Q I am the president of a co-op board in Gramercy Park. One of our directors has recently become a licensed salesperson. When announcing this to the board, he indicated that he would recuse himself going forward from interviewing any potential buyers.
At the time, this seemed adequate to ward off the semblance of any conflict of interest. Recently, however, the issue has become a bit more complicated.
The director has done a mailing to all shareholders announcing his association with a particular brokerage firm. This has raised more than a few eyebrows in the building. For starters, the director is also the treasurer. Consequently, he is in a position to influence the budget and ultimately maintenance. Further, he is an aggressive proponent of refinancing our mortgage.
I personally am in a difficult position, as the director in question is a close personal friend. However, I have an obligation to the shareholders to lead a board without even the slightest hint of impropriety. Can you offer some advice?
—Concerned Board President
“This director does have a potential conflict, if not an actual conflict of interest, and he and the board president recognize this. The director has partially fulfilled his legal and fiduciary responsibilities to the co-op by (1) disclosing the conflict and (1) agreeing not to interview applicants. However, he must also (a) recuse himself from sitting on the admissions committee in any capacity and (b) recuse himself from all votes and discussions regarding any transfer applications. He needs to completely remove himself from any role whatsoever in the transfer process; no e-mail traffic to the director or back door discussions should be tolerated by other board members. The fact that this director is also the treasurer does not alter or increase his fiduciary obligations. But it has understandably caused some concern.
“All board members, and especially the officers, are obligated by law to set aside their self-interests in discharging their duties honestly, fairly and with only the best interests of the co-op and shareholders at heart. They must refrain from all unlawful discrimination; in addition to the usual (race, gender, sexual preference, etc.), they must also refrain from voting or acting in ways which promote their self-interest (in this case, receipt of a commission) at the expense of another shareholders’ rights (here the selling shareholder’s right and desire to sell his or her apartment to the qualified buyer of his or her choice).
“I would recommend that (1) the board president have a frank discussion with the director and (2) the board send a memo to shareholders advising them that this director’s private role as a real estate broker will not impact them in any way: They are not obligated to use him for their sales and the board will act neither favorably nor disfavorably on any application for transfer because of his involvement or non-involvement. Of course, if the shareholders are concerned notwithstanding, they are free to vote this director out at the next election.”