It’s the nightmare every board dreads: a meeting room rented, a financial statement prepared – and no one shows up.
Guess what? Your election admin. is off.
With the annual meeting season upon us, it’s time for boards to focus on “election admin.” – i.e., election administration – and what that means is looking at the four crucial areas of the meeting, the four topics that no board can do without if it wants the event to be a success: notice of meeting, the proxy, voting for board members, and counting the vote.
Notice of Meeting
The notice of meeting must be sent no less than 10 and no more than 40 days before the meeting (the approximate date is laid out by your community’s governing documents). You should also obtain a “proof of mailing,” a sworn affidavit by the manager or a certified letter saying that it went out to every owner on the required date.
The notice package should include an agenda and any supplemental items that help explain it. Any specific issues that need a simple or a two-thirds majority must be announced beforehand for practical, as well as legal, reasons. If you are going to amend the bylaws or change the proprietary lease, for instance, you need to send specific information in advance so that residents can study the proposal.
Along with the announcement, distribute the final budget for the year (there is some disagreement, however, about whether the board should distribute the statement to residents beforehand or simply let the accountant present and explain it during the gathering).
Next: the proxy. “Proxies are statements by a shareholder or unit-owner authorizing another person – the proxy-holder – to vote his/her shares or common interests,” explains Bruce Cholst, a partner at the law firm Rosen Livingston & Cholst. “Since the issuing apartment-owner is not typically present at the association’s meeting to affirm his statement, the proxy must designate a specific proxy-holder; the failure of an issuing apartment owner to deputize a particular person to cast his votes renders the proxy form useless. Since the proxy is a personal delegation of power, it must be issued to an individual. The document must contain language empowering the proxy-holder to cast the issuing apartment-owner’s votes.”
If your governing documents allow it, send out proxies with the notice of meeting. “There are a number of cooperatives and condominiums that don’t even permit proxy voting,” says attorney Mark Hankin, a partner at Hankin & Mazel. “Voting is either done by voice [in a conference call] or in person.”
Be aware of the different types of proxies. “There are some proxies that merely give the proxy-holder the right to vote for the quorum so the meeting can be held,” observes attorney Stuart Saft, a partner at Dewey LeBoeuf. “There are also proxies that give the proxy-holder the right to vote the shares or units. And then there are proxies that provide that, unless the proxy-holder gives specific instructions on how to vote, the proxy-holder has the right to vote as he or she sees fit.”
Proxies can be the key to an election, particularly if the sponsor or an investor controls a large block of shares. But getting enough valid proxies can be tricky. The most common reason for contested proxies is that a shareholder submits multiple proxies, or the proxy bears an invalid signature, or, in rare cases, the shareholder dies after signing.
“Even if the managing agent numbers the proxies and sends them out with a notice of the meeting at least 10 days before the meeting, it doesn’t help if someone wants to create their own proxy, or if they want to appoint someone to appear for them and vote for them,” says Marcie Waterman Murray, a partner at the law firm Deutsch Tane Waterman & Wurtzel.
One way of avoiding contested proxies, she adds, is to make sure that each one includes the time of day and date it was signed. The most recent one will be the valid one. “It’s not a question of who gets to the shareholder first,” she says. “It’s a question of who gets to the shareholder last.”
The typical co-op or condo annual meeting in New York City attracts about 50 percent of the shareholders or unit-owners – nearly as dismal as the typical turnout for a U.S. presidential election. Since major changes to the governing documents require approval by a “super-majority” – usually from two-thirds to three-fourths of the residents – gathering proxies before the meeting is crucial. Beyond that, there is the even more fundamental issue of achieving a quorum.
The Business Corporation Law states that a co-op’s annual meeting has achieved a quorum if more than half of the building’s total shares are present, either in person or by proxy. For condos, a quorum is anything greater than 50 percent of the authorized votes, which are based on a percentage of the common interest. Without a quorum, it is not possible to have a valid election.
Many buildings have a perennial problem obtaining quorums. The two most common reasons are that shareholders or unit-owners are so apathetic that they can’t be bothered to attend; or they’re so satisfied with the way the building is being run that they can’t see the point in attending. Regardless of the reason, the one tried-and-true method for getting over the difficulty is the bare-knuckles approach.
“If you perpetually have a problem getting a quorum, one of the things you can do is get someone to knock on doors to collect proxies before the meeting,” says Murray. “It’s a pain in the neck, but if it’s not done then someone is going to have to knock on doors during the meeting.”
That’s not the preferred way of doing business, but it’s surprisingly common. Attorney Robert Tierman, a partner at Litwin & Tierman, experienced it at an annual meeting last fall. “They were five percent short of a quorum,” he recalls. “So the managing agent and several shareholders knocked on doors during the meeting, getting signatures on proxies until they got their quorum. The better way of doing business is to push people to return proxies before the meeting.”
Voting for the board is a major reason for the annual meeting and can be accomplished in one of two ways. Most use straight voting, although some cooperative boards are elected through a process called cumulative voting.
“With a seven-member board and straight voting, each shareholder or unit-owner can vote his/her shares or common interests for up to seven candidates, and each candidate can receive no more votes than are equal to the shareholder’s shares or the unit-owner’s common interests,” explains Saft. “In cumulative voting, each shareholder can multiply his or her shares by the number of board seats being elected (e.g., if the board has seven directors and a shareholder has 200 shares, then that shareholder has 1,400 votes), and either gives all the votes to one candidate or spreads them around among multiple ones.”
According to Saft, the cumulative method is intended to enable a minority of voters to elect a candidate to the board, because in straight voting, whichever side has a majority of the shares can elect the entire board.
Even when the meeting is finally over, it’s not over. There’s the critical matter of tallying the votes, both for directors and for any changes to the governing documents.
Many boards have the managing agent, lawyer, or volunteer residents count the ballots and proxies. Some start counting as soon as the ballots are cast, and some wait until the following day. Other, larger properties, turn for help to outside companies, such as the Honest Ballot Association (HBA), which was formed a century ago by civic leaders, including Teddy Roosevelt, who were appalled by rampant election fraud in New York. Today, the HBA helps conduct fair elections for labor unions, school boards, lotteries, philanthropies – and hundreds of New York City co-ops and condos.
“I like to be involved in an election from the beginning to the end,” says Linda Gibbs, president of the association, who has never had an election result overturned in her 30 years with the organization. “Sometimes, lawyers make it so difficult for shareholders and unit-owners to understand what they’re voting for.”
Brenda Hundley, property manager at Village View, a 1,236-unit Mitchell Lama co-op in the East Village, says the board first hired HBA three years ago, after repeated challenges to the elections and charges of unfair practices. Depending on HBA’s level of involvement – total, partial, or simply as a counter of ballots – its charge to the building will range from about $2 to $5 per unit.
“Some boards want to use these companies if there’s a particularly contentious election or, say, if you’re installing a flip tax,” says Steve Osman, president and CEO of the management company Metropolitan Pacific Properties. “In cases where you’re amending the bylaws, it’s not a bad idea to bring in a third party. But on a routine board election, it’s usually not necessary. They do something the property manager can do at no extra cost.”
Osman insists that board elections be held at the beginning of the annual meeting – so the property manager and shareholder inspectors can begin counting ballots and proxies during the gathering. “That’s the best way to do it,” he says. “You have results the night of the meeting, and you avoid any finger-pointing.”
Cumulative Voting Confusion
Rasputin and the Dissidents
What does one make of a shareholder who says, “We have had a corrupt board for approximately 10 years,” and “the president is more corrupt than Stalin and Rasputin put together”? A little wacky or a truth-teller just given to over-the-top hyperbole?
The answer may be unknowable – after all, as philosophers might say, the absolute truth itself is unknowable – but there is a story to tell and a lesson to be drawn for those who vote in a co-op or condo election.
The story begins with a gang of four at a Brooklyn co-op (who will remain anonymous for soon-to-be obvious reasons) who felt the board was a shelf short on honesty pills. They wanted to remove four of the seven board members and consulted with a lawyer on how to do it.
That lawyer was Mark Hankin, a partner at Hankin & Mazel and a longtime co-op attorney. ”They came to me and wanted to know how they could remove the board members,” recalls the attorney. “I told them they needed to call a special election.”
To do that, the group had to gather signatures from at least 25 percent of the shareholders – which they did. Hankin then presented the petition for a special meeting to the attorney for the co-op – and was rebuffed. “He said, ‘We’re not going to call a meeting,’” says Hankin. “I said, ‘You have to.’ He said, ‘No, I don’t.’ And we went to court.”
After a skirmish before a judge, the dissidents won, and the special meeting was called. At the meeting, “We had 54 percent to remove, opposed to 42 percent to stay,” the leader of the group wrote in an e-mail to Habitat. “At the last moment, when their attorney saw that they were losing, he immediately turned to the BCL [Business Corporation Law], stating that cumulative voting may be used. Our bylaws state that [a] plurality may be used, [and] he bypassed our bylaws and went to the BCL ...”
Sounds startling, right? A switcheroo worthy of someone employed by a villain more corrupt than Stalin and Rasputin put together. The only hitch is that it’s not true and points out the problem of a layman misunderstanding the law and then getting bent out of shape about what he or she thinks happened.
“The building had always used cumulative voting,” observes Hankin. “There was no last-minute switch. You just can’t do that.”
In cumulative voting, the shareholder multiplies his or her shares by the number of board seats being elected (if the board has five directors and a shareholder has 200 shares, then that shareholder has 1,000 votes) and either gives one candidate all the votes or spreads them around. The cumulative method is meant to help a minority of voters to elect a candidate to the board. In regular voting, whichever side has a majority of shares can elect the entire board.
Therefore, although the dissenting shareholders had a majority vote, under cumulative voting, they did not have enough votes to remove all four of the directors they had targeted. They removed one (and she was reappointed to her seat two weeks later by the rest of the board). Although they remain bitter about the upshot, Hankin is sanguine.
“If they had told me that they used cumulative voting, I would have told them they needed more votes,” says the lawyer, who points to an anomaly in their building’s proprietary lease: in one section, it says that cumulative voting will be used – and then in another it says that it will not be used. “I did what I said I would,” he notes. “I told them, ‘I’ll get you the meeting but you’ve got to get the votes.’ They lost because they only got 44,000 out of 70,000 votes. If they had gotten 60,000 out of 70,000, they would have won. They just didn’t get enough votes.” In short, they needed more than a simple majority to win.
The lesson boards should take away from this sad little saga of Stalin-Rasputin maybes-or-maybe-nots? Make sure your proprietary lease and bylaws are consistent, up-to-date, and clear. Otherwise, you could be wasting your time, your energy – and everyone’s money.