Posts Tagged ‘shareholder’

Cooperatives: Empty Seats

December 8, 2014

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 DURING THE APPROACH AND ONSET OF THE HOLIDAY PERIOD attendance at cooperative board meetings typically dwindles. Often there are more empty seats than attendees. Unfortunately, this not only applies to shareholders but to board members as well.

Gift shopping, setting decorations, travel plans, company holiday parties, dinners, family gatherings and visiting friends generally occur in a fairly short time span, causing folks to be unreachable or unable to be at the assembly. Recognizing this, many cooperatives schedule their board of directors meetings in a manner that has the least negative effect on attendance, especially for board members.

But sometimes the business of the cooperative requires a scheduled or special board meeting in the thick of the holiday season, such as in the case of approving a new shareholder applicant or authorizing an unexpected repair. In circumstances like these convening a quorum of board members can be a challenge when more enticing seasonal festivities beckon, and it can be even more of a challenge to pull together a quorum at the last minute for a special meeting.

What is a quorum? It is the least number of members who need to be present in order for the meeting to be considered official. If there is no quorum, there cannot be a meeting and, therefore, no action may be taken on any cooperative business.

As technical advisers to cooperatives we often see a board of directors that consists of five or seven members (five members is most common) who are elected to board positions by shareholders. A quorum for a five-seat board usually is three members and for most cooperative actions a majority vote of the board is necessary.

Yet, as is apt to happen during holidays, cooperatives sometimes stumble at a point when one or more board members are absent and only a quorum is present. The stumble is likely to occur due to a misinterpretation of the word “majority.” Unless the cooperative documents explicitly state otherwise, a majority board vote typically means a majority of all the seats on the board ― not a majority of the board members in attendance.

For example, on a five seat board having a quorum requirement of three members and with only the quorum present, all three of the members must vote to approve an action. Too many times, when reviewing board minutes, we found a board secretary had improperly declared an action approved when just two of the three-member quorum voted to support a motion. The rationale, of course, was that a majority of the three members voted to approve the action. However that rationale is incorrect since two votes on a five member board do not constitute a majority, only three or more would be a majority. Consequently, in such an instance, a matter the cooperative thought was approved actually had not been, leaving the door open for opponents to the action to argue it was not authorized.

In some situations, with just two votes in favor, we had to request the full board to vote again on those measures to obtain proper authorization.

Bottom line: To better avoid potential controversy and disputes, ensure the term “majority vote” in the cooperative documents is properly defined and upheld before declaring a measure to have been approved.

 

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Need consulting, coaching or problem troubleshooting regarding other single-family or multi-family housing issues? We’ll be pleased to help you. Visit us at the Inhouse Corporation website or contact us at inhouseco@aol.com

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Blog Terms of Use, Disclaimer and Disclosure: The purpose of this blog is to promote awareness and general discussion of the presented topic. Use of this blog shall be the reader’s agreement this blog: (i) may possibly contain one or more instances of unverified information; and (ii) is not a substitute for the advice of a qualified professional and each action that may be taken shall be under the specific guidance, oversight and/or performance of a professional qualified in the subject matter. If you have a question or want assistance with a featured or related matter please contact us at InhouseCo@aol.com (include the blog article title on the subject line). Links, references and credits in this blog are for convenience only and are not endorsements by the author or Inhouse Corporation. Statements, comments and/or opinions of blog authors and/or users of this blog may or may not reflect those of Inhouse Corporation. Users who comment on this blog are solely responsible for their comments and opinions.  Comments and/or opinions deemed uncivil or inappropriate will be removed or not posted.  

A Co-Op Nightmare: When Conflict Rules, Part 3

February 15, 2014

Conflict, many persons

Conflict: When a cooperative divides.

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SOME SHAREHOLDERS ALSO FEEL THEY DON’T NEED TRAINING, after all they just need to pay occupancy charges on time and comply with the cooperative documents, right? No … not exactly.

While its true occupancy/ maintenance charges must be paid and there must be compliance with the cooperative documents, our work shows most shareholders either have little specific knowledge of those documents or forgot what they contain. The cooperative certificate of incorporation, bylaws, rules and regulations and occupancy agreements (proprietary leases) are often an unread series of mysteries.

Of course, we are not suggesting shareholders have intimate knowledge of every last detail in that paperwork, especially since it can be overwhelmingly voluminous. But at a minimum they should have a basic, if imprecise, understanding and familiarity with the documents sufficient to optimistically search for and locate relevant passages that address particular cooperative situations as needed.

Knowing the ropes can alleviate a sense of helplessness shareholders sometimes experience. Not knowing why certain tasks and responsibilities are necessary or the reasons for board actions can make them feel, rightly or wrongly, that they deliberately are kept in the dark. Moreover, if there is a lack of adequate communication between the board and shareholders that feeling can substantially magnify. Circumstances may veer out of control when shareholders perceive themselves as powerless and having  little to lose by venting their frustration as board meeting disruptions or circulating unverified rumors and allegations that can be hurtful to the cooperative, other shareholders and/or board members.

Such an environment is fertilizer for shareholder discontent and turmoil despite the fact that shareholders as a group typically hold the real power within a cooperative—and shareholders can exercise that power when they correctly employ the appropriate procedures usually provided within the cooperative structure. If a board overtly or covertly believes there is a benefit to have shareholders floundering in their efforts to make changes or have grievances redressed, that board should quickly reconsider that position. A suitably trained board would realize a cooperative is designed to be a democratically run organization in which every shareholder in good standing has a voice, a vote and energetically participates in the efficient operations of the cooperative.

Ironically, we find the more stable cooperatives are those that adhere to cooperative principles, are transparent and aggressively ensure continual communication with shareholders. Those boards proactively seek ways to create incentives that encourage shareholder participation at all meetings, on committees and at social events. Such activities boost shareholders’ realization that they truly have a stake in their cooperatives’ success which, in turn, fosters an ownership interest in the cooperative and thereby aids in dispelling the harmful “landlord versus tenant” temperament that too many mistakenly embrace in the co-op setting.

Moreover, filling a seat on the board should not be a lifetime activity for any person. Ideally every shareholder should serve on the board of directors at some point. This would give each of them the hands-on experience of knowing the challenging difficulties a board encounters and strives to deal with on a regular basis … hopefully portraying the board and shareholders are on the same side.

Consequently, appropriate shareholder training would impart or restore the basic understanding of a cooperative, explain the gains derived from participation in all activities and show shareholders how to responsibly and respectfully employ such authorities as are given them in the cooperative documents. It would also help them understand their obligations as well as those of the board. All of which often quells or reduces the conflicts, disagreements and organizational gridlock that can grip less transparent co-ops.

All in all, effective training establishes the platform on which a successful co-op can be built.

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Need coaching, training or problem troubleshooting? Visit us at the Inhouse Corporation website or contact us at inhouseco@aol.com

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Blog Terms of Use and Disclaimer: The purpose of this blog is to promote awareness and general discussion of the presented topic. Use of this blog shall be the reader’s agreement this blog is not a substitute for the advice of a qualified professional and each action that may be taken shall be under the specific guidance and oversight and/or performance of a professional qualified in the subject matter. If you have a question or want assistance with a featured or related matter please contact us at InhouseCo@aol.com (include the blog article title on the subject line). Links, references and credits in this blog are for convenience only and are not endorsements by the author or Inhouse Corporation.

A Co-Op Nightmare: When Conflict Rules, Part 2

February 9, 2014

Conflict, many persons

Conflict: When a cooperative divides.

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SO WHAT CAN BE DONE TO AVOID CONFLICT IN THE FIRST PLACE? We have yet to find the one remedy that works in every situation. Differing situations typically require differing variations of cure. However, there are actions that should be implemented in all cases to proactively help reduce conflicts and diminish their severity when they do take place.

Experience shows disagreements between residential cooperative shareholders and their boards of directors are frequently rooted in misconceptions and misunderstandings, which seemingly result from something many co-op boards seem to dismiss too readily: Training — regular specific training for the board, co-op officers and shareholders. Consequently we’ll begin to look at training.

Too often we find a co-op views training as an unnecessary expense or needless luxury … and we’ve heard most, if not all, of the so-called rationale reasons to avoid it: The board has an attorney and knows what to do; shareholders don’t need training; its a waste of time; we already do what’s right; no one will attend; etcetera, etcetera.

Unfortunately, reality frequently paints a contrasting picture.  Many times board members have little or no background in business (yes, a residential cooperative is a business), have an incomplete knowledge of applicable co-op and housing laws, and may be unfamiliar with the corporate documents to be enforced. This is not a criticism but rather an observation that underscores proper board training can be beneficial and open opportunities for each board member to give his/her best efforts in service to the cooperative.

Yet, beyond other responsibilities involving legal, operational and residential aspects of the cooperative, the board needs to be a driving force for unifying and keeping co-op members on the same page. Like any group, a cooperative is most effective when everyone pulls in the same direction. It’s no easy task and is a never-ending work in progress. Even for the cooperative that does provide occasional board training, we’ve found new board members under the impression their only task is to attend board meetings. While attendance at meetings is necessary, newbies and veteran members alike often have no clear or full idea what is expected of them, what their authority is or what comprises their responsibilities. For example, some board members are shocked to learn they typically have a fiduciary duty to the cooperative–that is, placing the interests of the cooperative ahead of his/ her own personal interests.

When a board is in this situation it flies by the seat of its pants, generating decisions that can easily become inconsistent (or worse) and cause confusion that can leave the cooperative vulnerable to strife as well as potential liability. Without understanding their roles there is an absence of focus or a straightforward vision, and without focus inadvertent inconsistencies are likely to follow. When it occurs such erratic behavior tends to ferment uncertainty for shareholders, who may see it as whims that fluctuate according to who is involved and the prevailing mood. By itself this type of climate yields a fertile ground for uneasiness that can turn into shouting matches at board meetings or divide shareholders into factional camps. But if this situation is coupled with a lack of adequate two-way communication between the board and shareholders, it starts to get nasty with rumors and accusations running amuck.

This is especially true when the board needs to enforce rules against shareholders.  When the board interprets a rule one way for a violator then interprets it another way for a different person, anyone who is treated more harshly may feel “picked on” or singled out, an event that can turn ugly very quickly.

So, the very first thing to consider for smooth cooperative operation is proper training for the board and its officers, which can be two different types of training sessions. If both types of training are not provided on a regular basis, at least once every two to three years, they should be.

Certainly, each cooperative shareholder should be grateful for every person who serves as a board member. But what should be gratitude can be rapidly replaced with contempt, and it can happen even more quickly without the guidance and focus of training. Indeed, when the cost of training could be a bargain when compared to the stress and burdensome expense of dealing with these difficulties.

More next time.

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Need help with training or problem troubleshooting? Visit us at the Inhouse Corporation website or contact us at inhouseco@aol.com

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Blog Terms of Use and Disclaimer: The purpose of this blog is to promote awareness and general discussion of the presented topic. Use of this blog shall be the reader’s agreement that at no time will the reader rely upon or act upon anything contained or implied in this blog and that any and all actions that may be taken shall be under the specific guidance and oversight and/or performance of a professional qualified in the subject matter. If you have a question or want assistance with a featured or related matter please contact us at InhouseCo@aol.com (include the blog article title on the subject line). Links, references and credits in this blog are for convenience only and are not endorsements by the author or Inhouse Corporation.

A Co-Op Nightmare: When Conflict Rules, Part 1

February 2, 2014

Conflict, many persons

Conflict: When a cooperative divides.

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WHENEVER WE’RE ASKED TO ASSIST WITH RESOLVING RESIDENTIAL COOPERATIVE complaints and instances of noncooperation we generally see fingers pointing in all directions: From shareholders towards their board of directors and property managers; from the board or manager towards shareholders; and/or from one group of shareholders to another.

How can this be? With the very term “cooperative” suggesting folks will cooperate, what causes the breakdown? Unfortunately there may be many factors at play, meaning identification of the culprits can be a tricky undertaking. An organizational division can stem from almost anything if not properly handled and even then it may still occur. Examples are: A seemingly inconsequential two-neighbor spat that grows to encompass the community; the effect of no regular purposeful interaction between the board as an entity and shareholders as individuals; board members or officers who are not properly trained to perform their tasks; or shareholders who aren’t taught ways they may participate in and monitor cooperative operations.

Since complaints against a board appear more commonplace, though not always deserved, we’ll begin with that aspect here. In other writings we’ll look at problems some boards have with shareholders as well as problems that occur when shareholders take sides.

Overall, if a cooperative board does not conduct its affairs openly (except for executive session items), if it doesn’t endeavor to generate shareholder interest in and contributions to operational matters (interaction), and if it isn’t aggressive in assuring a steady flow of accurate communication with shareholders, there is little, if any, transparency of cooperative business. Since shareholders are generally entitled to have this information, lack of transparency should be expected to cause  negative speculation (gossip) that likely translates into suspicion which, in turn, could ignite a slow-burning distrust that incubates just under the surface, covertly evolving into shareholder noncooperation, and complaints to the board as well as to governmental authorities. Moreover, distrust can flare into serious disruptions of cooperative business that may seem to have no basis, though usually do, or it may explode into lawsuits.

Naturally, none of the foregoing dismisses the possibility of legitimate grounds for a complaint. The problem is taking the time to find it objectively and avoid jumping to premature conclusions, especially when its embedded in misperception or distortion. Taking action on wrong information can make the situation worse, perhaps much worse, but not seeking to resolve it in a deliberate and timely manner may lead to other consequences. For these reasons the process can be painstaking but if conducted properly, implementing findings that are produced can offer an opportunity to restore and improve cooperative relationships and efficiency … provided, of course, all parties are genuinely willing to accept indicated reform. If the matter polarized or became encrusted in spite, bias or personality conflict it becomes increasingly involved and may be more difficult to correct, though the prospect of a fruitful outcome should make the effort worthwhile.

So what can be done to help avoid such occurrences in the first place? We’ll discuss this next time in part 2 of this article.

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Blog Terms of Use and Disclaimer: The purpose of this blog is to promote awareness and general discussion of the presented topic. Use of this blog shall be the reader’s agreement that at no time will the reader rely upon or act upon anything contained or implied in this blog and that any and all actions that may be taken shall be under the specific guidance and oversight and/or performance of a professional qualified in the subject matter. If you have a question or want assistance with a featured or related matter please contact us at InhouseCo@aol.com (include the blog article title on the subject line). Links, references and credits in this blog are for convenience only and are not endorsements by the author or Inhouse Corporation.