Board Members Shouldn’t Get Too Comfortable

We represent a board with a treasurer who’d served for more than 20 years. He basically ran the place. Everybody liked him. There was no reason to get rid of him because there were no suspicions about him.

Some new people were elected, including a woman who became the president. Unlike her predecessors, who were willing to let the treasurer continue to run things, she had different ideas. At the first regular board meeting, the treasurer gave his summary of the monthly financial report. She asked for a copy of the report. He said, “Well, I’m the only one who gets it. I take care of it. Don’t you worry.”

Turning to the managing agent, she asked him, “Can you send me a copy of the report?” He said the same thing. Well, it was the wrong thing to say to her.

She called me and told me what happened and asked for my take on this. I said, “Absolutely, you should get a copy of the monthly reports.” She called the managing agent. Same thing – “This is how we always do it.” She called the head of the management company. He was not pleased.

The president wound up getting the report. After going through it, she discovered why the treasurer was so reluctant for her to see it – because he hadn’t been paying his maintenance for close to two years. We confronted the manager, and he said, yes, the prior board had an understanding with the treasurer. He had run into some financial difficulties and asked the board to cut him some slack. They agreed. There was nothing in writing, just a very informal oral agreement.

Some of the board members were very upset. They wanted all kinds of draconian measures – call the district attorney’s office, bring claims against him for breach of fiduciary duty. I said, “Let me send him a letter.” I sent him a very strong letter, saying that if he didn’t pay, we would start a proceeding. We offered to work out a payment schedule, but it had to be aggressive and it had to be in writing. To our amazement, he agreed. He worked out a payment plan and stuck to it. He resigned from the board.

The lesson here is that after serving on a board for a long period of time, a person can get a little too comfortable. Even with the best intentions, someone can be tempted to do the wrong thing.

At this co-op, we put into place a protocol that every board member gets a copy of every monthly financial report. At least two people have to look at it carefully, not just the treasurer. We also amended the bylaws and the certificate of incorporation to prevent people in arrears from either running for the board or voting for the board. And finally, we imposed term limits.

In this case, everything played out well. Peace was restored. I think they have in place a very satisfactory mechanism for preventing this from happening again.

The writer is a member at the law firm of Balber Pickard Maldonado & Van Der Tuin.