A.G. from New Hampshire writes:
Dear Mister Condo,
In a recent vote by our Board of Directors, our Association renewed a CD as it would receive about .05% higher interest for a 1-year CD than from competitor banks. The problem (if there is one) is that a resident of our Association is the President of the Bank. I feel that this is a conflict of interest and I abstained from voting but it passed 4 to 1(abstention). The issue is, which better represents the interests of the community and the wisest decision on the part of the Board of Directors; a potential conflict or a higher rate of return?
Mister Condo replies:
A.G., the Board is entrusted to make the best possible business decisions on behalf of the association. You have shown a concern and are being vigilant about making sure that no conflicts of interests are made while managing the association’s cash, arguably its most precious asset. This is truly admirable. However, the association member who is the bank president is not on the Board and has no authority to direct where the association invest its money in a CD. The banking industry in general is so highly regulated and insured that it is highly unlikely that there is any risk whatsoever to the association in this transaction. In my opinion, there is no conflict of interest here. As you have detailed from the vote, your fellow Board members had no problem voting in favor of investing in the CD with the bank. You were correct to abstain based on what you felt was the right course of action but I really don’t think there was a problem with this decision. All the best!