Lisa Prevost in Board Operations on December 31, 2018
In most New York City co-ops, every seat on the board of directors is up for grabs every year. But a growing number of co-ops are switching to staggered terms, which limit the number of seats shareholders vote on each year. Steve Hyatt, senior vice president for FirstService Residential’s CityLine Property Management Division, believes that a prime benefit of staggered terms is that they preserve continuity. “You maintain a frame of reference, a pool of knowledge about the building’s history, previous projects, and why decisions were made,” says Hyatt.
Another reason to switch to staggered terms is to guard against a “revolution” at the annual meeting, says attorney Howard Schechter, a partner at Montgomery McCracken Walker & Rhoads. Carving the board into two or three sections may make it impossible for an insurgent group to clean house and take control in one year.
But some shareholders might see the prospect of such a revolt as the principal benefit of annual elections. “If you have a board that is perceived as corrupt or doing a terrible job, why would you want to keep any of them in there?” asks attorney Richard Klein, a partner at Romer Debbas. Facing election every year, he says, can help hold members’ feet to the fire.
Case in point: a co-op managed by Robert Ferrara’s Ferrara Management Group voted out all but one member of its board last May. “The previous board wasn’t making the best business decisions, and it was creating some problems for the community,” he says. In this case, the mass turnover hasn’t proved to be a problem. Ferrara reports that things are running more smoothly and shareholders are happier.
If complaining about the board is a favorite pastime in co-ops large and small, running for the board is not. A dearth of candidates usually results in long-term service by a handful of stalwarts. While this can lead to problems, “entrenched” is not always a dirty word. When competent, long-serving members are forced out through staggered terms or strict term limits, there’s no guarantee that an equally competent and dedicated member will step in. “I was on the board at my co-op for 28 years,” says attorney Allen Brill, a partner at Brill & Meisel. “I had to stay on until we could find someone else willing to run.” For this reason, he says, many boards are “self-perpetuating.”
Board members who have served a while should voluntarily rotate themselves off if other people are interested in coming on, suggests Schechter. Establishing term limits doesn’t give them the choice, which isn’t necessarily in the building’s best interests. “Boards that have adopted term limits sooner or later come back to me and say, ‘We’ve got so-and-so, who is the most important person on the board, and now he has to step down. How can we keep him on?’” Schechter says. “If you’ve adopted term limits, you can’t.”
Ultimately, staggered terms may be better suited to some buildings than others. There’s one way to find out if they’re right for yours. “Put it out there as a bylaw amendment at an annual meeting,” says Hyatt of FirstService. “I think it’s something all boards should entertain.”
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