Bringing in a New Board Inheriting a Mess

In managing the affairs of a building or a community, all board members are far from equal in their abilities and skills. Some bring experience in construction or a background in law, finance, or other professions that can be helpful to the board. Some board members bring little insight or professionalism to the group, and are more concerned with personal vendettas, cronyism or other compromising pursuits. It’s an unfortunate fact of democracy that rule by the people means that sometimes the people ruling don’t do such a great job.

While the majority of board members volunteer their time with the best interests of their community in mind, the degree of professionalism on a board can vary widely, some boards (or at least some members of boards) can and do make a mess of the job. Some boards can go so completely wrong that residents are compelled to vote several members—or even the entire board—out of office.

When new board members join their building or association’s administrative team during such a time of crisis, they have to hit the ground running and deal with the community’s problems immediately. Often, they must do so with little guidance and no training. But given the right information, new board members can take the reins of a troubled building or association in a smooth transition. With savvy advice, new boards can avoid the pitfalls that contributed to their predecessor’s failures.

Musical Chairs

While it is not very common for an entire board to be replaced due to resident dissatisfaction, it does occasionally happen. More commonly, one board member or a few board members will be replaced through an election. Cases of gross mismanagement—or even outright fraud—by the board can quickly disaffect residents and draw their extreme disapproval.

“When things are going well, it’s hard to get residents to come to the board meetings,” says Adam Leitman Bailey, a Manhattan attorney with his own firm specializing in real estate matters. “When there are increases in charges though, everyone shows up.”

It’s is fairly rare for all of the members of a board of directors to be removed by vote by residents, says Al Pennisi, a partner with the law firm Pennisi Daniels & Norelli, LLP, based in Queens, and the president of the Federation of New York Housing Cooperatives and Condominiums (FNYHC). Usually, disaffected residents will vote out two or three board members at most. Such changes can be acrimonious. Even voting out a few board members at once can result in hard feelings with those voted out, and on the part of the remaining board members.

Such changes can be made even more complicated by outgoing board members, who are not legally required to help incoming board members to transition into their new jobs, Pennisi says. He adds that “outgoing board members do have a fiduciary responsibility to get the new board members up to speed.”

New board members should touch base with the community’s lawyer, accountant, and engineer or contractor (if the community is in the midst of a construction project, or if one is planned). They also should speak to the property manager and to the superintendent, to ensure that they are well-versed in all of the issues being addressed by the board.

If an entire board is replaced, old board members could grudgingly hand over control of the board to new members, without helping them understand the issues the board is managing. Often, boards have staggered terms for board members; meaning only part of the board is usually replaced during an election. Most co-ops have one-year terms for board members. Generally, about one-third of the board members are replaced each election.

Since only part of the board is usually replaced at one time, “you maintain an institutional memory,” Pennisi says. Keeping institutional memory intact on the board is important, so that board members don’t make the same mistakes their predecessors made. That’s why board meeting minutes are so important to keep, and important for all residents to read.

If the board is in the midst of litigation when new board members join the group, outgoing board members would have a greater obligation to convey information to new board members, says Dennis H. Greenstein, a partner with the law firm of Seyfarth Shaw LLP in Manhattan. New board members should be provided with copies of meeting minutes that are pertinent to work they will be doing on the board. Copies of papers related to any expected or ongoing litigation should also be provided to new members.

“Everybody has a fiduciary responsibility to perform those things that are in the best interest of the building,” Greenstein says.

Taking Control

Regardless of the cooperation or lack thereof of outgoing board members, the newly constituted board will have to take the reins on their own at some point. Even if the transition from the old board to the new one is a rocky one, the board’s consultants can help to ease the transition, adds Bailey.

“If you have a good managing agent and attorney in place, they’ll pick up the pieces and smooth the transition,” Bailey says.

The managing agent’s main functions are to collect fees from residents, pay bills, and deal with property repairs and staff of the building or community. The managing agent works for the board, and takes instruction from the board. Sometimes the managing agent might be taking instruction from a divided board as a result of new members being elected.

“It happens sometimes that new board members get elected, and their personalities create tension between old and new members,” Greenstein says. “I’ve generally seen a balance found between the two, but not always.”

New board members should investigate all of the matters in which the board is involved. New members have an obligation to their community to get themselves up to speed, and should talk to the board’s attorney, accountant, property manager, and superintendent about issues the board is facing, Pennisi says. “They should have a meeting with shareholders, and bring them up to speed,” Pennisi says.

Many managing agents and accountants work with several buildings and thus, some of these professionals have a greater depth of knowledge in navigating the troubled waters of a board facing tough choices. “They should get experts’ advice on how to go forward,” Bailey says.

Smoothing Wrinkles

After a new board is created, board members can do things to restore confidence and trust in the board. Keeping residents well-informed is essential, Greenstein says.

“It’s not uncommon in such situations for unit owners to want to know more of what’s going on,” Greenstein says. “One way to respond to their complaints is by sending out more regular reports on what’s being done.”

Newsletters, web logs, and email groups are good tools for spreading word within a community, and are commonly used by many buildings. Bailey recommends that new board members send out a note (an actual paper one), detailing the things the board will be working on. The notes should be delivered to all residents’ homes.

“Keep the open communication,” Bailey says. “That prevents lawsuits.”

One aspect of the rule of open communication is avoiding defensiveness. Boards are elected caretakers of their building or community. Boards don’t need to be defensive about necessary projects that will be expensive, or about receiving criticism from residents.

“The important thing is for the board to be open and responsible. The job of the board is the correct operation of the building,” Greenstein says.

Some newly constituted boards may have to institute new policies for how they’ll do business, in order to restore residents’ confidence in the board. Sometimes, the board might want to hire a new managing agent.

“Bringing in new management sometimes can restore confidence,” Pennisi says. “Some managers have more expertise in construction, or accounting.”

New board members should find out what their rights and responsibilities are in the co-op. They should meet with their professional consultants and get help changing the boards’ policies and procedures, if needed, Pennisi says.

Educate Thyself

Resources exist, and professionals abound, that can help board members to restore order and confidence in the board. Various public seminars offer information on good governance of buildings and communities. Groups like the Council of New York Cooperatives & Condominiums (CNYC), the New York Association of Realty Managers (NYARM) and the FNYHC all offer workshops that can be helpful to board members. Also of value is attending trade shows such as The Cooperator’sannual event at the New York Hilton. The 2009 Co-op & Condo Expo, in its 22nd year, will take place from 9 a.m. to 5 p.m. on Tuesday, April 7, 2009, and feature more than 270 exhibitors and six informational seminars on topics of interest to boards and residents.

The New York Timesincludes an informative Question & Answer section on co-ops and condos in its Sunday real estate section, Greenstein says. “The Cooperator, and The Habitat, are also good to read,” he says. “The best resource really is the attorney for the building. He’ll make the board aware of any legal matters or legal developments.”

Dedication to the job of being a board member is important, because the value of many peoples’ property is at stake in decisions a board makes. Putting in half an effort in deciding financial matters that can result in millions of dollars being spent is not only foolish, it could verge on the criminal.

Their fiduciary responsibility to residents of a community is a trust that wise board members work hard to live up to. Smart board members take their elected jobs seriously, and put the effort into those jobs to do the best they can.

Jonathan Barnes is a freelance writer who regularly contributes to The Cooperatorand other publications.

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