The job of a co-op or condo board member seems pretty straightforward: have meetings, take votes on this or that item of business, approve checks, keep an eye on the budget, and so forth.
That’s the administrative part of the job. But board membership also comes with a whole slew of legal and ethical considerations as well—many of which the board member may have never stopped to consider. Let’s take a look at some of the common ethical and legal pratfalls board members fall victim to, and how to avoid them.
Back in high school, when this reporter worked at McDonald’s, the owner instructed us that any police officer who came to the restaurant ate for free. “If we give them free food,” he said, “word will spread, and the cops will hang out here, or keep more of an eye on the place. That’s what we want.”
It’s unethical (if not illegal) for cops to accept freebies like that, but it happens all the time. It certainly happened in that McDonald’s, which, to the best of my knowledge, still doles out free burgers to the boys in blue. For the price of a few burgers and French fries, the owner got what he wanted—extra security.
The same sort of thing can happen in a co-op or condo, where board members can receive the maintenance equivalent of a complimentary Big Mac.
“Say there's a leak in the apartment above the board president’s,” says Steven Birbach, chairman of Carlton Management in Glenwood Landing, New York. “It may be the policy that the co-op repairs the leak, but doesn't paint. But the president might ask the super to paint the ceiling, and the super does it.”
Is this a big deal? Not really. The super probably doesn’t mind doing a favor for the president, and the president might not even realize he technically made an ethical error. But it is an ethical gray area. And with gray areas, it’s best to err on the side of caution—and full disclosure.
Overlapping Business Ventures
Say the board president’s husband owns a roofing company. The building’s roof needs to be replaced. The board hires the president’s husband’s roofing company for the job. Is that simply a convenient solution to a pressing problem, or a conflict of interest and a major breach of ethics?
According to Steven Brumfield, CMCA, CCAM, PCAM, the vice president of operations for Wentworth Property Management based in Valley Forge, Pennsylvania, “Having a close friend, family member, etc, who is involved with a service provider, or who would like to provide services for the community association is a very common ethical mistake boards can get tripped up by. A board member may have a real or perceived interest in the service provider's success, and that's clearly a conflict of interest, but it's a very, very common one.”
All managers and boards have favorite contractors, and that’s fine, say the pros. If you know a vendor who has done a good job for you in the past, it’s not unethical to re-hire him or her. But when board members neglect to disclose a relationship, that gets dicey, says Robin Habacht, MBA, CMCA, AMS, the founding owner of Monticello Management with offices in Leonia and Matawan.“The most common conflict of interest is the use of an association member as a vendor without disclosure. While doing so in itself doesn’t always constitute a conflict, nondisclosure of the action does. Also, if it’s a larger-scale project that it should have been sent out to bid and was not, that adds another ethics issue to the mix.”
Another common scenario: say the wife of the board treasurer is a real estate broker. She’s the listing agent for an apartment in the building. She found potential buyers, who now have to get approved by the board.
“It’s okay for a transaction like that, where there’s a related director,” Stephen M. Lasser, an attorney shareholder with the Manhattan offices of the Lawrenceville, New Jersey law firm of Stark & Stark, “but the board member needs to disclose that, and to recuse themselves from the vote.”
Chances are, the application gets approved regardless. Chances are, the broker vets the buyers. Chances are, everything would have played out the same way regardless. But appearances are important here. “Even if they say they can act impartially, it doesn’t look like it on its face,” Lasser says. And the appearance of impropriety can often be just as damaging as an actual misdeed.
Keep Business in the Board Room
It’s Sunday night, 15 minutes before the new episode of Mad Men starts. The board president rides the elevator to the basement to collect his laundry, hoping to be back in his apartment before ten o’clock.
Once in the laundry room, however, he runs into the Implacable Guy from 6G, who picks that very moment to air his latest grievance, something about the radiators being too hot. As one attorney puts it, “Some people are just really good at cornering you and getting you to talk.”
If you are that board president stuck in the laundry room, it may be tempting to tell Implacable Guy whatever he wants to hear to table the discussion—maybe even make a promise or two. The professionals strongly advise against making promises like that, especially under those conditions.
The better approach, say the experts, is to direct Implacable Guy to the proper channels for making a maintenance request. Or, if the matter is more complex than that, have a prepared statement ready that tables the discussion for a more appropriate time and place, such as a board meeting.
And some things are just off-limits, pure and simple. “You must never discuss any employee issues, any employee payroll, or anything relating to employees,” says Michael Cervelli, the owner and president of Cervelli Management Corporation in North Bergen. “Never. And if you start discussing issues like budgeting, or certain repairs that may be underway with one person, and then another person wants to discuss it with you but you don't, what kind of problems are you leading into? Will you discuss everything, or will you discuss nothing?”
“In many cases, community association board members are the most prominent 'radio' if you will, between the residents and the association,” says Brumfield. “And it's probably unrealistic to think that residents won't provide board members with direct feedback. That's the reality of it. So when a board member is having a conversation with a resident, it's important that the resident be told very early in the conversation that any opinions that are rendered here are the opinions of [the board member] as an individual, and not the board of directors as a whole, or the association. And making sure that residents understand that, regularly, in the conversation is important.”
Context for information-sharing is key. The goal is to cultivate open communication while maintaining appropriate boundaries, both personally and in regard to board business, says Habacht. “Knowledge transfer by a veteran board member is always welcome—it’s indispensable, really,” she says. “While there’s no legal burden on veteran board members to educate [newcomers], a responsible veteran board member or manager would likely feel obligated to pass on their knowledge to incoming board members. The association's counsel should be called in to advise the board on their legal and ethical responsibilities.”
An Email Is Forever
Email is an ideal means of communication for many reasons. Unlike a letter, it’s delivered immediately, and doesn’t require Mail Merge, a copy machine, or a book of stamps to use. Unlike a phone call, it doesn’t impose upon the other person at that moment; your correspondent can get back to you when he or she is ready to do so.
For these reasons, almost everyone communicates via email. But electronic communication, for all its myriad advantages, is not without its stumbling blocks. Emails, even when deleted, can be retrieved, and they are admissible as evidence. One attorney this reporter once worked with told employees at the company, “Don’t put anything in an email that you wouldn’t feel comfortable reading before a judge in a court of law.” He tended to take a defensive view of things, but he had a point.
Generally speaking, email should be used for routine correspondence: arranging meeting times, distributing documents, that sort of thing. Go beyond that, say the professionals, and you go at your peril. “You have to remember,” says Lasser, “any time you use email, it’s discoverable, unless its falls under attorney/client privilege.”
To that end, Lasser advises board members to avoid emailing about anything potentially litigious. It’s fine to ask if a meeting time can be moved; not that smart to write down your feelings about why so-and-so should not be approved to buy an apartment, or why you don’t want to hire such-and-such. “It’s very easy to forward and disseminate,” Lasser says.
Also, according to Brumfield, “It's very important to note that emails are almost universally perceived to be less positive than the writer intended them. You don't get inflection, you don't get tone, you don't get any of that stuff, and the reader is left to assume all of these things, because all they have are your words. So people should be cognizant of exactly what they're writing in the email, and if they have something to exchange with an individual that is less than positive, it's probably best to do that by having a live telephone conversation first, and then perhaps following up with a carefully-worded email. And for Heaven's sake, avoid all-caps!”
“Communication has changed drastically even in the past ten years,” acknowledges Bob Rogers, CMCA, AMS, a community manager with Taylor Management Company in Cedar Knolls. “Email should be considered just another tool—not something to be relied upon as a proper avenue for communication. Except in an emergency situation, business should not be conducted in an email format. We have a motto that we follow if we see a train of emails going back and forth, creating even more confusion and dissension. It’s simply, 'Pick up the phone!' It’s amazing how efficiently things can be handled once we pick up the phone and talk things out.”
Board members are, from time to time, privy to information that the average Joe in the building might not be in on. For example, if three vendors are bidding on a big project, the board member knows what the sealed bids contain, and could theoretically use that information to help one vendor beat out another.
Another example: if Famous Celebrity wants to buy an apartment in the building, someone on the board will have access to a lot of information Famous Celebrity may not want to read about in the tabloids.
Lasser puts it bluntly: “A director may not divulge or otherwise use for personal gain any personal information learned during the performance of his or her official duties as a director.” To do otherwise isn't just improper and unethical, it's illegal—and a board member acting in bad faith is out in the cold when it comes to the legal costs associated with a resulting lawsuit or criminal charges. Boards typically carry Directors and Officers (D&O) insurance to cover any damages resulting from a bad decision they might make, but such policies pay only if that decision was made in good faith. Illegal discrimination, fraudulent business dealings, and other chicanery void any D&O policy, and perpetrators are on the hook to pay any associated costs directly out of their own pocket.
And discretion is often the better part of valor, says Rogers. “I’m not so sure that it’s an 'ethics' mistake,” he says, “but it puts a manager in a very awkward position when they share information with us but don’t want it shared with the rest of the board. A constant reminder to boards is to only share with the manager what you would be willing to share with the entire board.”
Ultimately, many of these rules of etiquette and ethics seem like common sense. Indeed, many if not most board members comport themselves like Supreme Court justices with respect to ethics and the letter of the law. But sometimes the situation is complicated, and the right thing to do not so obvious. In those cases, knowledge of your building's bylaws and the guidance of good legal counsel can help clarify things and give boards and managers a hand in doing what's best for their building—and doing it under the letter of the law.
Greg Olear is a freelance writer, novelist, and a frequent contributor to The New Jersey Cooperator. Additional reporting by David Chiu.
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