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Staying Beyond Their Shelf Life

With Annual Meeting season winding down, shareholders all across the City have their fingers crossed that the good guys got in.  The truth is whether good or bad, here in New York politicians want to stay beyond their time.  There’s our Mayor who’s in his third term, and now there’s even talk of a fourth.  But even though he flouted the will of the voters, twice expressed, he got the City Council to bless the extension with an amendment to the Charter.

Board members in buildings who don’t want to go have their own ways to extend their shelf life.  Here are three possibilities:

1. Don’t hold elections.  It’s as simple as that.  Some buildings haven’t had elections for years.  Most boards aren’t that brazen, and sometimes shareholders help by not showing up.  If enough stay home, and there is no quorum, then there’ll be no election, and the same people will stay in office. Worse, even though there were no elections they can pretty much continue to transact business as usual.

2. Delay the meeting:   Annual meetings are supposed to be held once a year. But lots of times they’re not.  Sometimes it’s for a relatively innocuous reason – they can’t get a place to meet for the specified date because Weight Watchers has preempted the time slot (not a good enough excuse as far as I’m concerned). Other times it’s not – maybe the board wants to close some unpopular deal before they face voters like the co-op whose board recently signed, sealed, and delivered a refinance of its underlying mortgage putting owners on the hook for hundreds of thousands more than before, and presenting it as a fait accompli.

Whatever the reason, you have established recourse if you’re a shareholder, though condo owners are dependent on what their bylaws say. Under The Law governing co-ops, if no meeting has been called after the passage of 13 months from the last annual meeting, then holders of 10% of the shares may demand a meeting to elect directors be called, provided certain conditions are met.  The good thing about going this route is that however many of you attend, in person or by proxy, even if it’s not a quorum, it’s enough to hold the election and vote in new directors.

3. Impose classified voting: In most buildings shareholders vote for each director every year.  But with classified voting, the board is divided into classes. So, for example, instead of voting for each of 6 directors every year, there are 3 classes of directors, each of whom would serve for 2 years.  On the plus side longer terms can bring more consistency, on the minus they may mean less accountability

If shareholders vote to amend the bylaws to approve a classified board, it’s perfectly legal for directors to stay longer.  But I know of at least one Downtown building where the board on its own voted to extend its members terms this way from 1 to 2 years.  That’s NOT kosher.

If they step over the line like that, there’s always the removal option. (See,  Total Recall.) Or wait till next year and impose term limits

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