Want to ensure a quorum at your next annual meeting? Do a lousy job throughout the year.
“That’s the irony,” notes attorney Phyllis H. Weisberg, a partner at Montgomery McCracken Walker & Rhoads. “When everything is running smoothly and everybody’s happy, it’s harder to get a quorum.”
“People come from far and wide if there are contentious issues,” agrees longtime co-op board member Grant Varga, of the 57-unit 17 West 67th Street in Manhattan. “But when everything is going smoothly, people say, ‘What’s my motivation to go?’ So we work hard to convince them to show up.”
“We’ve had trouble getting a quorum,” admits Stacy Berkowitz, president of the 11-building, 167-unit Spring Meadows co-op in Hauppauge, Long Island.
With annual elections in April, May, and June, getting a quorum is one of three key areas that boards should know about. The other two are preventing election fraud (or the appearance of fraud) and considering the benefits and pitfalls of slates.
The Quorum Quandary
No quorum, no meeting. It’s that simple. “A quorum is usually set forth in the bylaws of the co-op or condominium,” observes attorney David L. Berkey, a partner in Gallet Dreyer & Berkey. “In a co-op it will tell you what percentage of shares are required to be present, and in a condominium it tells you what percentage of common interest must be represented by people present in the meeting. Generally, it’s 50 percent.” So how do you ensure that your building has the required quorum to make the annual meeting legit? Some buildings provide food and drink to make the annual election an event; others conduct their voting over a period of time; and still others use online voting.
To reach a quorum, you will need to alert residents to the meeting in plenty of time. Once you determine a date for your annual meeting, you have to give notice no more than 60 days and no fewer than 10 days beforehand. Notes Dan Wurtzel, president of Cooper Square Realty: “If you send something 60 days in advance, maybe you’ll keep just a few from making other plans.”
You should follow up generally 30 to 40 days out with a formal notice, which must state the place, date, and hour of the meeting. The notice may be written or electronic; your attorney can advise you on the particulars.
A few forward-thinking boards are increasing voter participation by staging digital elections. “One of the co-ops I represent has a computerized online election process,” says attorney James Glatthaar, a partner at Bleakley Platt & Schmidt. “People can vote a week before a meeting and up to 11 the following morning. Each person gets a unique password. You get unlimited times checking the site, but only one time casting a ballot. This gives people a whole bunch of days to cast their votes, and they can do it from their living room without even attending. As part of this, every few days before the meeting – seven days, three days, one day before – an automatic e-mail goes out to everybody, reminding them about the meeting and to vote.” (For digital election companies, see box on p. 14.)
Quorums can be – and often are – achieved through the collection of proxies. Most boards send a proxy form with the official notice of meeting. A proxy is a document authorizing a specified person to vote in the shareholder or unit-owner’s stead. Since the votes will be present, that counts toward fulfilling the quorum.
According to veteran real-estate attorney Stuart Saft, a partner at Holland & Knight, the critical basics are: (1) a proxy doesn’t have to be the official form – a voter can sign any paper, even one that he or she then faxes; (2) the proxy-holder need not be a shareholder or unit-owner; (3) the voter can cross out the designated candidates and vote for a write-in; and (4) the proxy becomes invalid if anyone alters it after it’s signed, or if it’s signed but doesn’t name a proxy-holder.
One major concern of voters is what if they sign a proxy and then decide to attend the meeting. Can they still vote? Yes: a shareholder or unit-owner’s ballot at a meeting supersedes any proxy he or she has given. And in the case of multiple proxies – where, say, a proxy was turned in a second time after having changed his mind on a candidate or a referendum position – the most recently dated proxy has priority over any earlier one.
Finally, there are two kinds of proxies. A directed proxy contains names of candidates the voter prefers. The other is a non-directed proxy, which allows the voter or proxy-holder to fill in names at his or her discretion.
It’s usually the management company that keeps tabs on whether a quorum has been reached. And if that still hasn’t happened via proxies by the two to three weeks leading up to the meeting, boards should start knocking on doors.
“In our large co-op,” says one shareholder, “we post notices about five weeks in advance of the annual meeting asking people who want to run to submit their names. We distribute the official meeting notice several weeks before the meeting, which includes the proxy ballots with the names and backgrounds of anyone who wants to run. A locked ballot box is at the front desk for shareholders to vote in advance. They can also mail them in. We have a representative from the building attorney coordinate the counting of ballots at the annual meeting.”
Another question you should answer before the meeting: how are you going to assure shareholders that elections aren’t rigged? Although attorneys and managing agents swear fraud is exceedingly rare, homeowners need assurance that everything is on the up and up. For, as Glatthaar observes: “I’ve never experienced a rigged election in 27 years, but I’ve experienced charges of rigged elections.”
Nonetheless, owners report “irregularities.” As Ken O’Brien, a condo unit-owner, notes in Board Talk: “Our previous board knew the turnout at annual meetings was usually low, barely reaching a quorum. Since they were unpopular and at least one or two seats would certainly change hands, they arranged for the annual meeting/election to take place in some basement in a commercial area several miles away, where no parking is available, expecting no one to show up. Only five or six out of the sixteen needed for a quorum showed. This ensured no election would take place and everyone got an automatic new term without being elected.”
If people think that there are voting irregularities, it is very hard to prove a negative. Varga, the board member, says that his board avoids any perceptions of being unethical “by keeping really open communication throughout the year, by answering all questions, by explaining any projects as they come up, by posting notices about not just what’s happening but why it’s happening that way. And if anybody has questions or challenges what we’re doing, we spend as much time as it takes so they understand the reason behind everything. We have town hall meetings in our lobby every few months.” Holding their annual meetings at the New York Society for Ethical Culture doesn’t hurt, either.
One other good thing about the previously discussed online elections is that they help reassure suspicious homeowners that a board election is legitimate because they are handled by independent companies (see box, p. 14).
There is a provision in most bylaws to have inspectors of elections. “Inspectors are sometimes the accountants or representatives of the managing agent, but they can also be shareholders who represent divergent views,” says attorney Berkey. “So if you have a contentious election, you might consider an inspector from each of the different groups. That way they look over each other’s shoulders as ballots are being counted and see to it it’s fair and unbiased.”
The managing agent generally conducts the tabulation when there’s no outside company. “We record all our votes on an Excel spreadsheet,” says Peter Lehr, director of management at Kaled Management. “I may be reading off the results and an inspector watches me to verify I’m reading correctly and another inspector watches someone else from my office as they input the information and make sure it’s correct.” He’ll also do sampling as an additional check. “Say there are 50 [voters]. I’ll tell the inspector, ‘Pull a random 15 throughout the stack and you read them back and verify they’re correct on the computer.”
Finally, what are the pros and cons of having a slate of candidates, either one endorsed by the board or, conversely, a slate endorsed by an opposition group?
First, these aren’t real slates. People can vote for anyone they want to, even if that just means part of a board’s slate and part of an opposition’s slate. And while slates can make things easier for voters who can’t decide and want to take the path of least resistance, they can easily backfire. Weisberg, the attorney, cautions: “A board endorsing a slate is the kiss of death in some buildings: ‘We don’t like the board and we’ll vote for everybody else who’s running.’”
“One of the problems I see with slates is that they are viewed by some as heavy-handed,” which turns voters off, says attorney Glatthaar. He’s also seen it backfire with opposition slates. “One time these three people running against a slate felt they had to form their own slate, and they really looked like The Three Stooges when they got to the annual meeting and started to disagree with each other vehemently.”
“Usually people will propose a slate because they’re fairly confident the individuals on it will be able to work well together,” says Berkey. “It’s important to have a board that works well together. The negative of having a slate is that you could be closing the process to more independent people who might have new ideas.”
There’s one more important piece of information to have. “Never, ever, ever, ever have your annual meeting at a bar,” advises Lehr, with a laugh. “Bad combination!” He cites an annual meeting he attended where “the building was in an area without any convenient meeting room, so the board president, much to my dismay, decided to do this in a bar on a Friday night. It was a nightmare! I had a guy screaming at the top of his lungs, drunk out of his mind, ‘Robert’s Rules of Order! Robert’s Rules of Order!’ I looked at the board president and said, ‘I don’t even know how to respond to that!’ They were drinking up a storm and, of course, the board president said the building would pick up the tab.”
Talk about running on a straight party line.
Rising from the ashes of defeat, some boards learn from their mistakes and turn failure into remarkable success stories. Three first-person accounts follow.
Edited and condensed by Tom Soter
Paring It Down
Gilbert Kunken, President of the Board of Directors
66 West 94th Street and 689 Columbus Avenue
233-unit co-op, Manhattan
Management: Tudor Realty
We wanted to revise our bylaws. They had remained unchanged from the very beginning of the co-op, 45 years ago. We also wanted to change the size of the board, which was set at 13 members. That size can make it harder to operate; when you foster an environment that gives everybody the opportunity to speak, the more people you have at the table, the longer everything takes. We had trouble just getting enough candidates to fill the board, and felt that the size of the board was out of proportion to much larger buildings than ours. We also wanted to put in board eligibility requirements; for instance, there were no requirements whatsoever about whether or not board members had to be in good financial standing. We felt very strongly that board members should not owe any money. We took those ideas and many other changes before the shareholders for two years in a row, and we were coming up 15 or 20 votes short each year.
Now, I don’t have any scientific analysis to say exactly why this happened, but I do think that it’s possible that there is a natural resistance to major change, that there is always suspicion about change, and then there is also voter apathy in terms of getting people to turn out. We had about 150 people voting on the bylaws, but there were about 230 apartments that could have voted.
We changed strategies in the third year. We took a look at our priorities and said, “What are the most important issues to us? If we can only get a couple of things, what will we choose?” And the majority of us felt that board member eligibility requirements and decreasing the size of the board were the two most important things. We also believed that those were the two things that would resonate the most with people in the building. We simplified the bylaw revision proposal to just those two things. We also made a decision in year three to say, as far as eligibility goes: “Okay, you have to be current with your finances, period, the end.” We coupled that with the revision regarding the size of the board; we argued that a smaller board would be more effective.
And, lo and behold, the revisions passed. We needed about 117 votes. We passed the amendment by 121 to 10. We think that to pass a bylaw revision and get only 10 dissenting votes is quite remarkable.
In the bigger picture, I think that by simplifying what we were asking for and making it clear why the changes benefitted everyone probably brought along some votes that we hadn’t gotten in the past. When you are only presenting two major things to the residents that you are asking them to vote on, it really simplified things for people. They weren’t looking through multiple pages of documents with word changes. That tends to make some eyes glaze over.
You have to build consensus. You are not going to get everything, and I think if you go in with the attitude that a decent-size slice of the pie is better than no pie at all, it increases your chances of success.
Jeffrey Dryfoos, President
242 East 19th Street
118-unit co-op, Manhattan
Management: Vintage Real Estate Services
We tried to change our bylaws for indemnification purposes one year and failed rather miserably. What we learned was that even though we think of ourselves as a tight-knit community, when you have one annual meeting, and people come together, they have an agenda, which is usually to get out of the meeting as quickly as possible. They want to hear that their corporate structure is sound, that their investment and their shares in the co-op are increasing in value or at least holding their own, depending upon the marketplace.
And we approached them with a tremendous amount of reasoning about why we wanted to be indemnified as a board. But we did it at the annual meeting at the end of all of our regular business, and no one really wanted to sit around and listen or take part. So we came up very, very short after the vote was taken.
The next year, the board got into a discussion before the annual meeting about changing the amount of money we charged for our flip tax. We wanted to go from a fraction of a percent to 1.5 percent.
But we learned from what had happened the year before. What we did differently was we divided the building into two sectors, and weeks before the meeting, we had people on the board go out and talk to their friends one-on-one about why we wanted to increase the flip tax, what it meant to the building, and what we could expect to see on a regular basis in new money. And the rationale was, “Look, if you are not going to move, this isn’t going to affect you. But if you are moving, it’s just one more fee that you are paying in all of the costs that you are involved with for selling an apartment and buying a new apartment,” and everyone knew that.
We also went around, knocking on doors, sort of like glad-handing one-to-one. As a result, we were able to get 85 or 90 percent of the shares to vote in favor of an increased flip tax.
You have to remember, any good co-op is a community of shareholders, and while there may not be a lot of social interaction between different people in the building, that’s not always the case. We have a good deal of social interaction. There are people who have meals out together and who get together and have a drink in different people’s apartments. It’s not just business. So, we work that as a conduit for change, which then, of course, brings back the mindset that maybe, just maybe, what we should do is revisit the indemnification revision that we failed to pass so miserably the year before. 4
Staging a Primary
Mychel Namphy, Convener of Primary Committee
300 West 135th Street
170-unit condo, Manhattan
What we have is a situation where the developer of our building, who also built the building, a condo, and wrote the bylaws, gave himself an overwhelming voting majority. By law, that majority is supposed to have diminished over the years, but for various reasons, including our own ignorance, it never did. He had about 27 percent voting majority. Each of the other units has really less than 0.5 percent; it takes about 64 of our votes to equal his 27 percent, which renders it absolutely impossible for us to elect our own board members. He appoints the board. We don’t have one unit per vote. He had control of all of the finances of the building; he had his own management company running the building; all of the contracts that the building established were with his friends. There was just no way that we could do anything as far as control of our own situation.
We didn’t know everything we needed to know about how to solve this problem. We kept losing elections. Then in 2011, one unit-owner managed to get 83 unit-owner votes; he was the leading vote-getter but he was not seated because the developer did not let him. We published the results, so all of the unit-owners could see what was happening; they demanded that the unit-owner vote be honored, and there were demands for resignations. One of the board members actually did resign, but they still had four board members and therefore the majority of the board.
At about that time, I met a lawyer who worked with Maxwell-Kates; he suggested we consolidate our vote. We did so by staging a primary. Essentially, this is how it works: it takes place about a week and a half before the annual meeting. The polls are open for eight days. You have a table in the lobby, attended by a rotating group of “primary election” committee members. You also go door-to-door and chase down everybody in the building. The idea is that anybody in the building can run. But with their ballot, they would submit a proxy and an agreement that they support the primary process and that the winners of the primary would appear on all of the ballots that are submitted at the annual meeting. In previous elections, we had split our votes among too many people and we didn’t consolidate power. With the primary, our residents agreed that the winners would be the ones that would run in the general election. It worked. We ended up having 73 percent of the vote. We got control of the board. 4