From the Editor 45: Total Recall

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I looked at the timer on my phone. The man on the other end of the line had been talking, virtually without interruption, for 24 minutes. He was on a jag about corruption, misconduct, and malfeasance on his co-op’s board, and I had opened the floodgates by asking him, “What’s the problem?”

 

“Our co-op has been negatively impacted, in extremis, by the extraordinarily disproportionate power of the residual unsold shareholder ownership,” he was saying. “The rights of the original sponsor are bestowed on the holders of unsold shares in perpetuity. They sold this bill of goods to a very naive group of renters. Finances are controlled by four people on the board. It really goes against all the principles that exist in corporate America for shareholder involvement.”

 

He went on in that vein, justifiably angry at the inequity of it all, wondering what he could do.

Others express similar frustrations, as seen in a recent post on Habitat’s online Board Talk forum, in which a board member talks about a colleague who discovered irregularities in the monthly arrears report that dated back to 2006. When the member tried to start a finance committee to investigate the matter, four old-timers fought against it. When it was eventually formed, they refused to let the committee – made up of homeowners – see the building's financial records. Finally, when some members wanted to bring in a forensic accountant, or at least an independent, outside regular accountant, the four members rounded up a fifth vote on the nine-person board to block it. Now that they have a five-vote bloc, they can push through anything they want without opposition, including preventing a financial investigation into the arrears irregularities. “Is there anything we can do?” asks the questioner.

 

Both situations sounds pretty bad – but how do you deal with them? You could try to bring in the law, but the attorney general’s office is notorious for its lack of teeth, and the district attorney – well, who knows how the different DAs in the five boroughs choose their cases?

 

A better option may be to try for a board recall – which can be initiated by anyone: by minority members on the board who think there’s hanky panky being pursued by the majority, or by outsiders looking in.

 

That’s what Natalie Webster is trying to do. A longtime resident at the Kings Village co-op in Brooklyn, she is unhappy with the state of her building, accusing the board of, among other things, “improper governance,” citing a number of reasons: the 2011 financial statements were not issued until 2013; there had been no elections since 2010; no annual shareholder meetings; recurrent building violations; and about a dozen other points (some that are obviously subjective, such as “inactive and ineffective board members”). “We want changes,” Webster says, which is why she is attempting to call a special meeting to oust the board.

 

Most co-op and condo bylaws in New York follow the state’s Business Corporation Law, which gives shareholders or unit-owners the option to call a special meeting. Although the specifics vary from organization to organization, the majority of corporations require that at least 25 percent of the owners request the special meeting and that the purpose be clearly stated in the petition and in the subsequent notice of the gathering.

 

If you’re on the board, what should you do? Your first option is to defend yourself – if you can – but the best way to deal with recall petitions, naturally, is to avoid them altogether. That means that boards should be proactive, staying aware of (and dealing with) any potentially controversial decisions, and keeping the residents informed through newsletters, memos, and even special meetings. By calling special meetings on their own, boards can define the agenda (excluding a vote, for instance) and give the residents an opportunity to state their opposition or support, with the building residents working together in harmony.

 

I mean, this isn’t Washington.

 

April 2, 2013