I TAKE EXCEPTION TO "MANAGEMENT BY EXCEPTION"

An Opinion By Jan Bergemann
President, Cyber Citizens For Justice, Inc.

Published October 14, 2010

I guess "MANAGEMENT BY EXCEPTION" sounds pretty nice and is -- according to business information sources -- growing in popularity among managers. That may be fine and dandy, but I fail to see in the Florida statutes anything that empowers the president of the association board to take matters in his/her own hands until the other board members put a stop to it.

Don't forget, that gives a president powers he/she actually doesn't have.

Never forget the rule of thumb about power of an association board: ONE BOARD MEMBER -- ONE VOTE -- no matter what office the board member holds. A board president doesn't have the same power as a CEO of a business corporation.

And what would you say, if you are a board member that observes the president spending association money without prior board approval? Never forget, money spent or a contract signed by the president makes it a done deal -- and the president is well covered by the BUSINESS JUDGMENT RULE. Meaning: Recovery very unlikely!

How about if you confront your president at the next board meeting and ask him for the authority of his actions?

Imagine this president -- as a response -- waves this memorandum from the association attorney in your face, claiming he has every right to "manage by exception" as explained by the attorney:

In addition to the By-Laws provision providing specific executive authority for the President to act between Board meetings, it is customary in most community associations for the president to instruct employees and management staff on a variety of matters, including payment of bills. However, it should be noted that if a president with general executive authority undertakes a matter that a majority of the board believes should have received prior approval of the board of directors, the board at its next meeting can bring that to the president's attention and direct that in the future such matters should not be addressed without formal board approval. This is referred to as "management by exception." It allows a chief executive officer to expeditiously handle matters until the Board takes "exception" and gives specific instructions that a specific matter should be handled differently.
Please let me know if there are any other questions on this issue.

It maybe in the interest of the association if the president acts reasonable, but how do you know that if you only find out about the actions AFTER THE FACT?

Agreed, the president can spend money if approved by the board -- like in the approved budget. He can sign contracts -- if approved by the board.

He can make emergency decisions -- if there really is an emergency caused by a broken main water-pipe or in case of an attack by terrorists (hopefully just kidding!). But all these emergency decisions have to be rubber-stamped by the full board (quorum present) at the next public meeting.

The danger of such a privilege being abused or serious mistakes of judgment being made is just too big. The existence of a board of owners with equal powers was created as a safeguard against bad judgment by one person. This interpretation by the attorney would remove this safeguard. If something goes seriously wrong, who is liable for the damages? The attorney who opened the door with his/her written interpretation? I doubt it! It will again be the owners who will have to pay for the problems created by third parties.

In short: I take exception to the explanation of the attorney that the president of the board of a community association is authorized to "manage by exception," if there is no emergency. I sincerely hope that it is not "customary in most associations."