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How Transparent Should Boards Be – Understanding What Information to Provide Owners and Shareholders

November 13, 2017

The Cooperator
By Mike Odenthal

Living in and running a co-op or condo can be stressful. And it’s understandable that both the board of an association and those to whom it serves can find themselves overwhelmed, not only with vital information pertaining to their day-to-day, but also with which information boards must disclose to owners and shareholders, and which can better be withheld for the better of the association or corporation.

While a board is beholden to its fiduciary duty and various laws and statutes, and thus should be well aware of its obligations, the average resident may have no idea as to what documents they should be reviewing – and to what information they are entitled to or not.

Owner Overreach

“Shareholders have, in some respects, unreasonable expectations,” admits Phyllis H. Weisberg, a managing partner at the law firm of Montgomery McCracken Walker & Rhoads LLP, which has offices in New Jersey and New York. “For example, shareholders seem to think that they can see board minutes, but they don’t have an automatic right to do so. I know that some boards distribute them, but most don’t, and they shouldn’t be doing so. Because if the minutes indicate that Jane Doe is in dire financial straits and wants to borrow money, or work out a deal on her non-payment proceeding, that’s something confidential that she wouldn’t want to broadcast around. There are a lot of reasons that those minutes don’t need to be made available. And sometimes, when a court mandates for whatever reason that they are made available, they will redact information that could prove embarrassing or prejudicial or whatnot.”

Then there are shareholders that demand to view all of the bids that boards have out on various projects, because they’re suspicious as to how everything is going. “As a practical matter, the bids that are submitted are confidential, and if you’re giving bids or information out to shareholders, you won’t get anyone to bid at your building, as vendors will know those bids aren’t confidential,” says Weisberg. “And generally, when I see people ask about the bids, it’s mostly out of idle curiosity. Shareholders don’t understand that there may be very good reasons why the co-op didn’t accept the lowest bid. The decision not do so in and of itself is not, to me, evidence of wrongdoing. Maybe they didn’t like something about the contract, or the contractor mainly worked on a different type of building. And I’ve heard horror stories of workers peering into apartments from outside, or even urinating off scaffolding.”

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“The board is elected and is required by law to make decisions, save for when they have to go through the shareholder, like when they’re amending a proprietary lease, amending bylaws, amending a certificate,” Weisberg continues. “But it’s a representative democracy, so, if you don’t like your representatives, you should mount a campaign.”

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