How to Deal with a Rocky Transition

The new officers of a longtime cooperative corporation client recently contacted us to advise that the past president (a former board member who had not run for re-election to the board) had failed to turn over records to the new president and board. The new president and board made several requests that the former board president turn over records. The former president was unresponsive. Eventually, the current board members asked our firm to get involved. We determined which records were missing. The corporation’s principal financial records remained in the custody of the managing agent, while the minutes of the corporation’s board and annual meetings remained intact and available for inspection in the corporation’s offices. Eventually, we were able to narrow the list of specific items that the board sought to obtain from the former president, who in turn was responsive to an inquiry from counsel seeking specific items. The former president delivered two of the three missing items, while duplicate copies of the third item (which the former president did not have) were obtained from a vendor. All in all, a happy ending for all concerned.

Takeaway

While the situation described above was resolved without resorting to litigation, there are two key lessons for cooperative corporations and condominium associations. First, every board should establish “best practices” standards for its operations. The organization and maintenance of corporate records within the board’s control is only one step toward “best practices” standards. As counsel, we also recommend several other key actions for boards, including training procedures for new board members, adoption of a code of ethics, written guidelines for bidding and contracting, and procedures for proper ratification of informal board actions.

Second, following the annual meeting, every board should have an annual “transition” meeting with its key professionals – counsel, management, accountants, and other key advisers. Even if there are no new board members, this is still a useful drill to ensure that everyone is on the same page and has established the same priorities entering into a new year. The most important takeaway, however, is to make sure these lessons are not just written down – boards need to ensure that “best practices” governance becomes a reality.