A Code of Conduct for Board Members: When and Why You Might Want This
April 18, 2013 — To try to avoid unethical behavior by co-op and condominium board members, attorney Steve Wagner, a partner at Porzio Bromberg & Newman, suggests the board create and make members aware of its code of conduct or code of ethics. This includes a series of ethical promises: no kickbacks, full disclosure of any connection with the vendors, no self-dealing, and so on.
"It's not legally enforceable until it's put in the form of a bylaw amendment, but it's a good idea," concurs Bruce Cholst, a partner at Rosen, Livingston & Cholst. "If new board members agree to a code of ethics, it gives them some sense of how important the role is. It gives them something to think about."
You can also have them sign a confidentiality agreement, which guarantees instant expulsion if they reveal confidential information. "There is no actual provision for a confidentiality agreement in the Business Corporation Law," says Jeffrey Reich, a partner at the law firm of Wolf Haldenstein Adler Freeman & Herz. "Nothing says that everything that goes before a board has to be confidential. But you can adopt such a provision. In a co-op, you can make it more binding and amend the bylaws to say if the code of ethics is breached, that is grounds for dismissal from the board."
When Confidentiality Is Unethical
One co-op board member on the Upper East Side of Manhattan says that he refused to sign such an agreement. His reasoning? "If the board was self-dealing or the president was not paying maintenance or the board was doing something that was wrong, I wanted to have the option to speak out," he explains. "The confidentiality agreement may have been at odds with my responsibilities as a director, so I refused to sign it."
Wagner says that the lesson from that is that condominium and co-op boards' confidentiality agreement should have a caveat: "You can put an exception in the agreement allowing you to speak out if there is fraud, misconduct, and/or a breach of fiduciary duty."
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