Governance

January 19, 2018 Published by Toronto and Area Chapter - By Joy Mathews

Holiday Gifts or "Secret Commissions"?

From the Winter 2017 issue of the CCI Toronto Condovoice Magazine.

Why Bother Giving Gifts?

The friendly superintendent who always smiles when you walk by. The diligent property manager who responds to any of your concerns, not only quickly but with a sense of small-town friendliness (the kind that promotes a close-knit community and is so often missing these days!). Your security guard who gives you the reassuring nod that everything is going to be ok and the junior site-administrator who seems to know where to find everything in the office. These are the people who work for your condominium corporation and are deserving of special acknowledgment. Boards often struggle at how to acknowledge their praiseworthy efforts and when the holidays approach, questions of whether it is appropriate to provide a bonus become a pressing board issue.

Acknowledging the efforts of an outstanding employee is always a good thing and leads to many residual benefits: loyalty, better service, and R.E.S.P.E.C.T.! Holiday bonuses are indeed a tangible way of demonstrating that you value the respective employee's contributions to your condo community.

What's the Worst That Could Happen? Secret Commissions!

Bribery has been considered an evil practice which threatens the foundations of any civilized society. Often receiving front-page news headlines, governments and big business are vulnerable to allegations of offering, giving, receiving or soliciting items of value in exchange of "greasing" transactions. Condominiums, as the fourth-level of government, and their respective boards are no less protected against disgruntled (and politically motivated) owners from such attacks.

The Criminal Code sets out in Section 426(1) (a) the offence related to secret commissions, which provides as follows:

426 (1) Every one commits an offence who

(a) directly or indirectly, corruptly gives, offers or agrees to give or offer to an agent or to anyone for the benefit of the agent — or, being an agent, directly or indirectly, corruptly demands, accepts or offers or agrees to accept from any person, for themselves or another person — any reward, advantage or benefit of any kind as consideration for doing or not doing, or for having done or not done, any act relating to the affairs or business of the agent's principal, or for showing or not showing favour or disfavour to any person with relation to the affairs or business of the agent's principal.

What does this mean? The key words which are required to prove the offence are "corrupt provider" or "corrupt receiver" and occurs when an agent dishonestly accepts money or other benefits from another party in return for agreeing to depart from a duty he owes to his principal. A likely analogous scenario in the condominium context would be when a director offers or agrees to give something (e.g. holiday gifts) to a person who acts as an agent for the condo (e.g. property manager, superintendent, etc…) for the benefit of that director only.

For example, if a board member wants his washing machine fixed and mentions that to the condominium's superintendent while passing him a gift card, that might be considered a secret commission. On the other hand, if the superintendent does a good job and the board wishes to provide a gift card as an acknowledgment of this work, that's not a secret commission.

Inducements, whether receiving or soliciting them, is the issue and they only serve to disrupt good governance in a condominium which inevitably undermines trust amongst its owners.

Things to Consider When Giving Gifts

Acting "corruptly" is the secrecy component of the above criminal offence - which can quickly be resolved by being transparent and providing full disclosure. And, guess what? Transparency and disclosure are prevalent themes in the New Act amendments, too. Accordingly, good governance practices in condominiums are all coming together and, in this (holiday) spirit, here are some things to consider when considering giving holiday gifts:

1. Disclosure in board meeting minutes: the board should ensure that any gift idea (whether monetary or otherwise) is documented in the meeting minutes of a duly convened board meeting.
2. Specific amounts allocated: rather than merely stating generally in the minutes "board decides to give a gift to the superintendent", adding specificity will aid in protecting the board from spurious allegations of improper action.
3. Disclosure in audited financial statements: the board should confer with its auditor and consider disclosing the gift in the corporation's audited financial statement. The auditor should also be consulted to ensure whether such holiday bonuses are considered a form of income for which mandatory employee source deductions may apply (e.g. CPP, EI, and personal taxes). In any event, nothing speaks louder against allegations of "secrecy" when it's included in the audited financial statements!
4. Mandatory director disclosure requirements: to meet the new disclosure obligations required by the New Act amendments, all directors will be required to disclose whether they have any direct or indirect interest in a contract or transaction to which the corporation is a party.
5. Giving more than just money: although the traditional holiday bonus was usually in cash form, gift cards are ubiquitous and used as an effective proxy for money.
6. Managing employee expectations: although it's wonderful to share how much you value your staff, giving bonuses can also create an unreasonable expectation of future holiday bonuses, especially when certain employees really don't deserve it. The board should be careful of not starting a precedent which it cannot continue or creates animosity between workers.

The holidays are a joyous time, indeed, and great care should be taken to avoid unnecessary stress. Board members who look for ways to acknowledge and appreciate their condo's staff during these special moments may choose to give gifts – however, the potential for serious negative consequences exists and directors would enjoy the holidays much more if they turn their attention to adequate disclosure and transparency before giving any gifts.