New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Rebel Without a Cause

A board member, new to the co-op he has moved into, performs unauthorized alterations to his apartment – much to the consternation of his downstairs neighbor, also a board member, who then has trouble getting the full board to enforce the rules. At a different building, a board director disapproves of a decision the majority has made and begins revealing confidential discussions to other residents of the co-op in hopes of getting the decision reversed. Finally, a director at yet another property suspects a porter of stealing money, confronts the man, and fires him on the spot.

Such actions can result in lawsuits and/or bitter political struggles. “I’ve seen situations where board members have said, ‘Well, that guy didn’t vote for our team, so we’re not going to approve his renovation,’” says a veteran managing agent. “People have skipped over other people on garage waiting lists. People have made sure that the building staff doesn’t hold packages for certain people. I mean it gets bizarre. And alterations don’t get approved, sublets don’t get approved. If work is being done, certain staff are not allowed to go do repairs in certain apartments. If there’s a problem in that apartment, too bad. I’ve seen renegade board members make shareholders miserable.”

Board members in cooperatives and condominiums are given great power. They make decisions that affect the daily lives of everyone living in their property. But, as the writer Stan Lee once observed, “With great power comes great responsibility.” Indeed: board directors have a fiduciary responsibility to look out for the well-being of their building. Yet many apparently do not see it that way – and these “renegades,” because they do not seem to care about the greater good, can cause significant harm to their property and, ultimately, to themselves.

Different Types

Renegades come in many shapes and sizes. There is the most obvious: the out-and-out wacko. Jim Kafadar, a former board member at the 137-unit 350 Bleecker Street in Manhattan, cites an extreme example from his building of a director who discovered that someone was putting in a washer-dryer. “They absolutely went nuts. Apparently, we’d approved the plan, but we didn’t notice that a washer-dryer was going in. So we could’ve thrown the book at the guy, but most people said, ‘Look, let’s just have these restrictions on it – typical co-op restrictions like a drain pan and a shut-off valve and things like that, real typical stuff that just protects the building. But this fellow didn’t want washer-dryers in the building.

“So he started terrorizing other board members. I live on the top floor, and at two in the morning, he would jump up and down on the roof garden. He’d ring my doorbell at night, and make crazy phone calls, and so forth. But since I run the security system, I had a lot of this on tape. I tried to reason with the guy and say, ‘Listen, nothing’s worth this. It’s not a big deal.’ It didn’t matter.” (The man ultimately left the board.)

Then there is the politician, who may seem out of control in the board room but is a smooth and charming rule-breaker elsewhere. There once was a director and officer at a Gramercy cooperative in Manhattan who “contributed very little to board business,” recalls a former board member at the building. “He was verbally abusive, he tried to circumvent board decisions, he violated expressed board policy, and even disclosed confidential information to non-board members. So, we all concluded that he couldn’t be trusted, and we didn’t elect him as an officer of the corporation for a second term.”

But the four other directors decided not to make a public issue of it. “We didn’t believe it would be in the best interest of the co-op to rebuke this person publicly because it could create some dissension. And we therefore didn’t try to have him replaced at the next election. And that was a mistake. Because unbeknownst to us, he went around and secretly solicited proxies before the annual meeting, telling other shareholders he was being unfairly treated by one of the directors, and then overstated his very limited accomplishments. So, after the ballots were counted, two of the best and brightest directors were removed from office.” And he was reelected and appointed president.

In small buildings, you may also find the opportunist, who takes advantage of the small, familial nature of the smaller property to achieve his own ends, often in open defiance of the rules.

That was the case in a small Manhattan co-op. About a year ago, a young couple moved into the duplex apartment. They told the board that they were going to be performing cosmetic alterations on their unit “But then they completely demolished their apartment,” recalls one board member who lived below them, “and I noticed that there was cracking between the ceiling and walls of my apartment. I was worried there was structural damage going on.”

She brought it to the attention of the board president and the treasurer, but they didn’t do anything. After some months of inaction, the board member decided she had had enough. “I indicated to the treasurer and the president that they were not operating in the interests of the building as a whole [by ignoring my complaints], and that they were in violation of their fiduciary responsibilities. The president seemed to have a turnaround then, realizing that he was putting himself in jeopardy. Then he said, ‘Let’s see if we can negotiate with them.’”

“Generally speaking, if somebody has a specific agenda, whether it’s good or bad, it poses problems,” observes Jack Kane, an accountant who deals extensively with co-ops and who is president of the board at the 31-unit 36 West 75th Street co-op in Manhattan. “If somebody wants to do something and does not have the benefit of everyone at heart, then it becomes more difficult. And in a smaller building, there’s more of a tendency for those people who have a particular agenda to run on the board where they’ll have a greater say in trying to push that agenda. That’s a dangerous thing.”

The Strong Leader

Finally, there is the strong leader, the “I am the state” type, who believes that his or her decisions are the right ones. He or she will often act unilaterally and he or she generally overcomes criticism through a strong personality and/or weakness of the other board members.

“Most think of the board as being a democracy. In many ways, it’s not. It’s based on a not-for-profit corporate structure,” maintains a board member at mid-sized co-op in Manhattan. “The board is actually based on a business model. You vote for the president, thinking that he will act with reason and fairness, but often it becomes like the corporate business model where he says, ‘I am the power; I make the decisions.’ He becomes king. That may be good for business but I don’t think it is good for [building-wide] democracy.”

He cites a situation at his property. A porter, who had been suspected of theft in the past, was confronted by a board member when a new theft occurred. Although the staff member denied taking anything, the director fired the man without consulting the full board. (The firing later went to arbitration with the union.) The full board never questioned these actions – and, in fact, later appointed the director president. “Such behavior was not addressed by the board, and I feel that it created tension in the building.”

The strong leader is beneficial in some ways since he or she gets things done. On the other hand, everything he or she does may not be right and can lead to trouble, such as arbitration, lawsuits, and tensions in the property and on the board. And the strong leader who becomes a renegade can be a nightmare.

“It becomes more cumbersome when you have a hands-on, very involved board member who is a renegade,” says Steve Greenbaum, director of management at Mark Greenberg Real Estate. “It’s amplified even more when they are the lead person on the board, and no other board member intercedes even though they know that this is wrong. As a managing agent, you always look to protect your client, but you also take instruction from your client. So, we get put in a very difficult situation many times where you’ll advise this renegade board member against doing certain things, and they will tell you, ‘You need to do what your client tells you to do.’ Now, as long as it’s not breaking the law, it’s very difficult to say no. We’re put between a rock and a hard place.”

The Fear Factor

Many times, a board is reluctant to confront these renegades. In the case of a powerful board president, that could be because he is bully and the other directors are fearful of a confrontation.

“There’s definitely a fear factor,“ says a former board member. “There might also be fear in challenging a person who sits on a committee, because then they’re concerned: ‘Well, she runs the admissions committee. And if I oppose her maybe she won’t let me sell my unit, or something like that. I think it’s self-serving.”

Other times, it is because the renegade has taken on so much responsibility, the other board members may be worried about who will pick up the slack if he or she leaves. “There’s always one guy who’s going to take on most of the tasks,” Greenbaum notes. “They do 90 percent of the work. That’s my problem with many presidents – that they take on too much responsibility and don’t delegate enough to their boards. And you know what? Sometimes you have board presidents who surround themselves with people who don’t do anything. That’s what they like. They want board members who’ll rubber-stamp whatever the president says. That’s not good either.”

Then, too, there is the familial factor. Reprimanding a board member means reprimanding your neighbor – never an easy task, since this is someone you may see every day. “You live with these people 24/7,” observes Arthur Davis, a business consultant who works frequently with co-ops. “You see them in the elevators, you see them in the laundry room, you see them in the lobby, and you know that they’re telling everybody in the building untruths. Now what? These are very complicated issues. And what makes it worse, it’s very interpersonal and it’s where you live. You don’t go home at night and absolve yourself physically of these things. It’s personal and it’s confrontational, and people are very resentful.”

Hero or Heel?

Yet board members must put aside these concerns and look at the big picture. The board has been elected to safeguard the health and well-being of the property and its residents and everything else is secondary. It should become a question of personal needs versus business needs.

“A board has the responsibility to be proactive against anything that impacts the building,” says Davis. “So, whether it’s a shareholder acting beyond the rules of the proprietary lease, or a board member acting beyond the rules of best business practices, it’s pretty much the same thing.”

“The board has the fiduciary responsibility to all the shareholders,” adds Ira Meister, president of Matthew Adam Properties. “The directors should be aware of their fiduciary responsibility and that breaching their fiduciary responsibility is pretty serious.”

Indeed, if boards don’t deal with renegades promptly, there can be consequences. Directors can lose their positions. Even more seriously, the building can be handicapped by the loss of experienced or competent people, resulting in financial and/or operational chaos.

At the Gramercy building with the “political” renegade, for example, a highly effective board lost two of its chief movers and shakers because the renegade outmaneuvered them by spreading misinformation. “We worked our asses off,“ says the former secretary, with some bitterness. “We’d spent, literally, 10 to 15 hours a week sometimes working on board business. We redid the house rules, we redid the sublet policy, we had storage lockers installed. I personally was involved in this expensive litigation involving the heating/air conditioning for the building. It was a working board. It wasn’t a board that met once a month and twiddled their fingers. And a pariah succeeded in having two highly competent and honest directors removed at a really critical time for our co-op. We were in the middle of significant litigation, negotiating a large commercial lease, and deciding on major capital improvements.”

Remember, even if you are the sole voice, you have a responsibility to speak up. “If you have five members of the board who are not going to take appropriate and reasonable action against the sixth, and you are the seventh, you’re still legally liable to do the right thing,” says Davis. “And if necessary, that one board member needs to find out why the other five do not wish to act. And that may mean sending a letter to the board and to the managing agent, and to the lawyer indicating their issues. They have a right to inform the shareholders as to what’s going on. They have a right to protect their own exposure. You have a legal responsibility to act in the best interests of the shareholders.”

But in doing all that, how do you determine that you are not acting as a renegade yourself? “When does a maverick become a renegade? Ah, that’s really the question,” agrees Greenbaum “The maverick becomes the renegade when all of a sudden they don’t care what the shareholders think. The maverick becomes the renegade when they put their own personal agenda first, or they treat their own favorite people first.”

“It cuts both ways,” observes Davis. “One person’s renegade is another person’s hero. But that is secondary to the fact that there are certain responsibilities that a board member has, and [one is] not to be a troublemaker. Your right doesn’t really extend to making an issue of everything. That’s not what this is about. You really do want to act as a cohesive team, and you want to represent yourself as a cohesive team. Sure, the renegade has a voice, too. What you’re defining as a renegade could be someone who feels that their issue is not being addressed properly.”

Litmus Test

So what can a board or an individual do? Experts suggest you use a metaphysical litmus test and apply it to any questionable action taken by a director. The test is simple, and you should repeat it like a mantra: “Does the action in question serve the greater good or does it only benefit a small group or just one person?”

Indeed, say experts, you need to know the board member’s agenda. “I’ve heard it a million times: ‘We need to change the hallway carpeting and wallpaper. I’m going to get on the board and change that.’ That’s their own personal agenda,” observes Greenbaum. “Or, ‘I hate the super. I’m going to get on the board and fire him.’ That’s your own agenda. But where people want to get on the board because they have something to contribute, like they have good financial knowledge, or they have good architectural knowledge, or they just have good organizational skills, or they have good communication skills, or they want to genuinely help – to me, those people are the mavericks and your future board presidents who are wonderful.”

If the person fails the litmus test, you know you have a problem. It is crucial that the board take steps to deal with it. The first thing you can do is go public at a board meeting, using the litmus test as a starting point for discussion. The renegade director may not even have been aware of the distinction between personal and building-wide needs.

“It goes back to what is the job of a director?” says Davis. “How is it defined? What is their responsibility to their own shareholders and to themselves, and to the board? So, if you have someone on the board who keeps leaking inside information to other shareholders, that’s totally inappropriate. If you can’t have security and confidence and everybody talking openly about issues, then you have a real problem.

“It’s as though you got a new job but you didn’t get a job description,” he adds. “What are best practices for the president? What is to be expected and how do they handle various issues? The job of the board is to educate itself with professionals – whether they’re accounting professionals, managing agent professionals, legal professionals, or engineering professionals.”

If the renegade refuses to back down, your next step is to take the problem to your professionals – your managing agent or lawyer – and get one of them to talk with the director. “As manager, you do the best you can, and you hope that you can sway that person to do the right thing,” notes Greenbaum. “The renegade board member is the guy who decides that any decision that they want to make should be implemented without consulting with anybody else – that’s where you have a problem. And then you [as the manager] must say, ‘That’s not appropriate for these reasons.’”

If the renegade still will not desist, your final step is to go to the shareholders, letting them know that there is a problem and seeking removal of the troublesome director through a special election. Calling such an election generally requires a two-thirds majority, so you need to make sure everyone in the building is aware of the facts of the case.

If, for example, the Gramercy board had touted its many accomplishments, it would have been less likely that the renegade director could have spread misinformation and ousted two directors in the election held at that building. The other shareholders would have better understood that the renegade member was out of line, a rebel without a just cause.

If you don’t take these steps, not only might the directors suffer, but the long-term health of the property can be put in jeopardy as well. At the Gramercy property, three new board members were elected after two were defeated for reelection and one stepped down. And that caused problems. “They don’t know anything about what was going on before, and they elected this guy [the renegade] president,” reports the former secretary. “The most incompetent person rises to the top, by nefarious tactics, though. It’s really ugly because, you know, competent people who want to run for the board, now, really have a bad taste in their mouth.”

What that board should have done, concedes the former director, is taken decisive action: reprimanded the renegade for his breaches of confidence, and, when the matter became extreme, communicated its concerns to the other shareholders.

“I suppose the board members would probably have been wise to take a position – not be mean about it – but take a position and be accurate and honest and say, ‘We’ve worked for this person for a couple of years but we just don’t feel we can continue to work with him, and we would encourage somebody else to run for the board,” says the former secretary. “And circulate a letter along those lines to the shareholders and say, ‘Oh, by the way, it would be far better for you to attend the annual meeting, so you can listen to who you’re voting for and make an informed choice – rather than give your proxy to someone who has a vested interest in seeing their own person elected.

“Part of it was that we needed better communication,” he concludes. “You really have to be kind of a politician – it’s kind of like running for congress, you know? You really have to be out there and telling people what you’re doing so they know. In all fairness to them, they need to know. And absent that, untoward things can happen.” H

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