest on the part of managers.

The first stems from the structure and ethical culture of management companies. Indeed, most managers and administrators who work in condos owe their allegiance to the management company rather than to the condo corporation they work for. They are in reality accountable to their company first and secondarily to the board of directors...and, far behind, to the corporation and owners at large.

In itself, this represents a conflict of interest. Let's explain this situation: Boards are in charge of condos and, as such, are the employers and the supervisors of the management company. In fact, they generally hire this company. However, as we see in the chapter on Boards of Directors, and particularly in Readers Respond, not all is well in the domain of boards.

A few managers have themselves written that their management company always sides with boards of directors, no matter what. Why? Because companies value their contract or "account" above all and want to keep the condo. This is a question of money. Going against a board's or a president's decision--even when wrong--might jeopardize the contract.

Thus, it frequently happens that the interests of owners/corporation clash with those of an inexperienced or unethical board. In such cases, the manager is more likely to side with the board, usually at the urging of her management company. Hence, owners in such situations have no recourse because both boards and managers are unreliable.

For instance, some letters describe managers who attempted to resolve a situation  but were overruled by an unethical president or an ignorant board. Upon consulting with her company, the manager is told to do as the president said.

The second type of conflict of interest resides when contractors hired to service, maintain, and repair a condo building are related to the management company directly or indirectly. For more on this widespread problem, please consult readers' letters in Issues of Fraud, Kickbacks and Conflict of Interest.

Problems of Accountability to Corporation

This problem has already been partly described above. It stems from the conflict that exists between boards' interests and decisions and the good of the entire corporation.  In other words, with unethical or inexperienced boards of directors and the fact that boards of directors' duties are to hire and supervise managers, obviously, a manager who wants her company to retain a condo contract, will not be accountable to the corporation on certain issues, but to the board (and to her management company).

Overall, the analysis of the letters showed quite clearly that problems with managers in condos tend to arise more from boards who are inexperienced, or unethical, or not hands-on. Such boards are the least likely to make wise decisions and to properly supervise their managers for the good of the corporation. They are also the most likely to tolerate a manager's irresponsibility, lack of accountability, disrespect for owners, and conflicts of interest.

In contrast, an ethical, experienced, and hands-on board or president will not tolerate any nonsense and will see to it that a manager and the company do their job. Even with an inexperienced and incompetent manager, such good boards can well keep their condo in good condition.

Problems of Inexperience and Lack of Qualifications

This is the problem which is the most widely discussed. It is the most visible.

Many veterans in management as well as other experts agree that there is a crisis in the management industry: In part, it is a question of supply and demand. Too many new condos have been built within a very short time while too few competent and experienced managers are available. As well, it is an issue of lack of licensing and training. (Click here for What Should Be Done to Improve the Management Situation)

Currently, some companies cannot meet the demand for competent managers and are honest about it. They may, instead, offer the services of an assistant manager and this may work out well. But other companies hire managers who have absolutely no experience.  Still other companies even go so far as hiring managers or assistant managers who have been fired from a previous job or received poor references. Such persons may even be sent to condos that are in deep trouble.

These may be older condos that have under-funded reserves, or no reserves at all, or have debts and need countless repairs and replacements. Owners may not be financially secure nor well informed. These condos may be located in a difficult neighbourhood and have multiple problems that would need very experienced managers. Yet, they do not get them. (For info on providing support for management companies that have distressed condos, click here into What Should Be Done to Improve the Management Situation)

What happens when condos in general receive an untrained manager? It may take two years for a new manager to acquire enough experience and knowledge to do a reasonable job. This length of time is detrimental to condos. Inexperienced managers do not even know where to start because they are so far behind.

In the large correspondence received, only two owners did report that a management company had resigned in the face of a board's irresponsible decisions. As well, some directors also wrote to mention that their manager had pointed out potential problems in their decisions; because these managers were trustworty and knowledgeable, the board listened to them.

For further information, a section follows which highlight problems that occur as a result of incompetent and inexperienced managers.

Since this website has been posted, countless letters of complaint about incompetent managers have been received from owners, directors, and competent managers. To read these letters, please click here on Issues with Management Companies and Managers.

Examples of Specific Management Problems That Arise

Managers who lack experience and qualifications cause a great deal of problems for condos, their owners, as well as for the reputation of competent managers.

Problems for Condos

• Poor record keeping. For instance, invoices cannot be found; new owners and tenants are not properly registered; minutes of board meetings go missing; financial statements are late; contracts are misplaced; no list of contractors exists; deadlines for contract renewals are not kept so that boards of directors barely have the time to study quotes; status certificates are not updated.
• Condos fees may not be paid on time or collected. Rental fees for lockers, for instance, may not be collected for months, so that condos lose money.
• Contractors may be called to solve problems that better trained managers would be able to solve with the help of superintendents. This is costly for condos because these contractors have to be paid. (Click here for Misuse of Funds and Fraud)
• Various technical systems are not maintained because contracts are not renewed on time, contractors not paid, or yet managers may not even know that some systems exist.
• As well, systems may fail sooner than normal because of lack of maintenance or improper understanding of how they work.
• Or else, contractors may be constantly called in because neither the manager nor her/his staff can deal with even the tiniest of problems.

• Other staff, such as janitors, may not be supervised and therefore may not do what they should. In other instances, they are allowed to do whatever they want... and very little of anything. 

Problems for Owners

• Rules may not be enforced. Managers and boards may themselves invent rules as they go or enforce only those that please them.
• Fees may go up unnecessarily because of unwarranted expenditures.
• Budgets and annual general meetings are not prepared in a timely fashion.
• Owners may be refused access to condo documents and boards.

• Residents do not receive information that could help them save energy, prevent them from causing damage to pipes or drains, prevent injuries. Energy saving initiatives undertaken under a previous management may no longer be carried out, which can have long-term consequences for budgets and owners’ fees.

Problems for Competent Managers

The status and reputation of competent and experienced managers is negatively affected by the lack of qualifications of too many other managers and by the unprofessional way in which some companies deal with condos.

• These qualified managers would like to be respected as professionals but the structure and standards of the entire industry works against this. As a result, their status is not as high as it should be and they are not taken as seriously as they would otherwise be.

• Some feel very conflicted when they hear that boards justifiably complain about unqualified co-workers. Some managers surreptitiously try to “make it up” to condos by helping with suggestions, even though they are not paid for this. Some change companies in the hope of being with more competent persons.

• In turn, the high visibility of incompetent managers with unprofessional behaviours means that educated young persons seeking a worthwhile occupation with a good social status do not choose to go into management, even if this type of work appeals to them.

• This certainly does not help increase the supply of competent managers. Indeed, a solid mass of competent managers would see to it that the companies that hire them become more ethical, qualified, and accountable.

Problems of Management Company Turnover 

Another serious problem occurs when condo corporations change to another management company. You would think that the old and the new managers would meet so that there is a turnover of knowledge, wouldn’t you? Actually, this may not happen. All that may be turned over are those documents that are generally kept at head offices.

However, this lack of transmission of knowledge may not present much of a problem when the new administrator or manager

• is experienced or well trained: he or she will then know what to look for;
• is willing to ask questions to the board in order to understand what has been achieved in the past and what was being planned;
• is mature enough to realize what he or she still has to learn;
• and is backed up by a management company with a policy of accountability to their condos’ boards of directors and corporation.

Unfortunately, as seen above, what condos too often get is an inexperienced person who needs a great deal of training and does not even know where to begin. Or yet, they get a manager who has been "kicked out" of another condo for incompetence or unethical practices.

In contrast, competent managers, upon hearing that they will be transferred to another condo, make it their duty to visit the building or townhouses on their own time and seek information from the manager in charge. (This should actually be a management company policy.) At times, it is the outgoing manager who refuses to help the incoming one because of anger at losing the condo contract.

These same mature managers meet the staff and board president before, ask questions, and begin planning.

Another problem arises when a management company takes over a condo that has already achieved a lot and behaves as if this condo was totally new and had never done a thing before.

When this happens, the new management company may bring in all manners of new forms, notices, and standards that end up confusing everyone because the condo was already very experienced. It is actually surprising how often this happens. The new manager may shrug her/his shoulders and say, "This was before my time," as if the past does not count and proceeds to reinvent the proverbial wheels. Very bad for business! Much time is wasted.

Managers and management companies are paid to adapt to a condo’s situation, to repair it if it is failing, but to continue in its standards when it is successful. They are not paid for the building to be turned upside down to adapt to them. Unfortunately, in times of scare supply and high demand, condos do not have much of a choice and have to put up with a great deal of incompetence.

What Should Be Done to Improve the Management Situation?

Management should be dragged into the 21^st century era of professionalism and credentials. Management has to become the real profession that it deserves to be (see last section below).

• Colleges and universities should offer degrees in property management. This would provide a more systematic education. Such degrees or diplomas could take place within faculties of administration or even business schools.

• However, seasoned managers with years of experience and who are extremely knowledgeable should receive credits. After a meeting with an accrediting board, these highly qualified persons should receive an accreditation and an equivalency diploma or degree. Otherwise, the condo industry would lose some of its best persons.
• This education would include a “stage” or internships during which students would work in various types of condos (and apartment buildings) under the supervision of a professor and experienced managers. The model of faculties of education, nursing, and social work can be considered in these respects.
• A professional group should exist that would accredit managers, as is the case for nurses or social workers, under an appropriate government ministry’s jurisdiction.
• After obtaining a diploma or a degree, graduates would begin paid employment as assistant managers and receive proper supervision from an accredited management company. They would become full managers after a few years of experience.

Management companies should be regulated (see below).

• Mandatory evaluations of managers and management companies should be carried out yearly by boards of directors with the understanding that companies are bound to meet reasonable standards and have to make an effort to improve a deficient situation.

• A special independent Condo Office (independent from interest groups), or a Condo Ombudsman, should receive and enforce these evaluations. As well, the Office would support competent managers who encounter difficult problems in a condo.

Regulate the Management Industry

Indeed, a large source of problems for owners in Ontario and other provinces resides in the lack of regulation and licensing of the management industry. As things stand, anyone can start a management company and anyone can become a manager—and, often, anyone does...!

While many management companies, both small and large, are very competent, others lack competence and even integrity. Management companies should meet certain government standards and should be regulated by the Ministry of Consumer Affairs. Efforts are made in this direction by groups of management companies themselves but they have no authority in setting and enforcing standards. They are voluntary groups that, in effect, can easily be derailed by conflicts of interest from within the industry.

Professionalize Managers

Currently, there are many avenues that lead to becoming a condo manager or administrator but none involves a commensurate education or professional training resulting in a degree.

At times, management companies turn to office staff who may be qualified in accounting and general record keeping, and promote them to the management of one or more condo buildings. Another avenue taken consists in management companies transforming superintendents into managers or administrators. Yet another avenue sees concierge staff become managers.

There is nothing wrong with promoting persons or with persons changing their line of work. Quite the contrary. However, what is wrong here is that this occurs without the necessary education and training. And condos pay the price.

As well, on-site “training” is usually detrimental to condos because it is not backed up by management companies. In fact, some companies discourage and downplay the efforts of conscientious boards who try to train inexperienced managers.

Let’s think of it this way: Hospitals do not transform janitors or secretaries into nursing staff! If a superintendent wants to become a nurse or an assistant nurse, he returns to college for a proper term of education and training.

Similarly, secretaries do not become instant business managers: They return to college to acquire the necessary education or, yet, go through years of acquiring experience before reaching this goal.

Condos must be the only multi-million-dollar businesses around that are managed by persons without commensurate credentials.

Support for Management Companies Faced with Distressed Condos

Self-Management

Some condos, especially small ones, decide to self-manage. How does this work?

An owner or one of the board members, generally the president, takes on this role for a stipend. This is permitted by the Condo Act but a by-law has to be passed regarding remunerations. In addition, this by-law has to be renewed as the years go by.

One president said that it was less stressful for him and less time consuming to be the manager:

“I am doing in the same number of hours what I used to do as the president plus what the former manager used to do. I waste less nervous energy than when I used to be repeatedly asking that things be done when I knew they weren’t getting done. My time is more efficiently spent doing what needs to be done rather than worrying that it’s not getting done.”  He has about 185 suites and does all the work in 20 hours. Before, the manager used to put in 25 hours while the president put in 15! And the current president spends only one hour each week monitoring the situation.

But it is certainly a risk for an owner to undertake such a job because he or she is constantly on call and at least one other board member has to act as a substitute for vacation and in times of health problems.

Needless to say that self-management is not for everyone. The owner/manager has to set boundaries so that residents do not show up at his suite and do not constantly approach him with complaints while in the pool or in the gym. One also has to be careful to avoid conflicts of interest and treating some residents better than others.

It is advisable, but not mandatory, that a director who becomes the manager resign from the board position to avoid conflicts of interest created by joining the two roles of employer and employee. A president-manager is not generally well supervised by the board. This could be a problem in terms of misuse of funds and lack of accountability.