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Best Practices, Budgeting, community associations, Management

Building the Association Budget: Fundamentals, Hard Work & Guts – Part 3 (Components of a Great Budget)

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We’ve established the purpose of a community association budget. We’ve learned the benefits of applying sound methodology  Now we are ready to dive into the nitty gritty.

Budget formats can vary significantly. Their contents depend on the complexity of the property. A 300-unit condominium association with a central HVAC plant and staff will have a more intense budget than a 30-home HOA. But the best budgets tend to have a few things in common, regardless of their scope and complexity.

How Do We Get There from Here? Essential Budget Components

There are two basic components that can help support the budgeting disciplines outlined in the first two parts of this series.

First, a comparative spreadsheet helps to see patterns and context. At a minimum, it includes columns for:
• next year’s proposed budget
• current year’s adopted budget
• projected current year-end results
• last year’s audit results

To gain longer range perspective, prior year budget and audit figures can be added. For smaller communities that may not engage an independent auditor each year, unaudited figures are better than nothing. The goal is to see the reality of past performance in order to help plan for the future. To provide context for the current year’s projected column, a year-to-date column may be helpful.

The next component requires the most work. It is also essential to understanding what’s behind the cold, hard numbers in the budget. A detailed narrative, in which each line item and the assumptions behind them are expressed in detail, can make a huge difference. The process of creating, reviewing and editing the narrative is where each line item is challenged. Exactly what is included in “miscellaneous administrative” or “landscaping non-contract?” How was the total annual figure calculated? Memorialize it. If “meeting expense” includes recording secretarial services at $175 per meeting times 12 meetings, plus an allowance for light refreshments at the annual meeting of $300 and room rental for the annual meeting at $250, put it in writing. Include contract details. If the terms of a two-year janitorial service contract include a $2,000 per month fee with an escalation of 1.5% at the May anniversary, show the math: ($2,000/mo. x 4 mos.) + ($2,000/mo. x 8 mos. x 1.015 increase) = $24,240. It’s kind of like 3rd grade arithmetic – show your work!

Other Useful Components

Line items that require significant funding can be carefully budgeted and communicated by supplemental worksheets. A high rise with large utility usage can benefit from the compilation of utility logs. Several years of utility use can provide valuable data to make the 12-month spread more accurate, track energy conservation efforts, and mitigate some of the guesswork involved in developing the budget. If the association is in a locality where it can buy natural gas and electricity on the futures market in bulk, the gross rate can be very accurately estimated. (Accurate usage) x (accurate rate) + contingency for unusually hot or cold weather will result in a nice, tight budget.

Associations with large staff may benefit from a detailed personnel worksheet to capture the potential cost of coverage for full-timers while on leave, allowance for pay increases, overtime, and state and federal unemployment tax costs. The methodology used by health insurers in determining premiums can also create budgeting headaches. A detailed worksheet can help in estimating costs.

A statement of capital expense cash flow and reserve contributions can help demystify the calculation for replacement reserve contributions. We will cover this in greater detail in Part 4 of this series.

Finally, some people are visual learners. If charts and graphs help community members to grasp the data in the budget, use them.

It’s Good for You…and Everybody Else

There are many benefits to fully utilizing these components. The discipline to analyze and prioritize wants, needs, and realities with the financial plan is maintained. There will be a clear understanding of the plan for the upcoming year. And the final document helps to ensure continuity from year to year in the event of volunteer or management turnover. These two components, if well-crafted, show the results of the combined trend and zero-based approach and give community members confidence in the plan, their leadership, and their management. The transparency built into the discipline builds trust. And trust is everything. 

Next…

In the next segment, we will offer tips for communities facing the challenge of change. There are additional components that can be included in the budget package. Additionally, leaders and managers of communities facing challenges can be filled with anxiety. We will share communication strategies to help.

Best Practices, Budgeting, community associations, Management

Building the Association Budget: Fundamentals, Hard Work & Guts – Part 2 (The Method)

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In the first blog in this series, we covered the basics. A focal point of that piece was clarifying the real goal of a budget. It’s worth repeating:

The purpose of the budget is to create a reasonable plan to finance the operation of a community association in accordance with the realities of property condition and in accordance with the vision and values of the community.

Focusing on the purpose helps stakeholders gain clarity and provides context. It also gives them some tools to make tough decisions when needed.

The Past, the Present & the Future

The inability to predict the future is a common human weakness. We really stink at it. And yet, predicting the future is what budgeting is all about. While, we will never get it exactly right, we can hedge our bets with sound methodology.

This methodology will also help to avoid other all too human foibles. Ignoring the past is always a fantastic way to ensure disaster. Seeing past our biases to recognize current realities can also be a challenge.

Trend or Zero-Based?  Both!

There are two basic budgeting methods – “trend” and “zero-based.” Trend budgeting uses the current year’s budget as a baseline and assumes an incremental increase each year thereafter. For example, if the landscape non-contract line item is $10,000 and the annual inflation assumption is 2%, the budget for the following year will be $10,200. Frequently, the same multiplier applies to all line items. There may be some variations from line item to line item in the actual expenses during the year. However, the hope is that the overall bottom line will come out about right. Do communities apply the same percentage to all line items?

Zero-based budgeting is far more robust. It is commonly utilized when drafting a budget for a community that has not been built yet. Those writing these budgets use all available information about the planned project. They attempt to visualize what it will take to operate the property when built. Finally, they proof each operating line item for accuracy against similar properties and industry knowledge.   The reserve contribution line item is calculated by creating a reserve schedule, compiled using RS Means data and construction figures provided by the developer.

The best budgets for existing community associations use elements of both methods. Every single line item should be scrutinized and challenged with a fresh set of eyes each year. The analysis may result in some cost savings, or it may result in creating new line items to reflect expenses not previously required. At the same time, history and current conditions help predict the future, like it or not. Uncontrollable trends cannot be ignored. They must be reflected in the affected line items. Assembling the information necessary to analyze data from the past and seeing the present clearly will go a long way towards creating a viable plan for the future.

Why All the Work?

One benefit to this approach is that it helps to build trust. Members, who are reasonably concerned about how their money is spent, are more likely to recognize the scholarship woven into the process. The budget document will provide some level of comfort that money is not being spent needlessly. It isn’t something conjured up to make the numbers look good, or to achieve some political purpose. The figures represented in each line item mean something. They’ve been vetted thoroughly. They are grounded in reality and reason.

The discipline inherent in the methodology can also help to explain reality to homeowners. It is simply not realistic to imagine that HOA fees can remain flat when rising costs impact every other facet of life. Any architectural, mechanical, electrical, landscaping, or plumbing component becomes more expensive as it ages until it is finally replaced. I like to share an automotive analogy to help make it real. I can make a classic ’57 Chevy Belair my daily driver. But my running costs are going to be much higher than if I bought a brand new Honda Accord. If I fail to recognize that reality, I won’t have the money to keep the Chevy on the road.

What’s Next?

With the basics and methodology covered, we are ready to explore the components of a great association budget. That will be Part 3 of this series. Stay tuned!

Best Practices, Budgeting, community associations, Management

Building the Association Budget: Fundamentals, Hard Work & Guts – Part 1 (The Basics)

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Budget season for community associations with calendar year-ends are upon us. Even though I’m no longer responsible for writing several budgets each year any longer, I could feel it coming. Thirty years in the management business re-wires your brain, I suppose.

It might sound odd to some, but I always looked forward to budget season. It found it was an opportunity to establish and build upon the partnerships I enjoyed with my clients. I found that once I wrote a budget for a client for the first time, the exercise put me in a position to have full command of the operation. I noticed that by upgrading the budget document and process, I earned immediate credibility with my clients. The boards understood the numbers and had confidence in sharing the information with their communities. I also got the opportunity to collaborate with on-site personnel, which was a great way to help them to have input, for me to better understand their day-to-day challenges, and to build our team from the mutual respect the process required. It was a LOT of work. We took no shortcuts. But it was worth it. The community members were well served, everybody learned a lot, and it as a blast, even when the results were difficult to communicate! I will never forget standing in front of a large group of owners explaining why their developer’s budget created the need for a 24% condo fee increase the first year after transition. 25 years later, that condominium still stands, thanks in part to the tough work we did together those first couple of years.

Thanks to great training and a boss who gave me his torch to carry and the freedom to expand on the fundamentals he taught, after a few years I became the semi-official Budget Guy. I taught the process to new managers and helped other managers out when they got stuck, or were nervous about sharing a difficult message with their clients. I got to present an annual budget workshop for the management company for a few years. In 2011, I was asked to co-present on the topic for the Montgomery County (Maryland) Commission on Common Ownership Communities. We had so much fun, the crowd gave us an ovation at the end. Attendees from the concurrent sessions were shocked to hear people’s enthusiastic response to a budget program! That was followed by a lengthy recap in the COC’s newsletter.

I dusted off that old article and realized that a multi-part blog format allows us to share the best practices and tips picked up through the years without the constrictions of print space or seminar time constraints. As with everything else we share on this blog, we hope the series saves you some time, gives you a tool or two you can use, and helps you to avoid some of the quadrazillion mistakes I’ve made through the years. Maybe, just maybe, you will come to enjoy budgeting as much as I do and find the same benefits I was able to reap. So here we go!

Let us start at the very beginning…

BACK TO THE BASICS

The story goes that famed football coach Vince Lombardi opened every Green Bay Packer preseason camp with the same introductory sentence. Raising the pigskin high enough to be seen by the 50 or so professional players in front of him, he intoned, “Gentlemen, this is a FOOTBALL…” He understood the importance of reinforcing fundamentals.

So what is a budget? It is an essential part of association operations as the first of the three interrelated financial phases – planning, operations, and review. Deficient planning in the budget process leads to poor performance in the operating phase as reflected in monthly financial statements. Inevitably, this leads to poor results in the review phase, the annual audit. Conversely, excellent budgets lead to solid operational results and contribute to nice, clean audits. Creating a budget is not an isolated exercise or theoretical effort. It has real impact.

Done properly, budgeting lays a foundation for financial and community success. Done poorly, serious short and long term difficulties are sure to be created or perpetuated. We’ve been helping a number of clients dig out of financial trouble. Sometimes replacement reserves were underfunded directly with the “transfer to reserves” line item being set too low. Other times, reserves are underfunded indirectly. Unrealistic operating budgets lead to deficits. After paying the bills, there was not enough money left to fund the reserves from month to month.

Regardless of the reason for insufficient reserve funding, there’s always telltale signs of chronic under budgeting: A belief in the myth of saving money and deferred maintenance. Budgeting low out of fear of increasing fees has a vicious and compounded boomerang effect. Deferred maintenance results in exponentially higher fees for the members in the long run. Maintaining components past their useful lives is very costly, and can include the collateral damage from water leaks and emergency remediation. Higher fees are also required to help fund capital expenditures made more expensive by emergency replacements, exponential deterioration, or interest costs for debt service. Look at the exhibitor list from any CAI conference. You’ll see plenty of bankers there. There’s a reason that market niche is growing. Many associations have under budgeted for years and are now forced to pay the price…a very high one.

So let’s get back to the basics and get this right.

WHAT’S THE GOAL?

What is the purpose of the budgeting process? I ask this question when I teach financials to community association volunteer leaders. Sometime I get some pretty good answers. But I always find myself compelled to say, “I guarantee that a percentage of you don’t want to say out loud what you believe – that the purpose of the budget process is to keep fees as low as possible.” True, it is the board’s responsibility to the community to use funds wisely and avoid waste. But read any governing document and you will find the primary responsibility of leadership is to maintain the common elements and collect fees sufficient to do so. Of course there is more to a budget than accounting for the sticks and bricks. Quality of life is largely determined by the service levels provided for in the budget.

So then, the purpose of the budget is to create a reasonable plan to finance the operation of a community association in accordance with the realities of property condition and in accordance with the vision and values of the community.

GUTS, PART ONE

Too many managers are either nervous about proposing budgets with increases, or intentionally propose budgets with low or no fee increases as way to stay in the good graces of their clients. Don’t get me wrong, in rare cases, no increase can be possible. I even had one client who reasonably decreased their fees after paying off a loan. But when it’s done for political reasons, it’s a slippery slope. For the nervous, we’ll offer some perspectives and strategies in the following segments to help. For the political animals, please stop. Sucking up is not customer service. You aren’t helping anyone in the long run, including yourself.

Boards and Finance Committee Members get nervous, too. It’s completely understandable. They must answer to their neighbors. The nervousness means you take your responsibility seriously. You are to be commended! We hope this series of blogs helps.

It takes guts to take the long view. But that’s what leaders do. Outstanding professional managers and community volunteers know they are leaders first and foremost.

COMING SOON…

In the coming segments, we will continue to outline fundamentals of budgeting. First, we will review budget methods to help analyze the past, see the present, and plan for the future. Then we will identify critical budget components and tips for assembling and presenting them. With the fundamentals covered, we then get to the really fun stuff. We will cover strategies for communicating difficult news…like a 24% fee increase. Then, we’ll finish up with how to avoid common mistakes and a final exhortation to stay the course.

I know I’ve been a bit of a deadbeat lately in the blogging department. Sorry about that! Chantu’s been doing her part, but I haven’t been shipping. Business has been great, but that’s no excuse. I’ll try to make it up to you by delivering upcoming blogs more quickly so you can have them at your disposal as you dive into your budgets.

community associations, Management Insider

Management Insider #2 – How We Got Here

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Sometimes managers entering the community association field have a hard time understanding some of the stressful dynamics of the business.  They hear that profit margins are tight.  They may wonder if their bosses are making excuses to justify low wages.  As I’ve stated before in the T-Rex Blog, management fees ARE artificially low.  A look into the past can help explain why.

Fortunately for me, my ex-boss and current mentor was there at the beginning of the early condominium boom, starting his career as a community association manager straight out of college in 1973.   When he walked me through the history of the industry, things started to fall into place.

The United States had its challenges in the ’70s.  Real estate agents wanted to sell and developers wanted to develop, but inflation and interest rates were high.  As the end of the decade loomed, mortgage rates reached into the double-digits.  The concept of converting apartments into condominium associations became appealing.  Enter the first condo boom.

Off The Rails…And We Didn’t Even Know It

This is where some of the persistent challenges that dog us today had their beginnings.  There were several factors:

  • Condominiums were sold as “carefree living.”  Someone else will take care of the grounds, the roofs, and the hallways…no worries! 
  • The transition from apartment house to condominium association shifted responsibility for interior living spaces from on-site staff to the unit owner.  Leasing activity and rent collection were no longer factors.  As a result, the site staffing typical of apartment complexes was either decreased or deleted altogether.
  • The same notion about decreased workload combined with the developer’s desire to keep condominium fees as low as possible led to a baseline of low management fees.
  • Early condominium documents sometimes treated professional management as an afterthought.  Like magic, multi-million dollar pieces of real estate that previously required professional management could now be administrated by volunteer boards with little or no management or real estate experience.

Hindsight being 20/20, in many ways we were set up for failure.

How Could They Have Known?

An Urban Land Institute lawyer and framer of early community association governing documents stood before us, a crowd of association managers and lawyers, at a CAI National Conference in the late nineties.  I still remember his words.  “As I stand before professional managers and attorneys serving community associations and working with the documents we wrote in those early years, I have one thing to say…we’re sorry!”  He explained that they were writing from scratch.   Lawyers need precedent.  They had to go all the way back to 14th-century English horse trail law to find something they could use to define common elements and their administration.

Indeed…who knew that community associations would become so complicated?  Who knew the world would become such a litigious place?  Who knew how legislated and regulated associations would become?  Who knew the promise of technology would result in an immediate gratification mindset? Who knew volunteers would want to do less over time? Who knew societal norms would decrease personal accountability and increase distrust of anyone in authority?  And finally, who would have imagined the current trend where courts would hold community associations responsible for members and residents’ civil rights, even though their governing documents provided no basis of authority to do anything substantial about it?

“I have great respect for the past. If you don’t know where you’ve come from, you don’t know where you’re going. I have respect for the past, but I’m a person of the moment. I’m here, and I do my best to be completely centered at the place I’m at, then I go forward to the next place.”

– Maya Angelou

Industry Trends

Community association management continues to mature.  I think of it as an adolescent – certainly more sophisticated than it was in its infancy, but not yet fully grown.  Business does what it does – big fish eat little fish.  As a result, national, regional, and even local companies acquire other companies to gain market share and leverage volume. At the very same time, technology makes it easier than ever before to start a management company with little overhead.  Whether company costs are minimized by volume or low overhead, the result is the same – a push to be “competitive” in the marketplace.  An unintended consequence is that a professional service became commoditized.  The industry accidentally devalued itself.  As Tom Peters would say, it’s a race to the bottom. 

It All Adds Up

So what have we learned?  Management companies operate in a space with an increasingly demanding client base.  They compete in a commoditized industry.  And they employ a workforce that may be poorly trained, under-supported and generally demotivated to one degree or another.  

Is all hope lost?  Sadly, for too many in the industry, yes.  In my travels and deep dive discussions around the country, I’ve felt their stress and heard their resignation.  I get it.  They’ve had the same concerns and expressed the same frustrations for the last twenty years or more.    

Light at The End of The Tunnel?

If the way it’s always been done doesn’t work, there’s a reason.  Get to the root and you can find a solution.  It requires thinking differently.  That makes unconsciousness a poor option.  It’s time to stop banging our heads against the wall. 

There are no easy answers.  However, there are a few practical strategies and perspectives that have turned things around for some.  These will be the subject in upcoming blogs.       

community associations, Ethics, Management

Do The Right Thing – Beyond A Written Code

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I do my best to make sure this blog and my social media channels provide positive messages, intended to work towards solutions. I’ve described the space as a “snark-free zone.” This time, I’m going to rant a little. It may come off a little snarky, but the goal remains the same – solutions.

It’s A Big Deal

I’m angry. A headline the other day read “Maryland HOA Management Company Accused of Taking $2.5M from Associations.” This company appears to have taken advantage of their client’s trust and misappropriated their funds. The allegation seems well founded. Jerks.

I’ve been angry before. Almost three years ago to the day, a former management company owner pleaded guilty to the same amount of theft from several of his clients from the same county in Maryland. Déjà vu I was still a management company executive at the time. We took over one of their clients several months before their house of cards fell. Fortunately, the CEO hadn’t gotten his hands on their funds, but I still remember the files coming over in black trash bags. You can imagine the quality of the financial records.

The vast majority of professionals engaged in community association management would never even think of perpetrating such malfeasance upon their clients. A large percentage of us dedicated to serving community associations see it as more than a job. We recognize it for what it is – a trust. So we work hard to live up to that trust. And yet, the entire industry gets tainted every time a bad player does something like this. Honest people get painted with a broad brush of distrust and disrespect. That makes me angry.

Don’t get me wrong, in very rare occasions bad actors have darkened our industry in the past. In some cases, it led to beneficial legislation. One management company failed to disclose ownership interest in service companies they recommended to their clients. In that state, that practice is now illegal. In another case ten years ago, an executive with an ownership interest in a management company was sentenced to prison for embezzling over $3M in finds from 400 clients. That led to manager licensing in Virginia. The former case might not seem as bad as the latter, but both speak to the core of the problem – abuse of trust.

Think About the Little Things

There are codes of ethics in place to set standards. For years the Community Associations Institute has required all credentialed managers to adhere to a code. To review the document and a very detailed Code Clarification Report, click here. 

A written code can’t prevent bad actors. When I stumble across emails where a manager has shared a competitor’s proposal with their favored contractor and allowed that contractor to submit his proposal afterward, I get angry. Even though that manager didn’t embezzle money, that’s a direct violation of the anti-competition clause.

Other situations aren’t so obvious. I understand that some contractors like to give gifts to managers. It’s part of relationship building. However, it can quickly become a slippery slope. When a contractor who regularly treats a manager to ballgames and dinners seems to get preferential treatment from that manager, a line may have been crossed. When it starts to walk, talk and smell like an “Ol’ Boys Network,” it probably is. If it becomes quid pro quo, it’s a problem. The schmooze fest makes me angry. And a little nauseous.

Loopholes

There used to be a gap. CAI’s ethics code didn’t apply to management companies that held the AAMC designation. That allowed some companies to receive remuneration from business partners to be on a recommended vendor’s list without disclosing this to their clients. In the political realm, I believe they call it “pay for play.”

I interviewed a few managers who were looking to leave a firm in part due to the pressure they felt to promote the preferred vendors. Technically, they were not violating the manager’s code of ethics because they didn’t get directly remunerated for the recommendation. The companies weren’t violating anything because the manager’s code didn’t apply to them. But the whole thing made these managers uncomfortable, and rightly so.

I am pleased to report that this gap has been closed. As of 2016, the manager’s code of ethics applies to management companies with the AAMC designation. Bravo, CAI!

Trust, But Verify

Most financial malfeasance can be averted. Boards have reason to be hurt and angry when they learn that the managers they entrusted with members’ assets have abused that trust by unethical and criminal behavior. Still, Board members cannot escape the fact that governing documents require they exercise fiduciary responsibility. The buck stops with them. In too many cases of theft, Boards either did not have controls in place, were asleep at the switch, or some combination of the two. It didn’t have to happen. CAI publishes guidelines I urge EVERY Board to consider and make sure are in place.  Fraud protection procedures and a modicum of oversight mitigate against the possibility of theft.  

Please Do Something Else For A Living

If you are a manager or a management company and do not appreciate the depth of what is entrusted to you, please quit. Don’t be a jerk. Do something else for a living. This industry needs dedicated, ethical people with the heart of a servant. Those character traits seem more and more rare these days, but they still alive and well in the community association industry. What we do makes a difference. Help us advance this industry, or please get out of the way.

Beyond The Code

Here’s the bottom line. Those of us who serve community associations are taking care of other people’s stuff. They need to be able to trust us. The heart of ethics is trust, not a formal code that can only legislate actions. Intentions are important. We need to be golden. Period. With trust in such short supply in the world at large, we need to go above and beyond.

I never saw the movie Do The Right Thing by Spike Lee. But I remember seeing a clip that has stayed with me ever since I first saw it. 

The Mayor: Doctor…

Mookie: C’mon….what, what?

The Mayor: Always do the right thing.

Mookie: That’s it?

The Mayor: That’s it.

Mookie: I got it. I’m gone.

Always do the right thing. Got it?

business life, community associations, Culture, Human Resources, leadership, Management

Do You Want To Keep Good People? Build an Intentional Culture

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Turnover is Expensive!

The struggle to attract and keep talented employees and volunteers is universal. For businesses, the hard cost of employee turnover includes hiring and onboarding, initial training, ongoing development, and integration with the team. Finally, it includes the interim costs incurred while a position is unfilled. Yet, soft costs can be far more impactful. Turnover loads a burden on the backs of everyone in a company. These can turn into hard costs with loss of business due to poor performance.

Not-for-profit community associations have different metrics. On-site staff and volunteer turnover result in soft costs such as service gaps and overburdened remaining staff and volunteers. This, in turn, takes a toll on member satisfaction. Increased stress and pressure result. Over time, this can lead to increased turnover and lack of volunteer interest.

Another common and insidious cost of turnover can be an intentional or unintentional lack of investment in employees and volunteers, which inevitably leads to more turnover.

The vicious cycle of churn is costly. And it sucks – it sucks the life out of organizations of every sort.

Strategies

There are plenty of strategies out there to retain employees and volunteers. Google the subject and you’ll find scads of them. They range from simple recognition to the adoption of lofty ideals designed to motivate the troops. Volunteer retainage is its own animal because compensation is defined differently. In all cases, strategies are focused on showing appreciation and providing benefits that are designed to reward people and keep them in the fold. And they might not work.

Don’t get me wrong, many strategies can be beneficial. They may help keep some folks around for a while. But they cannot stand alone. Strategies need to be part of a broader context to have lasting value.

Want Retention? Engage

Retention is a useful metric, but it’s not a goal. It’s a byproduct. According to a 2018 Gallup poll, 53% of U.S. workers are not engaged. Gallup states, “They may be generally satisfied but are not cognitively and emotionally connected to their work and workplace; they will usually show up to work and do the minimum required but will quickly leave their company for a slightly better offer.” Another 13% were reported to be “actively disengaged.” Let that sink in. Two-thirds of American workers spend a significant part of their waking hours at a job they don’t really want to do. Yikes! If they don’t leave, they should.

In their seminal work The Leadership Challenge, Kouzes & Posner conclude that people tend to look at their jobs in one of 3 ways; as a job, as a career, or as a calling. The difference? Engagement. The higher the level of the synchronization between the work someone does and their values and goals, the deeper the engagement.

Want Engagement? Lead

“Engagement is not an HR issue. It is a leadership issue” – Simon Sinek, Author & Organizational Consultant

If the key to engagement is the connection of values and work, it begs a couple of questions. What does your organization stand for? What deeper connection does it offer? This is where many leaders fail. Kouzes and Posner offer an approach to address this. They boil it down to what they call “The Five Practices of Exemplary Leadership:”

  • Model the Way
  • Inspire a Shared Vision
  • Challenge the Process
  • Enable Others to Act
  • Encourage the Heart

All five practices directly impact engagement. Leaders who are hypocritical, directionless, non-communicative, myopic, micromanagers with low EQ  kill engagement. If there is a serious weakness in just one or two of these areas, you can count on good people walking out the door.

So then, effective leadership begets engagement and provides a context for strategy. Putting this all together, what are the leaders charged with doing? They must develop and nurture organizational culture.

Build an Intentional Culture – Defining the Organizational “We”

Culture is who we are, proven by what we repeatedly do. Its engine is the shared values of the organization. Shared values lead to aspirational vision. The vision drives goals, which sets the mission. Goals and mission drive strategies, which then dictate day-to-day tactics. We do what we do because we are who we are.

All organizations have a culture. Leaders are responsible for making it an intentional one. That includes community association volunteer leaders. It’s not easy, but it is always worth it. Leaving it to chance leads to disconnected strategies and tactics. And churn.

“Culture eats strategy for breakfast” – Peter Drucker, Legendary Management Educator

As the stewards of intentional culture, leaders must make sure that what we do stays in line with who we are. They must walk the talk. Disconnects must be addressed. Few things cause disengagement more quickly than an organization that espouses values that are violated in the way things are done. A dedication to a values-driven culture draws like-minded persons and engages them. Engaged people not only tend to stay awhile, but they also draw others who will find a satisfying place in the culture.

“Culture is caught, not taught” – Rolf Crocker, CEO, OMNI Community Management, LLC

But They Won’t Let Me!

What if your boss doesn’t get it? What if you are an on-site manager with a board full of clueless non-leaders that make it difficult for you to lead your staff? What if you work for a soul-crushing CEO? You still create a culture with those within your sphere of influence. In fact, you must…or leave. That will be the subject of another blog.
If a public high school department head can create a pocket of excellence despite deeply entrenched policies and bureaucracy, the odds are good that you can build a culture that makes a difference. Leaders don’t ask permission to lead. They may sometimes have to ask for forgiveness afterward. But results tend to take the heat off.

If You Want Them to Stay, Forget the Fence – Build a Fire

External rewards without engagement are like a fence. Engagement produces internal rewards. If you want to keep people in the fold, stop worrying so much about the fence. Instead, build a fire of culture at the center of the organization. That fire gives team members light so they can see the vision and the warmth of shared values and mission. Create a space where people are drawn and want to stay.

Recommended Study Material:

 

The Leadership Challenge, 5th Edition by James Kouzes & Barry Posner 

The Excellence Dividend, by Tom Peters 

Gung Ho!, by Ken Blanchard & Sheldon Bowles 

The Culture Engine, by S. Chris Edmonds 

And if you are REALLY serious, go to Tom Peters’ website  www.excellencenow.com  for his 50- page “Extreme Humanization/Extreme Employee Engagement PDF 

Best Practices, Communications, community associations, Customer Service, Professionalism

Nobody Trusts Herb Tarlek – Advice for Professionals Serving Community Associations

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How We Got Here

If you were to read governing documents for community associations written in the days of old (OK…the 70s), you might well get the idea there was a vision that volunteer homeowners would gladly offer themselves up to lead and manage their communities. The assumption seemed to be that communities would be full of willing, qualified and able owners ready to handle all the business of running the not-for-profit organization. Little did anyone envision the legal and technical challenges that would become part of the effort, much less the time that would be required.

Nearly half a century later, reality has set in. Volunteer leaders need professionals to some extent if they are to serve and protect the interests of their members. Regulation, emerging and ever-changing law, technical expertise, and available time are all factors. Yet, it is well known in the business community that serving community associations can be tough. It is a specialty niche, and professionals working in the space understand that. They know that, as compared to working in other forms of real estate such as residential, rental and commercial, it takes more time to get things done, usually at a lower profit margin.

But community members don’t always recognize this. It’s money out of their pockets, so of course, they want to watch their costs. A DIY, price-only, bottom line mentality can significantly influence financial decisions. The true cost isn’t always recognized….until after the lawsuit…or the third time something has to be fixed….or community spirit goes south….or the special assessment hits…Suddenly the cost of quality professional service and advice doesn’t seem so high after all.

It is very easy to chalk this thought pattern up to the prototypical penny-pinching board. But the issue may be deeper. Boards of directors may fail to discern the difference between up-front price and long-term cost, between investment and expense. It may be a lack of vision and the inability to perceive value.

The Issue is TRUST

Typically, there are many missed opportunities to build trust and provide value to association members. Vision, communication, and leadership are the keys to the perception of value. And a key component of recognizing value is trust.

A challenge for professionals serving community associations is your clients might not fully trust you. Consciously or subconsciously, you might be Herb Tarlek to them.

Yes, Herb Tarlek, the occasionally abrasive, egotistical & self-absorbed salesman from the old sitcom WKRP in Cincinnati. He isn’t trusted, not only for his godawful sports jackets but because it is crystal clear he’s in it for himself. His approach is selfish and transactional. Sadly, attorneys and consultants are sometimes perceived in a similar way. Some clients feel your primary goal is creating opportunities for billable hours. The research you do in providing opinions can look like billable busywork to them. When management companies highlight the value of their services it might seem like manipulative self-promotion.

Some community association lawyers and management companies have a knack for building trust and proving value. As a consultant, I am viewed similarly, so I’ve been happy to apply the following concepts I’ve learned from these exceptional community association professionals.

  • Ask More Questions: Lawyers who listen build partnerships. Those who ask questions get buy-in. Socratic training has benefits that transcend depositions and courtrooms.
  • Simplify the Message: Ego will not permit many clients from admitting they do not understand what their lawyers are communicating. Many lawyers don’t help themselves by communicating strictly from their training and perspective, forgetting that communication is supposed to benefit the client. The old W.C. Fields quote works against you: “If you can’t dazzle them with brilliance, baffle them with [BS].” The more words you use, the more likely you’ll be perceived as the self-absorbed, egotistical Herb, trying to sell them a justification for the fees you are charging. Using plain English summaries, FAQ format and other tools can help to make the communication palatable and trustworthy.
  • Use Humor: A little levity at the right time can build rapport and show clients there is a human behind the suit. So long as it’s genuine and you actually HAVE a sense of humor.
  • Give a Little Away: There is great power in the zero invoice. Choosing a moment where you can give a client a break can make a significant impression. An $800 invoice detailing all the time and activity followed by an $800 courtesy discount shows value. It shows the client it’s not all about fees, and that the relationship is appreciated. I’ve also heard clients recount with appreciation conversations with attorneys noting, “He was nice enough to tell me he was turning the clock off during our conversation.”
  • Give a Little Away (Part 2): Some law firms and management companies offer board training as part of their agreement. As soon as one is perceived as a consultant providing value, they are less likely to be perceived as a self-promoting salesman.
THE TAKEAWAYS …

  • Value begets trust, trust creates value.
  • Think relational, not transactional.
  • If you focus on billable hours or self-promotion, you may have an average client for a while. If you focus on giving value, you are more likely to have a great client for a long time.
  • Think and communicate from the client’s perspective. Always.
change management, community associations, condo associations, Cooperatives, Culture, HOAs, leadership

Just Don’t

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Silly Human Tricks

We work/live/hang around with certain people for a while. We have experiences with them. We get to know them. We disagree on a few things. We begin to get annoyed with them. We draw conclusions about their motives. We remember the disagreements.

Here’s where it gets weird.

We strategize to get the results we want, with assumptions about evil intent and ugly history close in our mind and heart. We overstate. We accuse. We blame. They are doing the same thing with us. The disagreements deepen. On the surface, conflicts appear to be about the matter at hand. But just under the water line, the real conflict lurks. We are simultaneously talking about the issues of the day and the distrust of the past. These bi-level communications can last forever. Things bog down. Nothing gets done. History repeats again and again in the vortex of a vicious failure cycle. Dysfunction reigns supreme.

Sound familiar? Congress, anyone?

The pattern can set in with any organization where we silly humans are involved. The more emotionally or physically close the people and the longer the relationship, the more entrenched the pattern. I’ve seen it happen in social circles, in businesses, in families, and yes… in community associations.

Learning How to Break the Cycle

Breaking the failure cycle is not easy, but it’s achievable in most circumstances. It took me a while to appreciate the uniqueness of my career in the community associations field. Since my first on-site management contract, my main, though unstated, role had been to fix broken things and build trust. In the ensuing years, I was thrust into similarly challenging situations. I’m not complaining. The experience turned out to be the best education I could have gotten. It led to me doing most of the consulting for a management company and the formation of Association Bridge.

Here’s what I learned…

Don’t Let the 5 Percenters Rule the Roost

One of our silly human tricks is to focus on the negative. 95% of things might be working well, but we only focus on the 5% of that which makes us unhappy or divides us. Community association leaders and managers will always spend a significant amount of time fixing problems. It’s a big part of their jobs. But that can create a challenge. A constant focus on the 5% makes it hard to see the other 95.

I learned a secret. There is a reason people decide to move into a particular community. There are shared goals, values, and aspirations there. I’ve never worked with a community where its members didn’t have more in common than that which divided them. They just couldn’t see it at first. They were so into the weeds that they could not see the forest. The weeds are where the 5 percenters live and flourish. And yes, that includes those with wildly diverse demographics.

The problems are real. Different opinions are real. But the bigger picture is just as real. Getting out of the weeds of distrust and dysfunction requires elevation.

Get to Higher Ground

There are a few strategies that can help to elevate the discourse and begin to turn failure cycles into success cycles. Here are three of my favorites:

  • Use Affirmative Inquiry:  Identify that which members have in common. Establish shared values and goals. Then apply those to the 5 Percenters. Seeing the bigger picture helps to set a context and changes the game.  
  • Let Data Drive the Discussion: Much conflict comes from what I call “Theoryworld.” Absent reliable data, people will always rely on what they know – their opinions. Do the homework, communicate the data vigorously, and let that drive the discussion.   
  • Fresh Blood: Sometimes new leaders with a fresh perspective can help groups come together. In other cases, a “disinterested third party,” a facilitator with no dog in the fight, can help bridge the gaps.

Trust is almost always the key. Stephen M.R. Covey made an astute observation in his excellent book The Speed of Trust. When trust is present, things happen quickly and cost-effectively. When trust is absent, things take longer and cost more. Who doesn’t want cheap and easy? Getting to higher ground begins the process of melting distrust and creating a culture of trust.

Yeah, Sounds Great, But….

Does this stuff actually work? Here are some real-life examples of “Breaking the Cycle”:

Case Study #1

One association had an incendiary newsletter that torched the board over every decision. They undermined confidence and deepened divisions in the community. After about a month, I realized that its editor was a board member’s wife.

I expanded my “Board Orientation/Tune Up” program into a two-part community leadership program. The community had several committees, including the newsletter committee, which were contributing to the dysfunction to one degree or another. The first session was for all committee members and board members. This was followed a week later by a board-only session. There was a clear communication of both the letter and spirit of the law and governing documents. Both sessions included a section about best practices in leadership. We applied universally accepted principles to the community association paradigm. This created a space where the group could follow up with a productive planning session. They were able to agree on goals for the year and a program to reach them. Two years of progress ensued.

Case Study #2

Another condominium we took over had severely underfunded reserves and an unrealistic budget. They had also been the victim of theft from their prior attorney, who had pocketed the fees provided by members in collections. The stories were heartbreaking. Community members were equally upset about the condition of the property and the prospect of higher condominium fees. I facilitated a town hall meeting to share the difficult news. The Board, worried about a violent reaction, made sure to hire an off-duty police officer to keep me and them from being attacked.

By the end of the presentation with the data clearly shared, we had unit owners offering to organize to perform some repairs and property clean-up as volunteers. Once members saw clearly the reality of their situation, working together to find solutions became the obvious alternative to blame and complaint. Despite the increase in fees and many challenges, there was a palpable improvement in community spirit at the next annual meeting.

Case Study #3

At an annual meeting 16 days into a new management contract, I had a unit owner point her finger at me and tell me she was going to hold me accountable for everything the board did. In the ensuing months, she took full advantage of owner comment periods at board meetings to remind everyone of every bad decision that had been made over the last 30 years and to call into question board members’ intelligence. I got to know her and at one point suggested she consider running for the board to be a part of the solution. She declined. I still remember the look on her face when I told her that at some point the community would need to learn how to agree to disagree in an agreeable fashion. You would have thought I had two heads. After a pregnant pause, she whirled away and exclaimed disgustedly, “That’s the stupidest thing I’ve ever heard!”

After a full analysis of the operation and a particularly vigorous and expanded budget process, the community understood the needs of the building and where their money was going. At the next annual meeting, my finger-pointing friend rose to deliver her usual diatribe, only to be encouraged to cease and desist by her fellow unit owners. Deferred maintenance projects were eventually initiated. The turnaround put this previously notorious community in a position to win a Community Association of the Year award.

The Bottom Line

We spend too much time and energy allowing our opinions get in the way of getting things done. We are missing opportunities that are right in front of us. Imputing the motives of others has no value. Even if you are right, it doesn’t help.

Stop. Just don’t. Find facts and stick with them. Get to higher ground. Focus on strengths. Find the shared values, goals and aspirations. Let that create context and culture. Put people in a position to be their best. And then…watch success happen.

The iconic Sgt. Joe Friday had the right idea…

Best Practices, community associations, Governance, leadership, Meeting Tips

Meeting Tips #5 – Little Things Set a Tone & Help You Get Stuff Done (Part Deux)

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“Excellence is doing ordinary things extraordinarily well.” – John W. Gardner

Nip It in the Bud

One negative person can dominate the tone of a whole room. A proactive approach can be an effective strategy to keep things positive and productive. Arrive early. Before the meeting starts, read body language and other non-verbal cues. Look for members who may have expressed negativity in the past, or those you know have a complaint they want to bring up. It might feel natural to duck and cover, waiting for the meeting to start. To defeat fear of conflict, try approaching the person with a friendly greeting. You might be amazed. Short, personal, respectful and positive interchanges can be a game changer. The person might just tell you what’s on their mind and you will be able to have a productive interchange even before the meeting starts. Taking the initiative in showing respect and civility makes it easier for people, even the unhappy ones, to be at their best and respond in kind. It won’t always work. But if you don’t try it, it definitely won’t work.

Bob’s Got a Point

Some people chafe at the thought of using Robert’s Rules. It might seem overly formal. Some chairpersons seem to use it as a sledgehammer to control people, further giving Ol’ Bob a bad name.

While it makes no sense to employ every detail and nuance included in Robert’s to a small group, there is one process that can make a world of difference. When a board sticks with the basic discipline of making motions, it can save a ton of time and make sure the discussion stays civil and on point. It also emphasizes two key principles that are essential for group decision-making. The will of the majority is done and the minority is heard and has the opportunity to impact the final decision. Too many boards talk their way into a motion and try to get everybody on the same page. I remember one board president, who was a professional grant writer and part-time poet, who wordsmithed every motion on the spot. Approving minutes with an edit could take 20 minutes! Here’s the process that negates talking your way into a motion and the endless and inefficient chatter that goes with it:

  1. Make a specific motion. A board member would like to approve an action.
  2. Second the motion. Another board member agrees the thing is worth considering. If there is no second, there is nothing to talk about. The motion dies. That’s it. Stop talking.
  3. Chair calls for discussion. Only now is discussion initiated, and it is focused on the merits of the motion. Questions are asked and answered. MAYBE a better idea comes up – and if so, the original motion can be amended. If it’s clear the motion seems fatally flawed, it can be withdrawn and replaced by a completely new motion – or not.
  4. Call the question. Once it becomes clear to the chair or other board members that the points have been made, it’s time to vote. If someone objects to calling the question, they should have a brand new point to make.
  5. Vote. A 5-0 vote has the same effect of a 3-2 vote. If board members are respectful and gracious…i.e. good fiduciaries and leaders… the minority will support the decision and set a tone for the community.
  6. Next!

If your meetings are chaotic and directions unclear, give it a try. You might be surprised.

And Finally…

I’ve had a mentor for over 30 years. One of the reasons I’ve stuck with him all these years is “Best Idea Wins” has always been his motto. He stays faithful to the principle, no matter how challenging the people and circumstances have been.

Think about it… a good idea is a good idea. It doesn’t matter who comes up with it. It doesn’t matter how well or poorly the idea might be communicated. Ideas have no ego. Ideas lead to solutions. Committing to Best Idea Wins demonstrates principled leadership, especially when things get complicated and contentious. It creates a space where people can resolve conflicts and be at their best. Try it. You will inspire the same respect that I have for my mentor.

To all the board members and professionals who serve them, I offer this encouragement. Please never forget that when you choose to carry out your responsibilities in an excellent way, you absolutely make a difference in the quality of life of everyone in the communities you serve, sometimes in large ways, sometimes in small ways, whether or not members realize it or not, and whether or not they ever say “thank you.” The only person who can take that truth away from you is you. Please don’t let that happen

So there you have it. Thirty years of meetings boiled down to twenty-six tips over five blogs. Have you found any that work for you that we missed? Let us know!

Best Practices, community associations, Meeting Tips

Meeting Tips #4 – Little Things Set a Tone & Help You Get Stuff Done

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“Great things are not done by impulse, but by a series of small things brought together.” – George Eliot

Excellence does not come about by accident. Nor is it typically the result of heroic leaps and bounds. It is usually the accumulation of incremental actions, the compounded interest earned from habits applied to what might seem to be insignificant details. Exceptionally productive meetings are no different. They don’t happen by accident. And there are several little things that can make a big difference.

Association board members are fiduciaries. The principle applies equally to large associations with multi-million dollar budgets and a 20-home HOA. Board members are taking care of other people’s stuff. That’s serious. It’s important to do good business at meetings.

Room Logistics Make a Difference

It can be a challenge to stay sharp when you are meeting in someone’s living room. This can be a challenge for communities without appropriate meeting space on site, or without easy distance of a local school, library, fire hall, or other suitable locations. The manager of one upscale condominium association told me of a client who had to aggressively recommend that they cease serving wine before meetings in the board president’s unit. The indecipherable minutes helped to make the case for her. I doubt the wine would have been an issue if the meeting wasn’t held in someone’s living room!

Once a suitable space has been identified, room setup helps to set a tone. Tables set in a “V” or “U” configuration help board members to communicate effectively. It also helps attendees to understand that it’s the board’s business meeting, not a community chat. Consider the audience. In the case of one client who holds their meetings in a very pleasant community room, I realized the location of the couches and chairs led to attendees sitting at the back of the room. Some had to turn their heads to see the board. After the first meeting, we re-arranged the furniture to bring the audience closer to the front of the room, which made it easier to follow the meeting. It looked less like a living room and more like a meeting hall, with as much of the seating faced towards the board. They still got to sit in comfy furniture, but left the meeting without cricks in their necks! This, along with adjusting the board’s seating arrangements, helped to completely change the tone of the meetings.

Members Are Important!

While the room configuration helps to establish a businesslike tone, it doesn’t need to be inhospitable for the members who have dedicated their valuable time to get involved in the community – an effort that should not go unappreciated.

One exceptional client from my management days makes a habit of asking if the meeting is the first for any attendees, whether they are new move-ins or not. They are invited to introduce themselves, and the board welcomes them warmly and introduces themselves and the management team in the front of the room. It’s an excellent way to set a tone for the meeting.

Taking the time to explain the Why to members during meetings is a small thing that helps everyone. This is where situational awareness  becomes very useful. If the chair is aware of the audience and can read the room, she may pick up on disconnects and side comments. Other board members should stay engaged as well to assist and support the chair.

If someone doesn’t know why the board doesn’t allow comments from the floor throughout the meeting, find an opportune time to explain why in positive terms. Avoid emphasizing what they can’t do – help them to see how they can provide input and ask questions. Is there a hot topic on the agenda and an unusually large crowd chomping at the bit to participate in the open forum portion of the meeting? Remember some of them may be first time attendees who don’t understand the structure of the meeting. It pays to walk the group through the process up front, highlighting that time limits or other meeting management systems are in place to make sure everyone can be heard. Avoid the natural tendency for defensiveness. Embrace the dialogue. Look for opportunities to educate and communicate shared values.

Goals

All these little things can help create a space where the board can do the business of the association more effectively. It won’t always work. These days, civility and respect seem to be in increasingly short supply. In a world that seems determined to create Us vs. Them paradigms, leaders have a challenge. In reality, there is no Them. There is only Us. It is vitally important for board members to embody and promote these values. The last blog in this series will explore some final tips to help. Stay tuned!