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Bouncing a Board Member

How far would you go to get rid of a board member who was causing problems with fellow directors? That was the question a handful of directors in a Greenwich Village co-op struggled with a few years ago, when one of the board members turned what under normal circumstances can be a combative scenario - the monthly board meeting - into a pitched battle.

The dissident board member was very disruptive, recalls Tina Ball, the president of the co-op at the time. "Any time someone didn't agree with her, she would start yelling and screaming and behave in a fashion that was untenable. That's not to say the individual didn't have good ideas - it was the way she presented her ideas. She was obstructing the meetings so severely that we were unable to get anything done over a long period of time. She came to feel such hostility toward us that we felt it was important to let the building see."

To that end, the board began to issue updates on its proceedings. Those members who worked particularly hard were thanked by name. In another update, Ball warned the shareholders that someone was leaking information from the board sessions, which was making it difficult to negotiate with the staff over hours and wages.

The tactic worked. At the next meeting, the dissident showed up, furious, with attorney in tow. "She came armed for a fight and behaved so outrageously that when the building saw what was going on and I spoke and said, 'This is what we have been dealing with for two years,' she was not re-elected," says Ball.

"When co-ops were created and the bylaws were created, it just didn't pass through someone's mind that the board might need to be able to protect itself on occasion," complains Ball. "So the systems that are in place here to remove a board member are so complicated and involve everybody in the building that almost no one is willing to take a fellow board member on."

Several co-op attorneys agree with Ball's assessment. Buildings have bylaws that allow them to remove a director with or without cause by a majority of shareholders calling for a meeting for that purpose. But actually getting the votes to do so can be impossible, says attorney Steven Ganfer, a partner at Ganfer & Shore. Under Article 7 of New York State's Business Corporation Law, board members cannot remove a fellow director who has been elected by cumulative voting. Since he or she is elected by the shareholders, a director can only be removed by the shareholders and not by a majority of the board members.

And if the shareholders have cumulative voting, which is, that each shareholder can vote his or her shares as many times as there are slots to fill, it is almost impossible to vote an unpopular person off the board. If a board has seven seats, all the dissident would need to remain would be one-seventh of the votes cast for election, Ganfer points out. "If the building has cumulative voting, you might not be able to oust the shareholder if he gets enough votes."

Nonetheless, says Theresa Racht, a partner at the law firm Rosen & Livingston, co-ops should not lose heart. There are legal ways of dealing with a difficult board member. The most important step is to "first isolate what the issues are." Is the board member missing meetings? Interfering with the co-op's efforts to conduct its business, such as sign contracts? "If the board member is an officer of the board, the directors can vote by a majority to demote them from their office," observes Racht. "That doesn't get them off the board. It does at least prevent them from causing problems with the running of the business."

If the board member continues to act in a disruptive manner, the remaining directors can use their voting power to create an executive committee and conduct their meetings without the difficult board member being present.

At Hilltop Village Cooperative No. 4 in Queens, Marc Haken, president for a nearly uninterrupted 25 years, used a tactic similar to Ball's to isolate an unruly board member who had "bullied" his way onto the board, giving dire predictions of maintenance increases that terrified the senior citizens living on fixed incomes. "One by one, I resecured the loyalty or the cooperation or the reasonability of the majority of the board," says Haken. A naturally gregarious man, he made it his business to keep up a constant dialogue with his fellow directors outside the boardroom, sitting with them on benches, strolling around the grounds, pigeonholing them in hallways to talk to them about the need to raise money and make improvements in the building.

"We needed the money," says Haken flatly. "And I was able to convince them, through rationale ways and means and dollar figures, that it was absolutely necessary to put in a revenue enhancement." When it came time for the meeting to discuss the maintenance and surcharge increases, the dissident board member "used words I didn't know," and then quit in a huff when the board ended up voting for the increases.

To avoid holding special meetings or waiting for the annual election to oust a board member, shareholders can adopt a set of guidelines for being a director. There can be a rule that "anyone who missed more than four meetings in a row could be removed by the board," points out Ganfer. Though the board member would be able to stay unless voted off in a special election, they could be barred from participating in board meetings where only officers, such as president, vice president, treasurer, and secretary were present.

Racht agrees: "You can amend your bylaws to increase the qualifications for directors, such as anyone in litigation with the co-op cannot be on the co-op board. The director has to be a shareholder, not a spouse. If they practice their profession with shareholders in the building, such as a broker, lawyer, or accountant, and you feel this is creating conflicts, they cannot be on the board. There are things like that you can adopt by amendment to the bylaws."

Ganfer recalls one unusual problem-solving move by a co-op he represented, where the board members were having a particularly difficult time with one of the directors. The man "was very hard to deal with. The people on the board disliked him a lot and the sponsor didn't enjoy working with the person." The upshot? "The sponsor made him an offer he couldn't refuse for the purchase of his apartment," and the board member moved out of the building.

If the board directors don't want to hold a special meeting, and have nothing in the building's bylaws or letter of incorporation controlling who is on the board, most will simply wait for the annual elections. At that time, the directors will form a new slate of candidates, which excludes the difficult directors, hoping to signal to the shareholders that the excluded director is more trouble them he is worth.

"You don't put the person on the slate, and ask shareholders not to vote for that person," says Steve Wagner, a partner in Wagner, Davis & Gold. "It happens regularly and is the most common way for someone to be replaced. Obviously, it can be very divisive in a co-op. This person is on the board and will have inside information and will do whatever they can to try and survive and remain on the board."

This past November, things got heated in a co-op in Inwood, where a disagreement over a lobby renovation sparked a call for the entire board's recall. The co-op's president believes the recall is being promoted by a dissident board member, chafing under the impression that her viewpoint on the renovations is not being properly acknowledged.

After a shareholder meeting held in the lobby, where the unhappy board member pointedly sat apart from the other board members during the question-and-answer session, a petition was circulated calling for a special shareholder meeting to recall the board. The meeting is tentatively scheduled for sometime this winter. "We have been advised by counsel that unless we want to contest the petition, we are going to have to have the meeting, whether people want it or not," observes the board president, who says that most of the shareholders appeared satisfied with a description of the board's doings after the public meeting in November.

"Our sense is that we will be able to carry a motion to table the vote on the recall. From a procedural standpoint, I don't think we are at risk [of being dumped from the board], but from a political standpoint, these are our neighbors. And if we can't carry a majority of the shareholders to a motion to table the recall, we have lost our mandate," observes the Inwood director. If they do prevail in tabling the motion, says the president, the board intends to make it clear at the next caucus meeting before the annual elections in May that the dissident board member is not welcome on the slate. "If she wants to run for re-election and there are alternatives out there, we will make it clear we think she has failed in her duty as a board member."

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