By Adam Leitman Bailey

The most effective board of directors recognize that its cooperative is not only the home of many residents but a business as well. When dealing with the business side, the best boards act in the best interest of the shareholders at all times. With each decision, the financial consequences are evaluated and great efforts are made to obtain the best product at the lowest cost. In addition, the best boards attempt to gain revenue without overburdening their shareholders.

The worst board practices regarding a board of directors usually occur when a board fails to act in the best interest of the shareholders and instead acts in the personal interest of the board member or his/her family. In one well-publicized case, the Supreme Court of the State of New York found that a Park Avenue cooperative failed to act in the best interest of its shareholders. In order to prevent certain persons from joining the board, the board passed a resolution prohibiting any shareholder without a college degree or in litigation with the cooperative from joining the board. After being hired by the shareholder who was the subject of the resolution, counsel discovered the board had spent thousands of dollars of its shareholders’ money in an attempt to keep this shareholder off the board. In this same cooperative, a board member engaged in insider dealings, including bypassing city building laws, to ensure that deals closed when a board member’s spouse acted as the real estate broker for the deal. Furthermore, countless hours of the board’s time was spent running for election (including a letter-writing campaign smearing other shareholders) rather than governing the cooperative. Fortunately, most boards we counsel work together to make their building a better place to live and are always interested in making decisions that better the cooperative.

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