Board Members and Privacy An Issue of Confidence

Board Members and Privacy
As the leaders of their community and guardians of their residents' investment and quality of life, HOA board members have a lot of responsibility, and access to a great deal of personal—sometimes sensitive—information about their neighbors. Along with this responsibility and access comes questions about what kind of information can and cannot (as well as what should and should not) be openly discussed among board members, management, and non-board shareholders.

Certain processes and decisions are more appropriately made behind closed doors, while others benefit from total transparency and the light of day. What's okay to discuss? What's not? What can association directors or trustees do to foster open communication and trust? These are issues that conscientious administrators must consider and take seriously.

Doing Business

On its face, one of Hoboken's handful of cooperative apartment buildings might seem like it has little in common with an investment bank headquartered

across the river in Manhattan's Financial District. The latter’s objective is to make as much money as possible and to enrich the coffers of the shareholders; the former’s concerns are to run a residence as efficiently as possible and to enrich the quality of life of the shareholders. Plus, you can buy stock in an investment bank; you can only buy the shares in a co-op—and and only then with board approval. In the eyes of the law however, they are both more or less the same animal: business corporations, with shareholders, and a detailed set of operating procedures.

“The Business Corporation Law (or BCL) governs the management of cooperative affairs in general,” explains Bruce Cholst, a partner attorney with Rosen, Livingston & Cholst in Manhattan. Said law “does not mandate that board meetings be open to shareholders. Actually, the standard operating procedure of any cooperative corporation is that board meetings are not open to shareholders.”

If Joe Smith logs onto to Ameritrade and buys a single share of stock in

Exxon, for example, this allows him a voice (however miniscule) in elections, and the opportunity to attend the annual meeting—plus a small share in profits and losses. If Joe Smith attempted to crash a meeting of Exxon’s board of directors however, explaining that his stock share permitted his attendance, he wouldn’t get very far—and he certainly wouldn’t be privy to the decision-making process of the board.

It may be helpful to imagine a co-op or condo board in the same way. Yes, the board president is Dave from 2B and he's not necessarily a well-heeled suit with a yacht and a Swiss bank account. But the same principles apply. If Dave refuses to give you the inside scoop on why the board didn’t let Madonna buy into your building, he isn’t being a jerk—he’s doing his job.

In both co-ops and HOAs, a board member's first duty is to the corporation, say the professionals, even though individual board members might be personally inclined to discuss certain topics with residents. Regardless of one's personal relationships with neighbors,

or their opinion of what should be kept under wraps, a board member is obliged to respect protocol and keep board business confidential.

Not all board members can handle that, of course. On occasion, a disgruntled former board member—usually one who's been ousted from his or her seat—will grumble a bit too loudly about information that should be kept confidential.

“That’s a vexing problem,” Cholst says, “one that perennially arises, and one to which there is no effective cure. You can’t put a muzzle on them to get them not to talk.”

Is it a breach of fiduciary duty for even a former board member to disclose information gained in confidence? Sure. Did they take an oath to keep their mouth shut? Yup. But appeals to duty are sometimes not enough to silence angry ex-board members—and the law can’t put the proverbial toothpaste back in the tube either.

“If you get a court order, it’s usually too late,” Cholst says. “And how do you enforce it?” In theory, divulging information gained while on the board is all a big no-no. In practice however, “people talk 'til they're blue in the face.”

Transparency vs. Reality

Indeed, “sunshine” and “transparency” may seem inherently good—so much so that certain states—including Connecticut, most recently—have passed laws mandating more openness in co-op and condo boards' decision-making processes, and more input from shareholders and unit owners. But there are plenty of reasons for keeping certain decisions and information confidential. And contrary to popular belief, none of those reasons includes allowing the board to run their HOA with an iron fist like despots of old.

For one thing, board members, unlike their counterparts at Exxon, are not in this for the money. They are acting in the best interests of the building or association, and they are doing so with professional input from attorneys, accountants, and property managers. Opening up every meeting would put them on the spot constantly, having to defend their actions to residents who may not be as familiar with the history of the issue as they are. Second-guessing by residents and taking items out of context is likely to foment problems for

boards.

"In areas where confidentiality needs to be maintained, you can't breach that with discussions with other residents," says Curt Macysyn, executive vice president of the New Jersey chapter of the Community Associations Institute (CAI-NJ). "These include personnel issues and litigation. Board members must keep an appropriate level of confidentiality in such matters.”

“Avoid discussing with residents or shareholders anything that impacts individual privacy...and any issues protected by attorney-client privilege,” says Donald Onorato, Esq., an attorney based in Hackensack, whose practice includes a focus in community association law. “Those are best discussed at an executive meeting, not an open meeting.”

Gossiping with the neighbors is also a cardinal sin for board members, says Elaine Warga-Murray, co-owner and a property manager with Regency Management Group in Howell. “In order to maintain amiable relationships with owners, board members should refer to [their] confidentiality agreements. Tell [non-board residents] that you can't speak for the entire board, but that you will carry the inquiry to the board, and ask that a written response be provided. The best thing to do is for the board member to listen and be available to hear owner comments and questions.”

Warga-Murray also advises board members to exercise the utmost discretion when communicating with residents via electronic media such as email, text messaging and Twitter. “Board members should refrain from responding to emails, texts and so forth, other than to acknowledge receipt of the message,” she says. “Refer the owner to management for a complete response. Emailed responses are often not well thought out, and may jeopardize the board as a whole.”

Certainly, Warga-Murray continues, board members can use emails to “forward” written responses from management or the attorney, etc., and [these responses] should always acknowledge any [previous] form of contact from owners. “That's not to say that boards should never utter a peep to their fellow residents," she adds. "Boards need to keep the channels of information and conversation open to inform owners of issues that affect daily operations.”

Other areas that should be strictly off-limits for disclosure however, are anything to do with admissions—or money. Financial dealings and admissions matters always involve sensitive pieces of information that not only should not be made public, but which can expose a building or HOA to litigation if they are.

“Admission committee reports and arrears,” says Cholst, “are precise examples of things you do not want to disclose to others because they're confidential. Suppose there’s an accounting error, and someone’s good name is tarnished?”

Same goes for ongoing investigations that are not yet conclusive. “Suppose there are allegations of misconduct against a building staff member that are still under investigation,” Cholst continues. You don’t want the entire building to know the doorman was accused of stealing, then have it turn out the whole thing was a mistake, or worse, the result of malicious gossip. The board must discuss the accusation at the meeting, but it's nobody else's business.

Open Doors?

Of course, there are certain issues that do benefit from resident involvement: major renovation plans; refinancing underlying mortgages in the case of co-ops; revisiting the pet policy, the admissions policy, the sublet policy, or changing the quality-of-life bylaws in some marked way. But even then, a board should be judicious, and not broadcast its every remark and thought process to all the world.

“I don’t think it’s a good idea to throw sunshine out there unless the board has reached a consensus,” Cholst says. “A few boards that I have will allow residents to sit in as spectators or observers on aspects of the meeting that pertain to the public domain. These boards will then go into what they call 'executive session' when they reach matters they don’t want exposed to the public.”

Even in buildings and HOAs that allow that kind of openness, it is rare for residents to attend for the simple reason that most folks have things they would rather be doing in the evening that sitting through a board meeting. Although there are those rare residents who want to stick their beak in every pie—offering garrulous commentary as they do—in most associations, apathy is more of a problem than nosiness.

In the final analysis, “A lot of this is common sense,” says Macysyn. “The community should expect a level of transparency in operations, but in certain situations there may be a need to maintain confidentiality, at least until issues are resolved. “If you have any doubt as to whether it's a conflict, discuss it with the board attorneys.”

Greg Olear is a freelance writer, novelist and a frequent contributor to The New Jersey Cooperator.

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