What A Broken HOA Taught Me About Corporate Governance

Forbes

17-05-2025

I learned more about governance failure from my neighborhood HOA than from most boardrooms I've analyzed.
I live in a small annex of houses along the edge of a more extensive residential complex. We are formally members of the homeowner's association. The drawback here is that there is no clubhouse, pool, landscaping, or snow removal. There isn't a single service offered. Still, we pay annual dues like everyone else — but a little less, as if the lack of value justifies a mild reduction.
It seemed at first like a local annoyance. I then turned to examine closer. Not only was it aggravating, but it was familiar. The lack of transparency was a recurring issue. The budget did not include a list of items. There wasn't a clear exchange of value. The board made a decision on its own, without seeking input or advocating for our region. It reflected what I have too often seen in public markets: power disconnected from responsibility. Many times, investors concentrate on the numbers—earnings, growth, and multiples. The actual danger, though, is government. And mistakes in governance do not begin in boardrooms. They begin anywhere money moves without control, even in your backyard.
It dawned on me then that this was more than simply pay-back. It served as a crash education in shareholder risk.
Most people consider challenges of governance to be boardroom ones. If you have ever lived under a homeowner's association, however, you will be aware that governance—good or bad—can be local, small-scale, and shockingly opaque.
HOAs run more like micro-boards than others. Usually with little to no influence, they manage budgets, decide on capital allocation, and enforce policies. Typically, there is unchecked power, a lack of transparency, and frequently no accountability. And unlike public boards, there is hardly a shareholder vote to straighten things out.
In our case, the board sent no itemized financial data. There was not a single instance of service disruption. The source of the dues remained a mystery. Deflected or disregarded were the questions. Evasive references to "the website," which conveniently lacked the information, met clear requests for clarification. It made me think of buying a poorly run small-cap firm with few transparencies, insider control, and little shareholder participation. The stewards of capital expect you to trust them, despite the absence of reporting, measurements, or even simple communication.
And the truth is that structure counts more than size here. The fundamental idea is the same regardless of your situation—$500 or $5 billion. Everywhere money and control are separated, there is governance risk; where supervision is discretionary, the dangers are magnified.
Our annual charge was $424 less than that of full-paying homeowners. On paper, that might seem like a reasonable discount; however, it is important to understand that we were receiving absolutely nothing in exchange. None of the services are available. There is no access. Not perks. Just a dues invoice sent yearly, disconnected from any value or accountability. The issue was structural misalignment instead of a lack of administrative control. No one would accept a fund manager charging fees while doing nothing with your money in space investing. However, in residential governance, we are required to contribute to the establishment of a system that lacks fundamental fairness and performance considerations. The core of government failure is not only corruption or fraud but also a total disconnection between those funding the capital and those rendering choices. Public markets constantly show this: M&A deals that destroy more value than they create, related-party transactions that subtly benefit insiders, and too high executive compensation with no connection to results. The behavior of the HOA was consistent: extractive economics dressed in legitimacy. They charged without delivering, governed without accountability, and utilized the form of the law to avoid the spirit of it.
Investor lesson: Use the incentives regardless of the type of community board—business or others. If you gather capital with no value in return, you are not investing; rather, you are financing someone else's inefficiencies.
Most of the neighbors in our little annex stayed quiet. Some had no idea what was going on, while others dismissed it — too busy, too tired, or simply unwilling to disrupt the peace. The HOA continued to operate without any resistance, and the silence was interpreted as approval. We interpreted that silence as approval. This same pattern plays out in public markets every day. Passive shareholders enable weak governance. When investors don't vote proxies, 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. Governance doesn't improve by accident. It gets better when people speak up—or walk away. Silence is often mistaken for consent. As an investor, it's worth asking: Who really controls this company? Are management's incentives aligned with shareholders? And by staying quiet, am I complicit in poor governance? Abdication, whether in a boardroom or a neighborhood, carries a cost. Eventually, someone pays for it.
I once asked the HOA for a simple breakdown of dues, a spending report, and meeting minutes. The response was, "You can find it on the website." (It wasn't.) Perhaps worse: "There's no separate breakdown for you." (Also, there should be.) It became more evasive the more I inquired; if you have experience studying public firms, you will see the pattern. The result was legally compliant but practically useless HOA boilerplate disclosure. Boards that print just enough to avoid litigation but not enough to foster trust employ the same playbook. They are expecting you to stop asking; they are not trying to inform you. However, authentic governance begins where transparency concludes. Transparency is a signal, not only a need met. One respects a signal indicating capital, whether from homeowners or investors. When that signal vanishes, it not only stonewalls you; it also conveys that your money and your voice are not important. This situation raises questions in any system, whether local or listed.
The board never once clarified the true cost of our purchases. They took decisions behind closed doors, without consultation, without criticism, and certainly without representation from our annex. It felt more like entitlement than a sense of responsibility; the government operated solely by decree. From the perspective of an investor, this resembles a business where control completely subordinates performance. Consider dual-class share structures whereby founders shield themselves from responsibility regardless of the performance of the company. Power without earned trust and authority without results follow the same trend. Furthermore, as markets have shown, that is a precarious arrangement. The lesson is "The more unearned power a board has, the more fragile its legitimacy becomes." The lesson is obvious for investors: always consider control systems. The last say goes to whom? Are they sensitive to the concerns of stakeholders? Whether at a billion-dollar firm or a neighborhood board, the moment leadership stops listening, evolution stops too, and decline starts subtly.
I am now considering pulling out and taking legal and structural advice. It wasn't a rash decision — it was the result of persistent neglect, evasion, and poor governance. When leadership fails, the first thing to go is trust. Then the community fractured. And eventually, you lose capital, whether that's financial, reputational, or structural. The same pattern plays out in markets. Governance failures erode value faster than earnings misses ever could. Look at Boeing, Theranos, and WeWork—none of them collapsed overnight because of financials. They crumbled because trust in leadership disappeared. Investor takeaway: 'If a company ignores the concerns of a few thoughtful shareholders, it eventually loses them all.' Governance isn't a soft issue. It's the foundation of long-term value. Whether in a neighborhood or on Wall Street, when those in charge stop listening, it's inevitable that those who find them will eventually start to walk away.
My HOA didn't impart any new knowledge — it merely served as a reminder of the unpleasant experience of poor governance when you bear the financial burden. It reinforced why I've spent a career digging into special situations, questioning board decisions, and valuing transparency over polished PR. In today's markets, investors are chasing AI narratives, macro forecasts, and sentiment-driven trades. But what is the true advantage? To find the true advantage, you must know the board members, their motivations, and how they respond to real questions. The boardroom is the area where risk conceals itself, and it's also where opportunities often start. Governance isn't just a line item on a checklist — it's the difference between compounding and collapse. This principle applies to both portfolios and neighborhoods.
This article reflects my personal experience and opinion. All events described occurred while I owned and lived in a house in the HOA, and all views are mine. I offered the HOA in question an opportunity to comment, but they didn't respond.