Thursday, July 21, 2016

Ted Cruz, Republicans & Association Law

NOTE: This is NOT a political statement nor political endorsement. Rather it is commentary on how political actions can showcase association issues.

Last night and again today, Republican Senator Ted Cruz – in speech and followup meetings – illustrated association board members who fail to abide by the Duty of Loyalty.

  • Meeting in Cleveland, the Republic Party nominated Donald J. Trump as its nominee to be President of the United States. Senator Cruz – a runner-up in the nomination process – spoke at the Republican Convention Wednesday night. He outlined his principles for presidential policies but “refused” to endorse Trump. In comments to the Texas delegate Thursday morning, he repeated his principles and added “it’s not my job to support the leadership team; it’s my job to support our principles.”
Has your association experienced such a rogue director?

I have and it is not easy. And, I find many association directors have no clue about their obligations under association law.

The Cruz case – like those of rogue directors – highlights a violation of the Duty of Loyalty.

Here’s the definition I have used in board orientation sessions ... it comes from several attorneys who specialize in association law:

Duty of Loyalty. 
  • The second fiduciary duty imposed on directors is one of loyalty to the association. Directors are required to make decisions based on what is best for the association, not what may be advantageous to their company or even to their constituency within the association--in other words, retailers as opposed to manufacturers or distributors.
  • Once the board of directors makes a decision, each director, even those who may have opposed the course of action chosen by the board, must act consistently with that decision. Disagreement is permitted, but director actions inconsistent with the board decision are not.
As I’ve led board orientation sessions for association boards, many directors “challenge” the duty of loyalty. They struggle when I say “if you remain violently (and verbally) opposed to the board’s decision, your only choice is to resign from the board.”

It is a hard choice but, for associations and corporations, it is the correct (and legal) choice.

In the case of the Republicans, the Duty of Loyalty means Senator Cruz should resign from the Republican Party. The same goes for a rogue association director who speaks out against association policy and direction.

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