VOTING CONFIDENTIALITY

Shareholders in one co-op recently voted on a flip-tax proposal, which did not pass. Voting was performed by mail, in person and by proxy via a house mailbox in the building’s lobby. One board-member later learned that a fellow member had unauthorized access to that mailbox, plus a list of shareholders who hadn't voted. When the first board-member questioned these things – which. he argued, violated confidentiality and could open the door to compiling information on how shareholders voted based on racial background, sex, etc. – the other board-member replied that having the list would help efforts to reintroduce the proposal. The proprietary lease and the corporation bylaws had no specific information on shareholder confidentiality.

It seems reasonable for us to expect confidentiality in voting. And it seems Big Brotherish when shareholders aren't told that their individual votes are being disclosed. Yet it may not be practical to enhance confidentiality much beyond today’s usual and customary practices.

Attorney Robert Tierman analyzes the issue:

The conduct of co-op board-members is governed by the statutes and case law that govern the conduct of business corporations.

New York Business Corporation Law (BCL) Article 6 contains provisions governing voting by shareholders – but nothing specifically protecting the confidentiality of ballots, proxies, or other voting records. Under BCL Section 624, a shareholder is entitled to examine only the “minutes of proceedings of shareholders and records of shareholders…” So, a corporation need not disclose voting records to any shareholder.

BCL Section 610 provides that an inspector of election “before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of the inspector at such meeting with impartiality and according to the best of his ability.” Absent from this is the idea that such an inspector not disclose the identity of who voted for whom or for what.

The BCL’s only comfort with regard to this is lukewarm. BCL Section 717 provides that, “A director shall perform his duties … in good faith and with that degree of care of which an ordinary prudent person in a like position would use under the circumstances.” This could be construed to impose upon directors the duty to preserve the confidentiality of voting records, unless (a) the director has a good-faith basis for disclosing them (for example, to enhance the board’s ability to secure shareholder approval of a particular proposition), or (b) in breaching the confidentiality, the director claims that he'd done everything reasonably expected to preserve confidentiality.

Co-op Bylaws

Co-op bylaws generally contain no statement of standards for director conduct. Indeed, there frequently is a provision that the bylaws should not be construed to, for example, “impose any great obligation of responsibility on the Board of Directors than now provided for in the Business Corporation Law.” I am aware of some boards that have considered adopting standards of conduct for their directors, some of which might confront confidentiality concerns.

Standard co-op bylaws arguably undermine shareholder-voting confidentiality in at least one respect. Regarding voting at shareholders’ meetings, most co-op bylaws provide something along the lines of "all voting shall be viva voce" – by voice – "except that any qualified voter may demand a ballot vote, in which case the voting shall be by ballot, and each ballot shall state the name of the shareholder voting and the number of shares owned by him, and in addition, the name of the proxy, if such ballot is cast by a proxy.”