Warnings Signs: Why Boards Should Not Write Off Disruptions
March 24, 2015 — A defensive board might be tempted to write off an angry disruption at the annual meeting as an aberration — especially when a dissident claims that board members are getting paid off by someone. It shouldn't. The disruption may be a warning sign of a more serious problem and, like all warning signs, it is not meant to make a board stop everything it is doing but, rather, to slow down, take note, and investigate.
When a board is faced with an accusation of drawing financial benefit from anything — from choosing a certain contractor to tackling a renovation project — it shouldn't simply dismiss it as paranoia. It could be a warning sign that certain board members are actually getting "perks" of which the rest of the board is not necessarily aware. Whether we realize it or not, the building staff and the managing agent, who both see the board as the boss, often react to board members differently from how they react to building residents. It's wrong, but it happens. I have found that when I am not on the board of my co-op, there is sometimes a very subtle difference in staff response to my requests. They still follow-through, but it takes a little longer. So if a board is confronted by an angry resident, then perhaps there is something going on that they may not be apparent.
There may also be problems with the managing agent that the board may not realize. For whatever reason, the he may not be as responsive to requests from residents as he should be. So when shareholders complain, even those who are perceived to be chronic complainers, it's better to investigate the smoke to see if there's any fire.
Perhaps the problem is that the manager is perceived to show favoritism to certain residents. Or perhaps the manager expects to be compensated for doing required work on an alteration that has continued for months or years. The board needs to investigate these types of accusations.
Whenever I am at an annual meeting and the rancor begins, I warn the board against attempting to stop it for two reasons. First, nothing can assist dissidents more than a board attempting to shut down debate or discussion. Second, it's easier to diffuse the situation if the board lets an angry resident discuss an issue in the open.
Stuart Saft is a partner at Holland & Knight.
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