Lisa Prevost in Board Operations on December 14, 2018
Anne Ward is a big fan of staggered terms for co-op boards. An attorney with Ehrlich, Petriello, Gudin & Plaza, she says there are so many complicated situations facing boards that it’s essential to maintain some institutional memory.
“Right now I’m dealing with a co-op that has a shareholder causing all sorts of problems,” Ward says. “He’s going down to the management office and screaming at the property manager. He’s suing the board president for harassment in municipal court – not for anything the board president did but because the board wouldn’t give him a parking spot. This has been going on for a whole year, and the board has been working with me on how to deal with this.”
Thanks to the board’s staggered terms, there are always incumbents on the boards along with newly elected members. “If all the board members were to disappear tomorrow, and I had to start from scratch explaining this to the new board, it would be a huge task,” Ward says. “And a lot would be lost in translation.”
In most New York City co-ops, every seat on the board of directors is up for grabs every year. That’s typically a provision that was written into bylaws during the flurry of conversions in the 1980s. The sponsors creating the offering plans used the same boilerplate language requiring annual elections of the entire board.
Now, many lawyers say, it’s worth taking a harder look at that provision. Is it really in the co-op’s best interest to potentially replace its entire board every year? Would it be better to space out the turnover? One way to do that is to switch to staggered terms.
Staggered terms limit the number of seats up for grabs in any given year. That requires revising the governing documents to set up sections within the board, explains attorney Howard Schechter, a partner at Montgomery McCracken Walker & Rhoads. These must be as nearly equal in size as possible, with each section coming up for election in different years.
So, for example, if the board is divided into two sections, each would come up for election in alternating years. On a five-member board, everyone would serve a two-year term, with two seats open for election one year, and the other three open the following year. Likewise, setting up three sections would stagger terms over three years.
“The provision can be in the certificate of incorporation or in the bylaws,” Schechter says, “but either way, revising it requires a shareholder vote.”
Staggered terms also make it easier for new board members, who can look to sitting members for guidance as they learn the ropes, adds Robert Ferrara, president of the Ferrara Management Group.
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