Q&A: How Should Boards Operate?

Q. I live in a New York City co-op and would like to understand exactly what the legal responsibilities of board members are. Our board has not posted board meeting minutes for a few years (although annual meeting minutes are distributed with the annual meeting notice). There are no notices posted about when and where board meetings occur. One shareholder who asked to sit in on a meeting was told the board conducts business via email.

             —Shareholder Seeking Knowledge

A. According to Jeffrey Reich, an attorney for the New York City firm Schwartz Sladkus Reich Greenberg Atlas, LLP: “A New York cooperative apartment corporation is a business corporation that has been formed under the New York State Business Corporation Law (the ‘BCL,’ or in some rare instances under the New York Not-For-Profit Corporation Law, the ‘NFPCL’), and as such is governed both by the cooperative’s bylaws and the BCL (or the NFPCL). BCL corporations are led by their boards of directors, and members of the board have an obligation to make decisions in good faith on behalf of their corporations. 

“Additionally, due to the position of trust that board members occupy, they are subject to fiduciary obligations requiring that they consider the best interest of the corporation in their decision making and the actions they take – even where those decisions may be contrary to their individual interests. Thus, a member of a cooperative board has a duty to operate the cooperative in good faith and in a manner that reflects the best interest of the cooperative shareholders.

 “In order to determine how a board members should respond to a particular governance issue, the board member can look to the BCL and to their co-op’s bylaws. While the BCL provides general instructions regarding the governance of a cooperative corporation, the co-op’s bylaws usually provide more detailed guidance. Bylaws may address the process for board elections, the conduct of board meetings, and the publication board meeting minutes. The writer should review their co-op’s bylaws to determine if there are any qualifications or term limits imposed on an individual’s right to serve on the board, the process for electing board officers, whether board meetings are to be open to the shareholders, and the requirements for sharing the board meeting minutes. In the event that the bylaws are silent on any of these topics, the bylaws may be amended (in some cases by the board’s own action) to adopt appropriate policies.  There is no requirement that bylaws provide for specific qualifications for board officers, term limits, to compel boards to hold board meetings open to the shareholders, or to distribute the minutes of the board meetings (although recent court decisions indicate that shareholders have the right to review board meeting minutes on request) – but a board may decide to establish such policies.

“Since the board controls the operations of the cooperative, bylaws and proprietary leases usually grant the board the authority to amend, modify, impose and delete rules for the use and operation of the cooperative property (often referred to as house rules or rules and regulations). These rules are adopted based on a vote of the board members, and as such, a board president does not have the authority to unilaterally amend, alter, impose or delete cooperative rules on his or her own accord. If a president has attempted to do so, it is a matter that should be taken up by the board and addressed.

“The best board members are those who understand their roles and who are actively engaged in the operation of the cooperative.”

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Comments

  • Concerning Board Elections is it proper for Management and or Election Committees to get results from Election Tabulators in the event of a no quorum ?? This gives management the opportunity to leak information as to who did or did not vote. UNFAIR ?? ILLEGAL ??