On a base level, character traits reflect whether a person is ‘good’ or ‘bad.’ Likewise, a board is comprised of a group of individuals who collectively become one ‘character’ charged with steering their community in the right direction. Determining whether a board is good or bad is based on its approach to communication, management and conflict resolution.
The Good Stuff...
“Boards are populated by owners or shareholders, and they are just people who happen to live in the building,” says Ronald Steinvurzel, principal at the White Plains-based Steinvurzel & Levy Law Group. “They could be lawyers, accountants, teachers, elderly retirees or doctors. So the demographic on the board is the demographic of the neighborhood. Board members are either part of the solution or part of the problem.”
As a result of respective demographics and regions, how well a board is equipped to handle the business of their own property involves plenty of variables. On average, the best boards are open-minded team players with strong communication skills. (For more on this point, see our article on ‘The Best Boards: Going Above and Beyond’ elsewhere in this edition of The Cooperator. -Ed.)
“Successful functional boards need persons who work in tandem, work well as a team, are well-organized and have different areas of expertise to offer,” says Robert Silversmith of the New York City-based Silversmith & Associates Law Firm, PLLC. “Boards should openly and amicably communicate with all board members as a collective group.”
Whether a board member has tenure or is new to the position, self-edification is an essential ingredient for consistent success. Senior board members can be a great asset to new board members in this respect, but all board members must understand the governing documents of their particular community, as well as take an active interest in staying informed about legal and legislative issues that might come to bear against their building or association.
“Successful boards are familiar with the building’s bylaws and other governing documents,” says Dan Wurtzel, president of property management company FirstService Residential New York. “They are also acutely aware of their fiduciary obligation in making decisions to align the best interests of the cooperative or condominium above any individual interests. This is a highly successful strategy for preventing discord among members and creating an environment that is conducive to efficient decision-making.”
Wurtzel explains that board members don’t have to do all of this on their own, without any guidance. They can turn to several organizations whose primary purpose is educating condo and co-op board members to effectively manage the affairs of their buildings. Organizations cited include the Federation of New York Housing Cooperatives & Condominiums (FNYHC) and the Council of New York Cooperatives & Condominiums (CNYC).
Even a well-educated and intended board can — and will — make mistakes. Common missteps include board members hiring residents who reside in the building or entities owned by or connected with a resident to perform work for the board or association.
According to Silversmith, “This makes it difficult to supervise the work being performed and to address insufficiencies in such work and may create conflicts of interest. In the event of a dispute between the parties, resolution of such may be made difficult due to conflicts of interests, lack of formal paperwork or having failed to follow normal due diligence and other procedures, and may create animosity between co-residents in the building.”
Boards can also be at risk if they are unwilling to address critical issues in a timely manner, or are able to effectively prioritize objectives. Wurtzel says that some boards become fixated on minute details and are not focused on long-term goals. “Board members who do not have a complete understanding on how certain decisions could negatively impact operations can also be a pitfall,” he adds.
Another common problem among board members is their respective profession, or the profession of the board member’s spouse. “Lawyers or spouses of lawyers can be troublesome,” says Steinvurzel. “Often times I run into a board member whose spouse is a bankruptcy attorney or a litigation attorney or a patent attorney, and as a result they think they understand the issue at hand, but often this attorney doesn’t know real estate law, construction law or co-op law.”
While Steinvurzel is quick to stress that these professionals can definitely bring certain skill sets to the table, they’re not automatically the skills needed to address the issue at hand. And it is these board members (or spouses of board members) who are most likely to tell the professionals hired by the board that they are doing their job wrong. And that leads to crossed signals, confusion, and ultimately needless acrimony.
Steinvurzel warns against “relaying to their board secondhand information that may or may not be relevant. It is these types of scenarios that can derail an otherwise well-functioning board. Boards should always defer to the professionals they hire.”
More Big No-Nos
Boards that stick to the agenda and issues at hand tend to be far more successful than boards that use their dais as a bully pulpit. Indeed, the latter approach can – and does – lead to legal entanglements that are lengthy, acrimonious, and very expensive.
“A board member can be held personally liable if they are found to have engaged in a wrongful act or an infringement of a right that leads to civil legal liability,” says Wurtzel. “They should always be cognizant of potential issues of libel, slander and discrimination. Board meetings are not the place to vent personal frustrations. Emotions that get out of hand are a disruption to board operations. While opinions should always be valued and respected, even heated communications should remain structured and constructive.”
While clear, open communication is essential to a successful board, experts warn against how certain information is transmitted or shared between board members, shareholders and owners. An otherwise well-intended missive could open the board to liability and costly litigation.
“Boards should use email for administrative matters – like setting dates for meetings, for example — but they should caution against email becoming a source of discoverable information,” Wurtzel continues. “If an issue begins to go awry, boards should cease emailing and consult their managing agent on how to proceed.”
Perhaps the worst characteristic a board can display is a combination of ignorance and stubbornness. The experts we spoke with have all experienced boards that thought they ‘knew better’ than the professionals specifically hired to help them do their job, or boards that took a perilously laissez-faire attitude toward upholding their own policies and protocols. Silversmith cites one all-too-common example: boards that don’t follow proper protocols when interviewing prospective shareholders, thereby running the risk of illegally discriminating against potential buyers, and exposing themselves and the board at large to legal consequences.
“The board should at all times maintain and conduct themselves properly and in a manner that avoids not only charges of discrimination or breach of fiduciary obligations, but also the appearance thereof, whether justified or not,” says Silversmith. “Members of the board should not allow persons to enter the building as shareholders whose finances are insufficient, or show favoritism to friends and others. Doing so breaches their fiduciary obligations.”
The Successful Board
There are plenty of ways for boards to go bad; what makes for a good board? According to Silversmith, successful boards keep their constituents informed of any major undertakings or changes throughout the year. This, he says, fosters goodwill between residents and board, and vice versa. When people are kept in the dark about what’s going on with their homes – and the major investment those homes represent – it’s easy for them to take a dim view of their board and its decisions. When transparency and clear communication are a board’s priority, the entire community benefits.
“The board should be as transparent as possible to [residents],” says Silversmith. “Between annual shareholder meetings, boards may accomplish this by communicating with shareholders via monthly newsletters and/or informal town hall meetings held during the year.”
Boards that also take advantage of the experience and guidance of their management company and legal counsel can often avoid pitfalls and enjoy a largely drama-free governing experience. After all, these services are budgeted and paid for – the very reason being that managers and attorneys are professionals, whereas board members are volunteers.
“Many boards are operating with limited funds,” says Steinvurzel, “and they’re paying a flat monthly fee for their management contract, so they should rely on their management company for that day-to-day guidance.”
Steinvurzel also encourages his clients to schedule an annual meeting to address best management practices for the coming year. This approach, he says, can save his clients money on the backend. “The boards I convince to do it realize if that we had done the meeting the year before, we could have avoided problems and saved much more money than it cost to hold the yearly meeting,” he says. “That logic works.”
With the goal of sound governance, harmony and fairness, board members – especially long-tenured ones – must take the aforementioned industry lessons to heart, while being open to learning about evolving best practices.
The following is a “board success checklist” provided by Wurtzel:
Conduct a periodic review of the governing documents.
Ensure board documents are in compliance with current laws.
Utilize the building’s attorney or other industry professionals for major transactions.
Keep accurate minutes of board meetings, complete financial records, as well as complaint logs to document the board’s activities.
Follow the basic rules for running a meeting. Robert’s Rules of Order is an excellent way to keep emotions and personality conflicts from interfering with association governance.
Ramp up newly-elected or appointed members to become meaningful participants.
And finally, “Successful boards know the importance of board member succession,” says Wurtzel. “Focusing on the future is vital when it comes to maintaining the strength and momentum of the board. Identifying great talent within the community, grooming those individuals accordingly, providing them with opportunities to lead, and then supporting them with the proper tools and education to become effective board members often yields a path to success.”
W.B. King is a freelance writer and regular contributor to The Cooperator.