Instructions on Corporate Management from a Failed Homeowners Association
Living in a small housing association (HOA) has taught me valuable lessons about poor governance that dwarf the boardroom analysis I've done. My neighborhood is a miniature residential complex with a bunch of houses along its edge. We're official HOA members, but with no benefits – no clubhouse, pool, landscaping, or snow removal. Yet, we still pay annual dues, which, somehow, is supposed to justify a minor reduction in cost.
At first, I thought it was a local inconvenience. Upon further inspection, though, I realized something familiar – transparency issues and muddy lines between power and responsibility. The budget didn't list items, clear exchanges of value were missing, and the board made decisions without input or representation from our neighborhood. This reminded me all too well of power-hungry public markets, where investors focus on earnings growth, multiples, and disregard governance failures. I realized then that my HOA education was an incredible lesson in shareholder risk.
The Underbelly of Local HOA Governance
Most people think governance challenges only occur in boardrooms. But if you've lived in an HOA, you know better – governance can be local, small-scale, and shockingly behind the scenes. HOAs run more like micro-boards without any real influence, handling budgets, capital allocation, and enforcing policies. They come with unchecked power, a lack of transparency, and no accountability. There's hardly a shareholder vote to fix things. In our case, the board didn't provide itemized financial data or offer any explanation for the source of the dues. Clear questions and requests for clarification were met with evasive references to "the website," which, conveniently, lacked the necessary information. It was like buying a poorly managed small-cap company with poor transparency, insider control, and little shareholder participation.
When HOA Capital Is Collected without Value
Our annual charge was $424 less than that of full-paying homeowners. On paper, that seemed reasonable; but in reality, we received absolutely nothing in return. No services. No access. No perks. Just a dues invoice sent yearly, completely disconnected from any value or accountability. The issue wasn't a lack of administrative control but structural misalignment. It was like funding a system that lacks fairness and performance considerations. It's a problem that rears its head in public markets too: executives making decisions with no regard for shareholders and stock prices tanking as a result.
The Perils of Passive Stakeholders
Most neighbors in our small annex stayed quiet. Some didn't know what was going on, while others dismissed it, too busy, tired, or unwilling to disrupt the peace. The HOA continued to operate without any resistance, and the silence was interpreted as approval. This mirrors public markets daily. Passive shareholders enable weak governance. When investors don't vote, don't challenge management, or fail to engage, boards drift. Malice isn't always the driving force; neglect can also play a role. But the result is the same: misaligned control and no accountability. Good governance doesn't happen by accident; it gets better when people speak up – or walk away. Silence is often mistaken for consent.
Lack of HOA Transparency Is a Red Flag
When I asked the HOA for a simple breakdown of dues, a spending report, and meeting minutes, their reply was, "You can find it on the website" (which didn't contain the necessary information). It became more evasive the more I inquired, just like poorly run public firms that hide their transparency record. Legally compliant but practically useless boilerplate disclosure ensued. However, authentic governance starts where transparency ends. Transparency is a signal, not just a need being met. It's a sign that capital and concerns matter.
When HOA Control Becomes Untethered from Performance
The board never once clarified the costs of our purchases. They relied on decision-making behind closed doors, without consultation or communication. It felt like an entitlement rather than a sense of responsibility; the government operated solely by decree, mirroring businesses with dual-class share structures where CEOs lock down control regardless of performance. Power without earned trust and authority without results are a precarious arrangement – one that spells eventual decline.
The Cost of HOA Governance Failure
The persistent neglect, evasion, and poor governance eventually led me to consider leaving. It wasn't a rash decision – it was the result of years of distrust and conflict. When leadership fails, communities fracture, and capital, whether financial, reputational, or structural, erodes. The same pattern plays out in markets. Governance failures erode value faster than earnings misses. Boeing, Theranos, WeWork – these companies didn't collapse overnight because of financial reasons. They disintegrated because trust in leadership disappeared. The lesson is clear: if a company ignores the concerns of thoughtful shareholders, it will eventually lose all of them. The foundation of long-term value is good governance, whether in a neighborhood or on Wall Street.
- The lack of transparency, accountability, and shareholder involvement in our HOA echoes similar issues found in corporate governance, particularly in the handling of finances, capital allocation, and decision-making by power-hungry executives, underlining the importance of understanding shareholder risk.
- Just as a poorly managed small-cap company can result in losses for investors, the collection of annual dues without delivering any corresponding services or value is reminiscent of poor personal-finance decisions related to investing and home-and-garden expenses.
- The passive behavior of many HOA members, who either lack knowledge or choose to dismiss the HOA's shortcomings, can be a parallel to passive shareholders in the business world. This passivity enables weak governance and declines in value, demonstrating that active engagement and accountability are necessary for good governance in both personal and business life.
