New York's Cooperative and Condominium Community
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There are ways for boards to reassure their community when a shareholder sues.
Six months ago, one of our shareholders sued the board. Among other things, the lawsuit accuses us of incompetence and self-dealing. None of it is true. Now people are asking questions, but our attorneys have advised us not to discuss the case. We’re concerned that our silence is working against us. Can we communicate to shareholders without getting into legal trouble?
—Silent in SoHo
It’s one thing if “we can’t discuss it” refers to a lawsuit over whose insurance should pay a bill. But your situation is different. These are broad and deeply personal accusations. Naturally, shareholders want to know what’s happening — and whether they should continue to trust you. And it’s upsetting not to be able to defend yourselves to them. No wonder the urge to communicate is strong on all sides.
To be clear: This is not a legal advice column. So you shouldn’t move on any of the suggestions below without consulting with your attorneys. They’ve likely spoken to you about legal risk, which you’re mitigating by not discussing the case.
But you also face another risk: not being able to properly govern the building. That’s because this lawsuit raises questions about your trustworthiness. By not communicating with the building, you’ve left an information vacuum that people can (and will) fill on their own. And if shareholders no longer trust you, they may start questioning everything you do. They may no longer support your difficult decisions. They may conclude that they need new, “untainted” board members.
So speak to your attorneys about balancing legal and trust-related risks. Get their guidance on whether you can use the steps below to communicate with (and reassure) shareholders while staying out of legal trouble.
Start with basic facts. Communicate to shareholders the who, what, and when of the suit. In May, shareholder X filed a suit in such-and-such court against the board. He accused us of X and Y. We deny all the allegations. Law firm X is representing us and has advised us to minimize our communication about this case. Here’s the current status of the case. Don’t include personal attacks on shareholder X, suppositions about his or her intentions, or any other commentary.
Share links to court documents. It’s not uncommon for parties in litigation to deliberately misrepresent what’s happening. But you can direct shareholders to an objective source: the court. Many documents are available to the general public. Share the URL and case index numbers, and let the curious and skeptical see for themselves.
Provide your story, at your pace. It’s not enough to say “It’s all lies.” You need an alternative — and truthful — narrative. Don’t repeat accusations verbatim; just present facts. Is the accusation that you fired a handyman who found that you were taking bribes? You might share that the handyman actually retired to Boca. Provide info early, and as appropriate. But do so at your pace, not as a back-and-forth with shareholder X. Avoid social media.
Update and express thanks. Let shareholders know you’ll update them when there are developments you can share. Thank them for their patience and understanding about what you can and cannot disclose. Assure them that you continue to work to get the best possible outcome for the building.
Work with your attorneys to balance legal and trust-related risks. If you stay calm and stick to facts, you’ll maintain a trusting relationship with shareholders.
Mary Federico serves on the board of her 240-unit Upper West Side condominium. Through her consultancy, Organizational Behavior Strategies, she helps leaders use behavioral science to improve their organizations.
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