The Two-Way Street Board Accountability, Shareholder Responsibility

The old adage that knowledge is power holds doubly true when it comes to assuring ethical conduct and adherence to bylaws by a governing board, regardless of the size of a community size or the severity of a given crisis.

But the laws that govern certain aspects of board performance and accountability aren't just arbitrarily assigned rules and regulations; they're spelled out in the state's Business Corporation Law, or BCL. Supporting the framework of the BCL are a few other, more common-sense pillars: open communication, proactivity, and initiative on the part of not only board members and managing agents, but shareholders themselves.

Give and Take

An ethical, competent agent can help serve his or her building community and keep its board accountable, but ethics and common sense go both ways; they can raise a red flag for an aware, involved, shareholder faced with questionable action by their board or agent. Such situations often call for shareholders to challenge decisions made by their representatives and hired professionals.

"Shareholders [should] communicate with their management and with other shareholders and take advice from their own lawyers and accounting firm," says Robert Grant, director of management for Manhattan's Midboro Management. According to most bylaws, shareholders can petition for a special shareholder meeting - and sometimes bring legal action - with 25 percent approval, as well as pursue, if necessary, a legal avenue.

Stephen W. O'Connell, an attorney with the Manhattan-based law firm of Hartman & Craven LLP, has 18 years experience in real estate law with a concentration in co-ops and condos. O'Connell explains that a board's conduct is primarily governed by the state's BCL and the provisions of the business judgment rule, which came out of a 1990 legal decision that gives boards of directors the right to make reasonable business decisions in the best interests of their shareholders. Thus, it's been routine policy of the courts to avoid second-guessing the business decisions of boards, be they commercial corporations or cooperative apartment buildings.

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3 Comments

  • I found this article to be quite interesting however what are you to do when a board member that is a real estate agent and owner violates the sublet rule? She has illegally subletted over five years and has not paid the fees at all. When approached by a fellow board member to pay the full restitution, fine and resign on her own she said no. Let the shareholders vote me out. If the board president doesn't act upon it because legal counsel said let her pay 6 months and move on from it, which I feel is wrong. He deals with her on a business aspect outside of the board and it is a conflict of interest in this case.
  • every person on the board has an agenda.
  • Are Coop Boards required to ask potential buyers their source of funds, especially if the buy transaction is an ALL cash transaction??