Open Sesame

Open Sesame?

To June Pitkow, former board treasurer at a 36-unit condominium association in Roslyn, N.Y., transparency is the very essence of a democratic society. It ensures honesty, accountability, and good government. As an example of what can go wrong when you are not transparent, she points to her association and its board of managers, who, she says, operates in a highly secretive manner.

Pitkow’s solution would be to mandate open board meetings. She feels the problems she has had with her board – over various disputes resulting from a fire in 2002 that destroyed her home – would not have happened if the board had open meetings.

“If things are not made transparent then anything can happen,” she claims. “Nobody knows how people [on the board] vote, or what their feeling is, or what is the discussion that’s going on. There’s no check and balance. It is absurd, it’s arrogant. It’s not atypical for boards to simply be run with one or two people dictating, and the rest kind of rubber-stamping. Either because they don’t have the time, or they’re afraid, or they don’t know. What’s said in an open meeting is much more out there, you have to stand by it. It doesn’t become a ‘he said/she said’ situation.”

She points to Florida’s Condominium Act, which requires such meetings in all associations. “I did a lot of research, and I looked at other states, and I saw what the laws were in other states; Florida is held up as the flagship state. There are controls in place so that this could never have happened. In Florida, number one, every board meeting has to be made public.”

To many, open meetings sound appealing. They offer the promise of better communication by allowing the owners to see how their elected officials make decisions. They keep elected officials honest by making it clear to the voters where each board member stands on positions of importance: assessments, maintenance or common charge increases, lobby redesign, pet policy, and so on. And finally, they keep the board in touch with its constituents. “If you have open board meetings,” says Pitkow, “you have a dialogue [with the owners]. That’s very, very important.”

“Open board meetings open up communication and show that we have nothing to hide,” agrees Jonathan Clipper, secretary of a 250-unit Bronx co-op who is trying to get his seven-member board to become transparent. “If you say you’re going to do something and you don’t do it, everyone knows it. It means more accountability.”

So why don’t more boards have open meetings? Do they have something to hide?

While some boards do “hide” behind the veil of secrecy surrounding monthly meetings, most professionals say that there is nothing inherently sinister about closed sessions. In fact, many argue that opening the gatherings to the public can be a recipe for chaos.

First, they could encourage grandstanding, in which board members “play to the gallery,” posturing and pontificating for effect rather than offering considered opinions. “It becomes a different kind of meeting,” notes attorney James Samson, a partner in Bangser, Klein, Rocca & Blum, “especially if they know they’re in a minority position. Then they might take an adamant position, knowing they’re going to lose anyway.”

Opening the meetings could also inhibit frank discussion, since a board member might be cautious about publicly offering an unpopular – though perhaps necessary – idea, such as a maintenance/common charge increase. “People are afraid to bring up a potential solution, like assessments, in front of [the owners] because then they are labeled as someone who wants to assess,” says David Kuperberg, president of Cooper Square Realty. “It politicizes it and tends to hurt free and open discussion. Most boards rule by consensus not by vote and, when you’re ruling by consensus, you may not be able to talk about things without fear of someone picking on you.”

“The shareholders are entitled to see what the board decided, but the ability of board members to disagree among themselves and finally reach a consensus is important,” agrees Samson. “If all the sessions are open, then all you get is politicking. If somebody says, ‘I have trouble with refinancing a mortgage,’ that gets spread throughout the building, and later, he may change his mind but it’s too late because he’s taken a position.”

Although there may be rules restricting a non-board member to an observer’s role, this could fall by the wayside if matters get heated. “It’s a real deterrent to good decision-making,” says Don Levy, senior vice president and account executive at Brown Harris Stevens, a management company. “They’re on public display, and even though you can set up ground rules that in theory say it’s just for people to observe and not participate – life’s not like that. If people don’t like what’s being said, they’re going to jump right in there and it’s going to turn into an argument and a free-for-all.”

“The problem is you get people who want to advocate for a particular issue showing up at meetings, or people who want to comment showing up at meetings, and instead of sitting and watching they become participants,” adds Samson. “Suddenly, it becomes a single-issue agenda. [The visiting] shareholder has no other fiduciary obligation but to protect his own interest. He can push his agenda and dominate the meeting. A board member, however, has an obligation that goes way beyond the obligation of any one shareholder, looking at the good of the whole corporation.”

Private matters could become part of the public record. “There are private things that should be kept private,” explains Kuperberg. ‘“John Smith lost his job and is in arrears and we’re working with him.’ That sort of thing.”

For big communities, the meetings might become a logistical nightmare. At Queens-based Georgetown Mews, Mary Fischer, the president, notes that it would be almost impossible to stage an open meeting: the garden complex has 700 shareholder-occupied units and nearly 1,400 residents.

Although some argue that the ideas behind open meetings are sound – better communication and more accountability – a more effective way to achieve them is through informal semi-regular shareholder meetings. “Having one or two informal shareholder meetings in the building – no quorum required, no action taken, just to talk, listen, and discuss – is useful,” says Samson. “But it’s a shareholder meeting not a board meeting.”

“We schedule and conduct two open board meetings a year, followed by a shareholders’ meeting,” a director explained recently on Habitat’s “Board Talk” e-mail discussion board (www.habitatmag.com). “All shareholders are invited to the open board meeting. However, the open board meeting is quite perfunctory as we do not enter into general discussions – too public. Typically, we read and ratify the minutes of the last open board meeting, vote the budget, vote the assessment, vote any special provisions. But again, keep in mind private and controversial items are not discussed at the open board meeting. And note that shareholders are not permitted to ask any questions during the open board meeting (they are observers only). Yes, shareholders can ask any questions in the open shareholder meeting that immediately follows. Yes, a nuance, but a major one. The record for the open board meeting is about 14 minutes – start to finish.”

Another alternative is to open part of the meeting to the public and keep the rest as an “executive session” at which sensitive matters are discussed.

The important point for shareholders to understand is that a co-op or condo is a representative democracy, in which owners elect fellow residents to make decisions – everyone can’t take part in the decision-making. “There’s no reason why every shareholder has to sit there and be a participant in every meeting,” says Levy. “You’d never get any business done.”

“I do not believe there is any regulation that boards be democratic. This is a business corporation and, while you’re dealing with the cooperative spirit, it’s still not democratic,” says Kuperberg. “At best, it’s a representative democracy. You don’t vote on every decision.”

Similarly, a board must remember that the best governance involves the clearest communication. Transparency is a good thing, otherwise rumors and discontent can spread. “Communication with the shareholders is useful and necessary and there is not enough of it,” observes Samson. “I sit in shareholder meetings and hear shareholders complain about issues that no one has talked to them about. How are [boards] to get to adequate communication? Each board has to decide. Most of them do a great job substantively but do a lousy job communicating. The open board meeting is just one tool.”