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.

This being said, far more boards whose managers have severe problems of incompetence, lack of ethics, dishonesty, and even fraud and  kickbacks send letters than manaagers do about boards. Further, while 79% of the letters received since July 2009 point to problems caused by managers, 63% do about boards--although there is a 50% overlap. It does seem that there are more problems of conflict of interest and dishonesty among managers and management companies than among boards.

The second type of conflict of interest resides when contractors hired to service, maintain, and repair the various systems in a condo building are related to the manager or the management company directly or indirectly. This results in maintenance and repairs being carried out that are not necessary; in invoices that are padded; in contracts awarded without a bidding process; fraud and kickbacks--all of which probably costs annually tens of millions of dollars to condo owners in Ontario. 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. 

Overall, the analysis of the letters showed quite clearly that problems with managers in condos tend to be more frequent with  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, and even dishonest 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 whereas the above problems tend to be hidden.

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.