The Real.Est List
The 7 biggest surprises for rookie board members
As an attorney representing NYC co-op and condo boards for the past 25 years, I have watched hundreds of first-time board members go through a predictable period of adjustment.
If it’s your first time serving on a board and you’d like to diminish your learning curve--and growing pains--here are a few things to keep in mind:
1. Boards set policy, they don’t implement it.
As a board member, you set a policy regulating how many times the lobby must be swept every day, but you don’t follow the porter around making sure he gets every corner. You’re a policy maker—not a manager.
2. The depth and intensity of board politics can be, well, intense.
New board members are routinely surprised about how personal things can get and how resistant to change longtime board members can be. Boards should be a little bit like families, fighting intensely among themselves but show uniform front to the world.
3. Board business is confidential.
Once you become a board member you will be provided information about the co-op, its finances or personal proprietary information about shareholders.
While this information is necessary to be an informed member of the board, new board members must realize not only can they not disclose this information to outside people, they can not discuss it even with the shareholder the information involves. The classic example is two board members discussing a shareholder issue on the elevator and not realizing the individual is standing next to them.
4. This is a much bigger job than you think.
For new directors there is a huge flow of information to absorb and attention required that it’s easy to be overwhelmed. New directors should understand that it takes time to learn all the details and for the first few meetings it's often a good idea to do more listening than speaking.
5. A resident will inevitably knock on your door at 10pm to tell you her next door neighbor is playing the piano/partying/breathing too loudly.
People who choose to serve on boards clearly have an interest in helping their fellow shareholders; however, they should also remember the old adage “no good deed goes unpunished."
Board members should avoid the temptation to get involved in individual shareholder disputes or to get involved in issues better left to management.
More often than not a director’s involvement in these types of issues creates far more problems than it solves, leaving the shareholder, director and manager frustrated and the problem unresolved. The best advice is to listen and suggest they take their problem to the manager or to write the full board a letter detailing the issue.
6. Even if you don’t have an MBA or degree in accounting, you will need to understand how to read a financial report.
At a minimum, directors need to at least know what they don't know and ask their professionals to explain things to them (that's why you hired professionals in the first place).
Even if you haven’t opened a mathbook since grade school, rest assured it can be done. As part of a basic-training style approach, my firm routinely conducts a training seminar for new directors, which also serve as refresher courses for current board members, as to what information they should be aware of and how to secure that information either from the manager, accountant or other professionals.
7. You need to recognize a conflict of interest when you see it—and then disclose it.
As a director, you owe a duty to protect the best interests of the co-op and not to individually profit at the co-op's expense. Coupled with that is the duty to avoid either real or even the appearance of conflicts of interest.
A conflict of interest means you cannot have loyalties or receive a benefit from someone on the opposite side of a transaction with the co-op.
The classic example of this would be the co-op hiring your spouse's company to work on a co-op project. The co-op is free to hire your spouse; however, the relationship and your wife's interest in the transaction must be disclosed to the board and you must refrain from being involved in the decision-making process. While it is often mistakenly assumed that this type of relationship bars the co-op from hiring the wife at all, full disclosure cures most conflicts of interest.
More from Dean Roberts: