Ah, Coop Board Politics
I have a question relating to coops and the rules that control how a sponsor may (and may not) vote its shares during a board election. I’ll spell out the scenario below, in case any of you want to take a crack, but I would appreciate any recommendations for reliable & reasonably-priced lawyers in Brooklyn…
I have a question relating to coops and the rules that control how a sponsor may (and may not) vote its shares during a board election. I’ll spell out the scenario below, in case any of you want to take a crack, but I would appreciate any recommendations for reliable & reasonably-priced lawyers in Brooklyn or Manhattan.
Let’s assume that a coop has a 5-member Board. Let’s say that 1 of those is an automatic designee of the sponsor, and the other 4 are elected by the shareholders. The question is, what are the qualifications required of the 4 elected members. Specifically, is it legal for any of those 4 elected members to be employees of the sponsor?
(If you’re still reading, you’re probably enough a legal buff to want to know this tidbit, too: The Bylaws contain the famous, and famously vague, clause about “not exercising voting control” that led the to Rego Park, etc. case.)
You might want to read my blog. It covers alot of this. 9stopsout.com
Winthrop, if you do have control of 3 of the seats you can always vote to expand the number of seats in order to increase the amount of shareholder participation.
If the employees are also members of the co-op, they could stand for election as shareholders. Even sponsor nominated board members have a legal obligation to act in the best interests of the corporation, even if those interests conflict with those of their employer. A board that acts contrary to the interests of the corporation risks a lawsuit by the other shareholders.
Been in this situation myself in two buildings in Manhattan, way back in the day. From what I remember, cm is correct. In both cases, we had to push the issue, long after five years had passed. In both cases, once the sponsor was down to two on the Board and could no longer swing every vote his way, he threw up his hands and said, I’m out! This building will go down in flames without me!
We bore the outrage stoically, elected an all-owner Board, fired his hand-picked managing agent, accountant, insurance agent, super, etc., and found in both cases that revenue was up and costs down once the sponsor was out of the way. The loss of control of the buildings also encouraged them to sell their remaining units, another plus.
A lot of these sponsors have trouble adjusting their psychology from “landlord” to “sponsor.” Once they were out of the way, halls got painted, laundry machines fixed, roofs repaired, and so on.
Interesting. So your understanding is that, so long as the election does not produce a Board on which employees of the sponsor make up a *majority,* the sponsor is within its rights?
That would some kind of make sense, I suppose. It is frustrating though … the practical result is to reduce from 4 to 3 the number of seats that those of us who live in the building can compete for.
Obviously you have to chack the corporations by-laws but typically the Sponsor cannot control the Board after 5 years regardless of the percentage of units sold. Therefore he or his representatives (i.e. employees) could not hold more than 2 seats of a 5 member board. However, the Sponsor has the absolute right to vote his share for any other qualified person so he can still exert influence if he finds sympathtic qualified nominees.