Smith, Buss & Jacobs, Partner
Kenneth R. Jacobs
The client’s tale. How much transparency is enough? It depends on who you ask. Three newly elected board members attended their first meeting. The board president, noting that the superintendent had requested a raise, asked the managing agent to look into what comparable buildings are paying. One of the new members objected, saying, “We should let the owners know about the super’s request so they can tell us what they think of him.” The president didn’t think this was a good idea. He explained that individual owners may have a skewed opinion since they did not have access to all the information the board had and thus might not have a complete picture of the super’s performance. The member disagreed, arguing: “The owners have a right to know how their money is being spent.” A few minutes later, the board asked the managing agent to take a more proactive approach to dealing with illegal occupants. “I’m going to let the owners know that the building has a problem with unauthorized leasing,” said the same new member. When the president objected, saying that the scope of the problem was unknown, the new member replied, “The owners elected me. I have a fiduciary duty to keep them informed about building issues.”
The lawyer’s take. Board members have a “fiduciary duty” to act in the best interests of the association. Some board members think that requires full transparency to the owners, regardless of the scope of the available information or the potential consequences of disclosure. How should a board deal with questions of meeting confidentiality, and how can a board persuade well-meaning members to draw a stricter line? Some boards try to restrict access to contracts and records by members whom they consider irresponsible. (One board has gone so far as to collect all hard copies of documents after board meetings to prevent them from being copied and disseminated.)
However, the courts have determined that board members have an almost unlimited right to review building records, barring a legal conflict of interest or an improper purpose (such as personal marketing). The courts focus on what the board members do with the information to determine whether a member has breached his fiduciary duty. To set the tone for new members, establish your standards and expectations immediately. Boards can also establish policies regarding specific votes; for example, individual members may request that their own votes be kept confidential, recording votes only by number. If individual directors wish to publicize how they voted, they are free to do so. If managers or directors learn the board’s philosophy from the beginning, they are more likely to respect existing procedures.
Case closed. For some boards, we have prepared a code of ethics for all new members to sign after being elected. The code includes a commitment to keep all matters before the board confidential until the board has voted. Some co-op boards have even amended their bylaws to give them the right to take legal action if members violate the ethics code.