Todd Gillespie is saying goodbye to mom-and-pop methods by bringing business principles to his cooperative.
Todd Gillespie is a man with a plan. He is trying to make a radical change in the way his 32-unit Brooklyn co-op operates: he wants to make it more like a corporation and less like a mom-and-pop operation. “I’m one of the few shareholders here who has a corporate job and who is not a professor, an artist, or a small business owner,” he explains. “I’m used to having a strategic planning model.” Working with his building’s accountant, he has built working models of what would happen if the building followed different scenarios. “We need to plan ahead instead of doing what the old board did, which was to patch as patch can and pay as pay can.”
In a world where long-term planning often means preparing an agenda a few days in advance of a board meeting, Gillespie, 37, is an anomaly: a corporate type who may be buttoned down but does not button up his opinions. His building needed to change, he frankly admits, and he had the background to do it. And the insights he gleaned along the way can offer valuable lessons to boards everywhere.
Welcome! Pay Up!
Todd Gillespie had little experience with cooperative housing before moving into 35 Clark Street three years ago. Coming from rental housing in Brooklyn, the executive found the Brooklyn Heights cooperative charming and just what he wanted: built in 1928, the six-story, single-elevator building had a cross-section of young and middle-aged residents who seemed like they would be a welcoming group.
That impression changed slightly after he arrived in 2001. Since his movers took longer than expected and ran beyond the designated “move-in/move-out” period, Gillespie was hit with a $500 penalty. He was surprised since he hadn’t been warned in advance of the restrictions.
As time went by, however, Gillespie discovered one reason why he had received the fine: the co-op was in desperate need of money and was trying to find it any place it could. No wonder: the board hadn’t increased maintenance in years and routinely paid for emergency or needed repairs through special assessments.
It was an ad hoc way of doing things and, to its credit, the board knew it. That’s why, in 2002, with costs rising, repairs needed – the roof and back wall coating were flaking; the parapet was coming apart – and money running out, the president asked Gillespie to stand for the board, where his corporate background could presumably come in handy. “They felt that there needed to be more focus on the money side of running our co-op,” he says. “He said that they really weren’t focusing on the revenue appropriately.”
Gillespie was elected in 2002 and served as treasurer for a year. His first step was to meet with the outgoing treasurer and the accountant. “I also went back and looked through the financial statements and reports for the past three years to try and understand and map out cash flow – what we were doing, where our expenses were coming from, and how we could better manage things.”
After doing that, he proposed some changes. Using computer-generated Excel charts, he prepared a year-by-year comparison in the major expense categories over the preceding three years, and then used that to build a case for a maintenance increase. The figures pointed to the need for an 18 percent rise.
Selling an Increase
By 2003, Gillespie had become president and saw the increase successfully implemented. “There was grumbling from the shareholders because there’d just been two assessments that took place in the building,” he recalls. “In the past two years, there’d been an assessment each year – one for the façade work that needed to be done, and one for the upgrade of the elevator. And so people were saying, ‘When will this end?’”
Gillespie had anticipated that reaction and had prepared for it by communicating several times with the owners before the meeting. “I wrote a letter to the shareholders, as the treasurer, and provided them the graphs that showed, ‘Here’s what our expenses are, here’s how we’ve been funding them over the past year – by depleting our reserve fund. Because we’ve depleted the reserve fund and not built it up, we’ve had assessments over the past two years. By increasing the maintenance, here’s the cushion that we could have that should be able to build back up our reserve fund.’ I laid out the case for why we wanted to do it.”
The previous boards had been proud of the fact that they hadn’t raised maintenance in five years, but Gillespie notes: “The shareholders didn’t really recognize what the financial implications of [not raising it] were.”
Communication was a key strategy in all Gillespie’s attempts at change. For the next annual meeting, in June 2004, the board proposed altering the building’s flip tax policy of $10 per share to a fee of one percent of the purchase price. To explain why that was a good idea – and get the required super-majority approval – Gillespie wrote a report illustrated with pie charts, showing major expense categories, and summarized information he had previously supplied in two newsletters (see box, p.19).
“I had used our [bimonthly] newsletter before the meeting. In two consecutive editions, I wrote an explanation called ‘Finances 101’ and described our major categories of expense; what the trend of those expenses over the past three years has been; and what we were anticipating seeing with those expense categories moving forward. I also put my pie charts and my bar graphs and all of that stuff in those two newsletters, and then summarized those reports. I handed it all out at the shareholder meeting in 2004 and opened it up for questions.”
After that, a second meeting had to be convened. “We laid out the case in the first meeting; people wanted more information – they wanted to understand what the arguments were. So I typed up a report and gave them a comparison based on the last five years of sales. What would the difference have been if we had a one percent flip tax versus the $10-a-share flip tax? What’s the projected impact on our reserve fund? What are we trying to do with the reserve fund? I’ve been trying to educate the shareholders on the difference between your operating fund and your reserve fund, and some things that we can do to help build up the reserve fund without having to resort to fines.”
He compared the operating fund to a checkbook, used to pay monthly expenses, such as the cable or telephone bill. “We have monthly building expenses: our utilities, our electric, our mortgage, our taxes. I explained that the reserve should be for large-scale projects that come up. So, for instance, back in 2004, we had a sinkhole develop underneath our rear courtyard and we had to go and put new drainage into the rear courtyard and completely resurface it. The work came to about $45,000. We were able to pay for that out of the reserve fund, because we had increased the maintenance and started to build up reserves.”
Pie Charts and People Skills
Using anecdotes and budget analysis combined with pie charts and people skills, Gillespie had brought a new way of working to the board, from setting goals to scheduling meetings. “He set a schedule for the entire year,” says Pierre Zazour, an agent with Advanced Management, who manages the building. “At the beginning of the meeting he sets aside time for shareholders. If somebody has questions and they want to be at the meeting, he keeps 15 minutes open for shareholders’ comments. He’s organized. You don’t see much of that anymore.”
When he became president, Gillespie asked all the board members to discuss and prioritize their goals. “We identified what is it that we want to accomplish this year as a board? I had each board member talk to me about what they wanted to achieve. What would make this a success for them? And then I wrote the ideas down. My objective was to set goals, and, in six months, look back and say, ‘How are we doing towards these goals?’”
Those goals were better communication (the board is currently designing a web page), continued financial diligence, and more building improvements. At June’s annual meeting, the board posted these objectives for the entire building to see. “It’s kind of a scorecard,” Gillespie notes. “‘Here’s what we wanted to do, here’s what you told us that we were doing towards these.’”
As part of the move towards financial diligence, the board is trying to build up the co-op’s reserves. “Our reserve fund was at about $20,000 for a building with an annual operating cost of between $350,000 and $380,000. At a minimum, I think it needs to be at $60,000. I would love to have it at $100,000. We’ve currently built it up to $45,000 through the maintenance increase.”
His background in the corporate world is certainly a plus. He is a leadership consultant for a major corporation, and admits: “I’m trying to practice a little bit of that as I work on the board.” His day job involves working with the corporation’s senior leadership team to help them develop their capabilities and management styles.
“We go and speak to them about where there are potential gaps in what they’re doing, where maybe they have only one or two experiences that they keep repeating rather than broadening the type of management styles that they use. We’re really used to measuring the executives and what’s called the ‘organizational climate.’ We also look at how it feels to employees to work in a particular environment. Do they feel like they know what it is they need to get done? And how does what they’re doing tie in to the overall goal? Are there any gaps between what the leader thinks that the climate is and what his employees or her employees think that climate is?”
Gillespie keeps on top of the managing agent, double-checking facts and figures. “When I came on board I did a three-year audit of expenses. We had switched management companies about a year before and in the process of switching, we were double-billed and double-paid about $500 worth of bills.”
He points no fingers but notes: “There wasn’t as much attention to detail as I would expect. There was a lot of delegation to the management company, and the management company had several other buildings to manage as well. Unless you called their attention to things, a lot fell through the cracks. It’s interesting, because once I started really reviewing all of the bills, the management company became much more responsive and has started catching things ahead of time because they know we are looking at all of it.”
Gillespie has tried to involve the owners by sending out regular status reports in the newsletter. The last one had a major article “on the roof, helping people understand that it’s the parapets that are the big problem and that we’re going to work on those first. And then the roof will be the next. We also have a house committee that is focused on some cosmetic issues, which has helped shareholders immensely. We had a volunteer day, where we all came and repainted our lobby from this ugly 1980s lavender scheme to a little bit more tasteful black, or dark green and white.”
His approach has had its effects, influencing the way those around Gillespie work. He says the new treasurer (who was also the treasurer before Gillespie came to the board) often raises issues, going through and highlighting where there are unusual expenses that have cropped up “to the point where I don’t feel obligated to look at every single month’s bills any longer. Which I really shouldn’t do, as the president, right?”
Back to the Future
For the future, he would like to see “the board continue the meeting process that we’ve put in place, where an agenda gets sent out a couple of days before the meeting so we all know what we’re going to be talking about, what we’re going to be discussing. People come prepared to discuss things, and a lot of the background work gets done over e-mail, as opposed to long discussions in the meetings. I hope we continue to have a set meeting schedule with the entire year’s worth of meetings planned out ahead of time and communicated to the building so that the residents know if they want to attend they can. So I’d like to see a lot of these better meeting processes continue.
“I’d like to see the future board put in place a long-term financial plan for the building, sort of looking at where do we want to be in five years’ time,” he adds. “I don’t think you can look much beyond five years. You can probably identify some capital improvements ten years out, but with your operating expenses, it becomes a big question. There’s so much variability. I don’t know what the tax situation is going to look like. Same thing with oil costs, as well as property insurance. And who could have planned for 2001? So, I think five years out is probably right, but I think you need to keep reviewing it and keep it fresh so that it’s a rolling five-year plan.”
Personally, he’s found the whole board experience illuminating and a useful venue to practice what he teaches at his corporate job: “I’m learning a lot more about what it really means in terms of leadership. I’m trying to practice a little bit of that as I work on the board.”