Q&A: What Can Board Members Disclose?

Q. I would like to know if it is legal for board members to share personal and financial information regarding our home in the community with other residents who don’t even serve on the board, and some who don’t even own property here, but live here as renters. We feel that what goes on in executive sessions should remain in those sessions, and not shared as a topic of casual conversation, gossip or threatening with other members of our community. Is this a true and correct belief?

— Resident Worried About Privacy 

A.  “As a result of their positions, directors and officers of co-op corporations are often in possession of personal and other information not intended to be publicly disseminated,” says attorney Mark Hakim of the New York firm of Schwartz Sladkus Reich Greenberg Atlas LLP. “Whether it is the net worth of a potential purchaser, or problems between residents, or the financial hardship of a shareholder, when such information is delivered to or obtained by a board, there is often an expectation that it will remain in their possession and not otherwise unnecessarily disclosed. However, directors and officers and their agents are human, and may not always keep such information close to the vest. While there is no law in New York expressly governing what a director or officer may or may not disclose, directors and officers should be mindful that the people placing this information in their position do so with the implicit understanding that it is to be kept confidential. If a director or officer discloses something they should not have, and the building has a policy against such disclosures, the board member may be able to be removed ‘for cause’ under the corporation’s bylaws (but it would depend on the specifics of such bylaws). There is also the possibility that the board member breached their fiduciary duty and may be held accountable.

“Co-op board members wield a great deal of power, and with their positions comes a fiduciary duty to the shareholders of the corporation. That duty goes the heart and operation of the corporation and can affect the daily lives of its shareholders and the other residents of the building. A director’s decision must be in good faith, with fairness and the best interests of the corporation in mind, and there can be no self-dealing. Under Section 717 of New York’s Business Corporation Law (BCL), directors of corporations must perform in good faith and with that degree of care which an ordinary prudent person in a like position would use under similar circumstances. Courts do not generally involve themselves in the day-to-day operations of a co-op corporation, provided the board acts in good faith for legitimate corporate purposes and within the scope of its authority. However, if the disclosure of information can be shown to fall outside of this, and such director or officer breached their fiduciary duty, liability may ensue — and the corporation’s insurance will likely not cover it. However, merely disclosing information, in reality and practice, without damages, is very difficult to enforce. Buildings should therefore set their own policies, including that for maintaining in confidence private information, and penalties for breaches thereof. 

“Board members should not be discussing the private affairs of the corporation. Whether it is related to a lawsuit or a potential purchase or other building matters, it is recommended that these matters remain with the appropriate parties. Disclosure of same can have far-reaching and adverse effects. We often recommend to our co-op clients that their bylaws be amended...to reflect current law and trends in the industry, and often recommend that each director sign a statement indicating that they will maintain and not disclose confidential information obtained in their roles as a director or officer of the corporation, except for limited circumstances (e.g., as required by law, etc.).

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