The Art of Good Governance

You hear a lot of talk about good governance, but when it comes to co-ops and condos, what does that actually mean?We break it down into three sections. There’s the fiduciary part, meaning that the board should always put the co-op or condo’s best interests before anybody else’s, including their own. Second is the actual operation of the building, and the third is disclosure and transparency.Where do boards seem to stumble most?I’ve been doing this for 20 years, and I’ve not seen the fiduciary part as much of an issue. The other two can be trickier, especially transparency. Boards sometimes make the mistake of not providing more information when it comes to large capital projects or significant changes in building operations.When is the right time to inform people, and how?It depends. If it’s Local Law 11 compliance, you have to fulfill the obligation, and there’s no need to explain. But if an assessment is needed, you do need to explain. I believe you should present a balance sheet showing the companies that bid and how much, and explain why you chose X, whether it’s because it was the cheapest, could complete the job in a timely manner, or because management had worked with that company before and gotten good results. Shareholders or unit-owners might not like having to pay an assessment, but it helps – and people get less emotional – when they understand the reasoning.What if you’re considering something that’s not mandated but optional, like a lobby renovation or an energy-efficiency project?I see the latter almost like a compliance issue because it’s an investment that’s in the best interests of the build-ing. Again, I would present that to owners. They have the right to question whether the return on their money is adequate for the amount they’re being assessed, and they need to be reassured that the decision has been well thought out. If people don’t learn about the decision until they get the assessment notice, you’re going to get a lot of pushback.As for renovations and things that involve aesthetics, there probably is no immediate calculable return. It’s about maintain-ing, and hopefully increasing, the value of your investment by staying competitive with other buildings. That said, I like to give options to shareholders, whether it’s this color or that type of stone, or going the Ford Taurus versus the Cadillac route.When you take over a building, do you assess how well the board is operating?We can usually see in the interview process whether the board is following what we think are good governance policies. During the transition month, we look at the financials and compli-ance and make sure the board is aware of the situation right away.What are your options when a board is not practicing good governance?You have to lay it out there and be willing to say, “This isn’t the right way to operate, and here’s what needs to change.” I can’t think of any instances where boards refused to do that. If they did, we would have to resign the building.If you did resign a building, would you notify the unit-owners or sharehold-ers and tell them the reason why?The reality is that the management company is hired and terminated by the board. I think our role would be to say to the board, “This is why we think what you’re doing is improper or unethical, and we can’t continue to work with you.” I haven’t been faced with a situation where we would have to send that dis-closure out to all residents, but I could see why people would want to know.Boiling it down, what’s the most important thing boards should know? Follow the governing documents, bylaws, and house rules. Sometimes boards will make an exception to try to help someone, whether it’s an arrears situation or an alteration. Then they end up going down the wrong road, and it becomes too difficult to correct. Review the bylaws at every annual meeting, put them online so people can access them easily, and if there are any problems, speak to your building’s attorney. And talk to your management company about what other buildings are doing that works well.