HABITAT

BOARD OPERATIONS

Transparency vs. Privacy: A Balancing Act for Boards

Kathryn Farrell in Board Operations on October 15, 2018

New York City

Transparency III
Oct. 15, 2018

Last week we revealed ways co-op and condo boards can conduct their monthly meetings in a way that will satisfy residents’ rising demands for transparency – while protecting sensitive personal information. Today we look at three other areas where boards must balance demands for transparency against the right to privacy. 

Meeting Minutes. “The minutes do not have to discuss in detail how anybody voted,” says attorney Theresa Racht. “They simply need to be a statement of what the board had before it and what their decisions were. I’m always dissuading boards from going into too much detail on discussions.” 

For instance, minutes should not contain details about why a shareholder’s circumstances have put them into arrears. And while the Business Corporation Law requires that the minutes of an annual meeting be provided to anyone who asks, savvy boards keep those minutes sparse to avoid giving an irate shareholder an excuse for a lawsuit

Access to Documents. If deciding what to put in the minutes is difficult, choosing who gets access to those documents can be even worse. Two recent court cases have dealt with this issue. In 2016, an appellate court granted condo unit-owners broad rights to examine the condo’s books and records, including minutes, invoices, and financial records. The decision was the culmination of a case brought in 2011 by Brenda Pomerance, who wanted to examine the records at the Link Condominium at 310 West 52nd Street. In Musey v. 425 East 86th Street Apartments Corp. in early 2017, the state Supreme Court affirmed that shareholders in a co-op are entitled to “broad access” to building records, including minutes, residents’ personal information, financial records, and information about trusts. 

Even with the allowances granted by the Pomerance and Musey decisions, boards still have the right to take a step back and examine the reasons behind any request for documents. “Depending upon the reasoning and circumstance behind it,” says attorney Stewart Wurtzel, a partner at Tane Waterman & Wurtzel, “there’s comes a time where [boards] need to say, ‘We think that this is not a good-faith request – get a court order.’” 

Conflict of Interest. On January 1, 2018, a new state law went into effect that requires all co-ops to prepare annual reports of all contracts they decided on in which a board member had – or appeared to have – a financial interest. The report has to be signed by all the directors, and it must include information on the recipient; the amount and the purpose of the contract; a record of the board meetings in which the contract was voted upon, including attendance and how each member voted; the date of the vote; and the effective date of the contract. 

But according to numerous attorneys, the law was was broad and poorly written. A recent amendment has helped clarify it – adding condos and explaining more clearly what needs to be in the report. 

While shareholders may rebel against even the appearance of a conflict, that may not be an appropriate reaction. “Conflicts are not necessarily a bad thing,” says Wurtzel. “If you have somebody on the board who works for a company that has the skill set the co-op needs, and they’re getting a good price, yes, it’s a conflict. But it doesn’t mean that they shouldn’t go with it. They don’t need to pay more money simply to avoid the conflict. The way around that is simply disclosing.” 

Are there any straightforward directions for boards looking to satisfy those demanding more transparency? The short answer is no. Boards have to decide for themselves how much they want to reveal – not in the interest of hiding anything but simply to maintain everyone’s privacy while avoiding costly lawsuits and cries for more transparency.

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