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Board Politics

Jan Feld had served on the board of his 80-unit Park Avenue cooperative for seven years, five of them as president. By various accounts, he was an aggressive go-getter who pushed the board hard. That made him somewhat unpopular so, when he left the board in March 2000, some were happy to see him go.

Yet Feld remained active in building politics, frequently criticizing his former colleagues and complaining to whoever would listen that the co-op was not being run well. He even sued two directors. On May 15, 2002, in a letter to the shareholders in which he accused the board of incompetence and self-dealing, Feld announced that he was planning to run again for a director's spot.

One week later - less than two weeks before the election and at the beginning of the Memorial Day weekend when many owners were away - the board passed three amendments to the bylaws setting out requirements for board candidacy and election. These stated that (1) any business upon which shareholders are to take action, including nominations for election as a director, must be submitted in writing to the manager not less than 15 days before the shareholders' meeting; (2) no one could be an officer or director unless he had been a shareholder for one year and also held a college degree; and (3) no one who had unsuccessfully sued the co-op or a board member could serve on the board.

To Feld, it was a bald-faced power play, a not-so-subtle attempt to keep the former director - who did not have a college degree and had unsuccessfully sued two directors and a law firm that the co-op had hired - out of the running. Feld went to court, asserting that he was being discriminated against and asking for an injunction to stop the election.

"We argued that, by the board's standard, Harry Truman and Bill Gates couldn't serve on a board," recalls Peter Livingston, a partner in Rosen & Livingston, which represented Feld. "It was outrageous."

The court agreed, ruling in Feld's favor and acknowledging that the co-op had gone too far. But the action by the board raises a larger question: should a board seek to influence the selection of its members? Most agree that the Park Avenue directors went beyond the bounds, yet to others, their ham-handed tactics are simply politics of another sort.

"Politics is just democracy in action," observes Herb Cooper-Levy, a former housing consultant. "The word 'politics' has engendered a negative connotation, but it is actually the art of getting along with the people, with the 'polis,' with the 'body.' That's what cooperative home ownership is about."

Consider the alternative. Disharmony. Infighting. Nightmare scenarios where the board is running wild. If you think it can't happen, consider the case of a Flushing cooperative in which the owners did not take much interest in the operations of the building. Seemingly without warning, the board was soon being run by Chinese-born residents who apparently did not know much about handling a cooperative. According to Pauline Wilson, the former board president, "We're in absolute chaos here. They fired the managing agent. They've rewritten the bylaws without shareholder consent. They send out notices in Chinese. A lot of people are up in arms. It's like the Hatfields and the McCoys."

WINNING RIGHT

If politics are important, so are procedures, and boards should be careful who they elect - and how they elect them. In cooperatives and condominiums, the vote comes every year. But running elections is more than just collecting votes. Besides procedural questions, there are other important concerns about who runs for office and how they run for it.

Most boards' election procedures are dictated by the bylaws. Those will tell you how to vote, who can vote, and the mechanics of voting. The first step dictated by the bylaws is to send out "timely" notices, usually no later than 40 days and no more than 10 days before an election. In these notices, it is important to include a proxy, an agenda, all relevant information, and an explanation of any issues that will be up for the vote, such as a bylaw change.

"If you vote without alerting all the owners beforehand that you will be voting on that, then the vote is invalid," says David Kuperberg, president of Cooper Square Realty, a management company. "If the owner does not know what is up for a vote, he may not come."

For example, at its annual meeting, one Manhattan co-op voted to increase the number of board members from five to six. Although they did not know it, such a move was not binding because the board had not announced its plans in advance. With an "illegal" member on the board, any future decision could be challenged.

If there are competing candidates running, they should be announced and biographies and position papers should be issued. The board should also provide insurgent candidates with any information they request.

"Say I'm a board member and you want to replace me on the board," notes attorney Steve Wagner, a partner in Wagner, Davis & Gold. "I have a list of shareholders and addresses of the absentee owners and you want it. You can ask for it, but if the board wants to, it can jerk you around and delay giving it to you. That's foolish and sets the stage for legal action."

That said, here are nine ways to play politics with elections and win - honestly:

(1) Revise Your Bylaws. It is not wrong to set standards for who can serve on the board, as Feld's Park Avenue co-op tried to do. It's a question of what kind of standards you devise. Do they make sense? Restricting board membership to someone who is free of arrears is good policy - how can they run a building if they can't run their lives? - whereas requiring educational degrees is not.

"It is a legitimate position to take that a board member who is massively in arrears shouldn't be making decisions for the building," asserts attorney James Samson, a partner in Bangser Klein Rocca & Blum. He cites a building in Queens where the president was heavily in arrears and the board let it slide. "It becomes a conflict. How can they go after other people in arrears if they don't go after the president?"

(2) Stagger Those Terms. If you don't already have them, your board may want to put staggered terms in place. These ensure continuity from term to term. Without continuity between one set of directors and the next, everything the previous board knew about the property gets lost in the transition.

"The staggered system works for us," says Bob Friedrich, board president at the 2,904-unit Glen Oaks Village. "It had been set up here so we did not lose institutional memory. We want people familiar with procedures who have the proper temperament to deal with newer members."

But more importantly, from a political standpoint, staggered terms ensure that dissidents can rarely seize complete control of the board in one election cycle. "If 'undesirables' get on," notes attorney Robert Tierman, a partner in Litwin & Tierman, "they will not shift the power entirely. The incumbents could get things under control by the next election."

(3) Slate It. Another popular technique is for the board to run all the candidates as a slate. This emphasizes the unity and harmony of the directors, and makes it harder for other candidates to challenge the "ticket."

"I find that the better boards run as slates," says John Wolf, president of Alexander Wolf & Company, a management firm. "They have worked together over the years and they complement each other. If you've got a successful team, why break it up?"

(4) Nominate - and Investigate. Some say that nominating committees, if used improperly to discourage people from running, are illegal. It is one thing to set up requirements for candidacy, but quite another to create numerous hurdles for candidates to leap over before being allowed to run. "These committees should not be set up to dissuade people from voting," says Samson. Even if you set one up, he notes, "You should always allow nominations from the floor."

But they do serve a useful function: they force candidates to articulate their reasons for running and add more order to the proceedings. Wolf says that many of his properties send out a letter asking that potential candidates submit a name and short profile of themselves at least ten days before the meeting "so we know who's running for the board. That makes it easier to organize and prepare a ballot properly." Many communities also stage forums in which the residents can come and meet the candidates and ask them questions.

MINORITY REPORT

(5) Count the Votes, Cumulatively. Cumulative voting, used in cooperatives, is one technique that can work to either the board's or the dissidents' advantage, depending on how it is exploited. Not all properties employ the procedure (and to institute it you need to change your bylaws), but if they do, it must be explained in the notice of election. Under this system, the shareholder's number of votes equals the number of shares he or she owns, multiplied by the number of directors. If a co-op owner has 500 shares and there are five board members, he or she has 2,500 votes. The owner can throw all 2,500 votes to one member or split them up among all five.

Cumulative voting was intended to ensure equal representation on the board. With it, outsiders can theoretically place members on an established board by throwing all their votes behind one candidate. "Cumulative voting is, in essence, a very democratic process," says Arthur Weinstein, a co-op attorney. "It ensures that 51 percent of the shareholders do not elect 100 percent of the board. It allows a minority interest in the building to elect members. In theory, it is a very democratic process."

In fact, however, the board can manipulate the system to the incumbents' advantage. In one Manhattan cooperative, for instance, the board, wanting to protect its slate and keep off a frequent critic of building policies, aggressively collected proxies and threw all its votes to the slate. The dissident, who had done little organizing, and the shareholders who had given proxies were unaware of the behind-the-scenes machinations. The outsider lost his bid.

"Situations like that are not failures of cumulative voting," Weinstein says. "It's a failure of the shareholders. They're too lazy to come to the meeting and vote for themselves. Some boards take advantage of that."

(6) Gather Ye Proxies. Bottom line, most experts agree that elections are won or lost on the strength of the proxies. There are two types involved: directed and non-directed. In the first, the shareholder names (or directs) for whom he is voting. In the second, it is up to the bearer.

In gathering either type of proxy, be careful who is the signatory. If a son living in his father's apartment signs his father's signature - or just signs his own name - it invalidates the proxy and, if not caught, can invalidate the election. "To reduce the possibility of error," advises Alvin Wasserman, director of Fairfield Property Services, a management company, "I suggest that each proxy be numbered and have the corporate seal placed on it. That precludes someone from making 100 copies of the proxy. What it also does is add another level of control. If you control the proxies that takes a lot of the funny business out of the election."

Such machinations can lead to proxy fights, like the one at Society Hill, a 432-unit condominium association in Hamilton, N.J. In the last months of 1996, the seven-member board had adopted a 1997 budget. As part of that, the board increased common charges and also passed a special assessment. The "double whammy" was too much for Robert Cowen, one of the owners, who organized a number of angry residents into a group with the intention of improving the financial situation of the property.

According to James DiLissio, a homeowner at the time, there were additional reasons for complaint: the physical condition of the 13-year-old property was declining. Not only were the 18 three-story buildings that made up the association in need of work, but the parking lot, pool, and tennis courts were also deteriorating. That was compounded by the fact that, to many, the board seemed uncommunicative and standoffish. The announcement of the double increases was typical. There was little explanation; just a short announcement.

With elections coming up, the dissidents decided to run their own slate of candidates. Not leaving anything to chance, they gathered proxies. The board members, however, did not. The dissidents submitted the proxies two days before the election. They were approved at the meeting, and when the votes were counted, the dissidents had won. The board, which had never been challenged before, was apparently startled. With the aid of one veteran member who had aligned with the newcomers, the slate put in its own president, vice president, secretary, and treasurer.

Shortly before the newcomers were to be seated, though, the outgoing board mounted a proxy battle, attempting to invalidate the election. The dissidents sued the board. After months of hassling, the suit was settled and the quartet was seated. But could it all have been avoided? In a word, yes. Professionals say boards must carefully review proxies - especially if there is potential trouble brewing, as there was in the Society Hill case.

TALK TO ME

(7) Communicate. One of the problems that led to the proxy fight at Society Hill was the secretive nature of the board. "When you tried to attend a meeting to ask questions, you'd be kept aside," says DiLissio. One of the first things the new board did was pass a resolution that there would be no closed sessions.

Communication is always helpful in diffusing tension and, incidentally, in winning elections. Boards control the means of communication - the newsletters and the correspondence with residents - and have the power of "spinning the news" to their advantage.

"You want to counter disinformation campaigns," Cooper-Levy notes. "Sometimes people vote against their own best interests." He cites a Pittsburgh co-op that had been patching a heating system for years. The board passed a large maintenance increase to replace it - but didn't communicate the whys and wherefores. The next year, the directors were thrown out. "People just saw the increase," says Cooper-Levy. "Things might have been different if the board had explained the alternative - Pittsburgh in the winter without heat. Well, that's not a place you want to be."

Using communication as a means of getting reelected is a strategy that Charles Kubinyi, vice president at Village East Towers in Manhattan, will soon be employing. Although the board of the 434-unit Mitchell-Lama cooperative has instituted a number of significant capital improvements - including rebuilding a playground - a large dissident group has grown up in response to the board's tightening restrictions on a senior subsidy program.

"They are very vocal and have staged an aggressive disinformation campaign," claims Kubinyi. "The attacks seem to be gaining more and more momentum. I feel the best way to combat that is an education campaign. Until now, we have not done that, because we have been to busy with [the capital improvement] projects. But now we're going to focus on it."

(8) Set the Agenda. The board has the power of incumbency and can not only set the date of the annual election and meeting but devise an agenda, distributed in advance, which highlights the successes of the board. That can be a plus when it comes time to vote.

For instance, have the accountant or treasurer review the budget from the previous year. It is very important for the financial people to show why variances exist. "You don't want to wait for questions to be asked; don't be on the defensive but on the offensive," Kuperberg notes. "Say, 'These are why we had surpluses and why we had deficits.'"

"The board controls the date of the meeting," says Tierman. "It can start soliciting proxies the day it sends out the notice, getting a jump on others. It controls the presentation of reports at the meeting, which can affect the way people vote. Boards can spin the information in their favor, like any other politician."

(9) Bring the Dissidents In. Finally, one way to co-opt the competition is to make the dissidents part of the team. If dissidents get elected, "They'll see how things run from the inside," says Samson. "And it's better to have them discussing issues within the board than agitating outside it." Adds Wolf: "It has been said it's better to keep your enemy close to you. That's true here."

In the end, boards should remember that politics has been called the art of the possible, that serving on the board is not about simply maintaining power but exercising it for the common good. "It is supposed to be a community," Samson notes. "It is a community first, a corporation second."

"On most projects, no matter what you do, you probably only please a segment of the owners," adds Wasserman. "Some will always be displeased. Look, in the national elections, you often get a split of 51 percent to 49 percent; so that means that nearly half the voters didn't want the candidate who won. Co-op and condo elections are a microcosm of that, and generally you get a pretty even split [on contested elections]. Still, you've got to try and please everyone, including the people who didn't vote for you. Chances are you won't."

 

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