Code of Ethics

It seems as if there's always a bad apple on every co-op and condo board. Can you tell us about the different varieties you’ve seen?

They come in all sizes and shapes. There are people who never pay maintenance because they think being a board member entitles them to special treatment. You get people who want to control who comes in by acting as brokers for buyers and sellers, attorneys who represent someone who has a matter before the board, or board members who represent a small group of shareholders or owners with a specific gripe. Basically, you have people who are really just difficult human beings, who have their own personal agenda, and will do things just to suit themselves.

So there are a lot of different flavors here. If you’re serving on the board with one of these people, what’s the most effective way to deal with them?

A lot of co-op attorneys have devised a code of ethics that lays out the qualifications for board members and thereby addresses the more serious issues that typically come up. That could include not being in arrears on maintenance, not representing anybody as a broker or as a lawyer while on the board, or even not having any financial conflict of interest. In other words, you don't want anybody on the board – like the roofer’s or plumber’s son-in-law – who represents or is connected to the bidder on a contract.

Can a board adopt such a code of ethics itself, or does it need shareholder approval?

It has to be adopted as a bylaw provision of the co-op, and that means a supermajority of shareholders has to approve.

That’s not easy to do.

No, but when they see something as basic as nobody can serve on the board if they're a broker representing buyers or sellers in the building, or if they are an attorney representing people in the building, that sometimes motivates the shareholders to have a commonality of interest.

Where does a board get a code of ethics?

The Council of New York Cooperatives and Condominiums does lectures every now and then on codes of ethics and has a form that is used. But most attorneys will draw up their own document, since you want the board and shareholders to work together to determine what works in their building.

Even so, it probably can’t cover every circumstance that might crop up.

No, it can’t. We’ve seen some really strange things, like one building with cumulative voting where only one-seventh of shareholders were required to elect a new director every year. We checked the certificate of incorporation, because without a provision authorizing cumulative voting, it's not effective. In this case it was, so we took the very serious step of amending the certificate in order to eliminate it.

What other tools are in your arsenal?

If you have a really recalcitrant person who disrupts every meeting and is preventing the board from getting business done, you can appoint an executive committee to handle a particular issue. For example, if you're doing a new roof, you could form a committee of board members who would get the engineering report, interview prospective bidders and so forth, and give them the power to make decisions on behalf of the board.

And exclude the troublemaker, obviously.

Exactly. The right to form executive committees is in just about all co-op bylaws in New York, so it’s a readily available remedy. But you must have a formal vote of the board of directors designating a committee and giving it specific tasks to perform.

So to sum up, you basically have three strategies.

Between adopting a code of ethics, eliminating cumulative voting and forming executive committees, getting rid of or working around bad apples is quite doable.