On Monday, June 10, 2019, Mr. Joseph Douglas, an attorney with the firm of Whiteford, Taylor and Preston, conducted a training for the 2019-2020 GHI Board of Directors. Mr. Douglas has more than 30 years of experience working with condominiums, housing cooperatives and planned communities in Maryland and the District of Columbia. The topics that were covered included:
- Board Member Responsibilities,
- Effective Board Meetings and Operations,
- Fiduciary Duties of the Board, Committees and the Manager,
- Reviewing and Amending Governance Documents, and
- General Questions and Answers.
Board Member Responsibilities
The point was made that serving on the Board is a serious legal responsibility. A handout was provided about the duties that need to be performed to fulfill the Board’s legal role. Two other items discussed the importance of what individual Board members need to do to maintain respect: 1) interacting with other Board members and with members in a civil and considerate manner, and 2) maintaining a positive attitude and setting an example for other GHI members.
Duties that need to be performed by Board Members to fulfill their legal responsibility include:
- Do not do anything that is not a Board member responsibility under the Bylaws.
- Take adequate time to review management and financial reports before each meeting.
- Attend all Board meetings and participate, actively and constructively.
- In Board business and decisions, act only in the best interest of the corporation as a whole.
- Support the Board’s decisions even when the decisions run counter to your own wishes.
- Never disclose confidential information acquired while serving on the Board.
The hand-out concludes by stating that “If any of the above duties cannot be filled completely, resign from the Board.”
How to Run an Effective Board
In discussing how to run an effective Board, Mr. Douglas advised Board members to:
- Stay focused on the Board’s purpose, duties, and responsibilities. The Board exists for the purposes set forth in the Bylaws.
- Always check documents to make sure of the Board’s authority.
- Use professional advisors and get guidance early so problems can be avoided.
- Don’t be afraid to ask questions and disagree. “Groupthink” can be fatal.
The point was made that management should do the day to day managing. If that is not happening, the Board needs to make the system work as it should. The Board also should resist the temptation to micromanage.
There was also a discussion of the importance of member comments. The Board needs to ask for member input on issues. Often the Board will get great comments. It is important to show members that the Board of Directors is interested in what members have to say. It is a way to get buy-in for a decision, and it might prevent the Board from making a bad decision.
When talking about fiduciary responsibility, Mr. Douglas reminded the Board that they are managing assets that are not theirs for the good of the corporation as a whole.
He also reminded the Board that they are not the manager, the groundskeeper, or the rule enforcer; their job is to come to the Board meeting prepared and to make collective decisions.
The Board was told that it is important that individual Board members follow the member rules. If a Board member were to violate rules, this violation reduces members’ respect for the Board as a whole.
While talking about how it is important to run an effective meeting, Mr. Douglas also emphasized that the Board needs to provide an opportunity for members to speak. Board members responded by sharing examples of when members of the audience speak at Board meetings. He also said that the Board needs to step in when a someone is saying the same things two or three times in order to keep the meeting running effectively.
Board President Steve Skolnik said that he has staff introduce an agenda item, rather than starting with the proposed motion for the agenda item. While this makes the meetings a little longer, it makes it easier for the Board to arrive at consensus. Mr. Douglas responded that that is fine as long as the discussion is focused and people aren’t speaking past each other.
Mr. Douglas also said that he advises Boards to meet once a month for a two hour meeting. General Manager Eldon Ralph made the point that GHI is a larger community with more issues that need to be addressed which leads to more meetings and longer meetings. Mr. Douglas responded that one thing they can do is avoid getting into a controversial topic near the end of the meeting. He also said that it is the role of the Chair of the meeting to manage the discussion. He talked about looking at items and determining if an item can be delegated to management or a committee with the idea that they then will bring well-informed recommendations to the Board.
He ended by stating that while it is important to make decisions carefully, the Board needs to make decisions. Not making a decision that should be made can be problematic. He related a story about member who brought a situation to the attention of a Board and no action was taken. Years later something happened to that member as a result of the situation the member reported. The member sued the Board as the Board was aware of the issue and did nothing to resolve it.
Mr. Douglas then opened the meeting for Board members to ask questions. Topics covered included:
- Whether there was any recent legislation that would affect cooperatives, specifically in Maryland. Mr. Douglas said nothing came to mind. He said that there were several bills about HOAs and condominiums, but none of them passed.
- Board member Sue Ready commented that with cooperatives lumped in with HOAs and condominiums in legislation, it is often to the cooperative’s disadvantage. She talked about ways we are different, such as self-rule.
- Mr. Douglas made the point that operationally there is a lot of difference between cooperatives, condominiums, and HOAs. With a cooperative, the corporation owns everything, can refuse membership to people, and can take away membership.
- Mr. Douglas did not think that this trend to write legislation that included cooperatives along with HOAs and condominiums would change in the future.
- General Manager Eldon Ralph asked about the Prudent Person rule for investing GHI’s assets. This rule effectively limits what GHI can invest in. The issue is how to preserve capital – so we are protecting it, but at the same time the capital is growing. The lawyer believed that not following the Prudent Person rule could leave the corporation open to being sued.
- General Manager Eldon Ralph also asked about units that are in default and the problems the corporation has dealing with uncooperative banks. These are banks that buy a unit’s mortgage but don’t know anything about how cooperatives operate. He said that fortunately this is not an issue with GHI’s approved lenders. After some discussion Mr. Douglas said that all staff could do is to get the bank to pay member fees until the unit is sold.
- Board President Skolnik brought up the issue of units where a member has died and there is no personal representative for the estate. Mr. Douglas discussed the process to follow in this situation, and it became clear that GHI is already following this process.
At this point in the meeting, it was noted that there had not been discussion on the topic of reviewing and amending governance documents. Mr. Douglas emphasized the importance of reviewing the governing documents. Sometimes there are things that need a major amendment. However, just because you see something unusual in a document doesn’t mean that it shouldn’t be in there.
Mr. Douglas recommends that the Board set up a committee with members who are interested in this topic and task them with identifying problems or things that are not clean in documents such as the by-laws. If there is a problem area, see if there is enough there for the Board to bring it to the membership for amendment. Mr. Douglas noted that he had worked with the Board before on reviewing and amending the cooperative’s by-laws. The Board President responded by saying that the Board will work with Mr. Douglas on a review of the GDC by-laws which might need some amending, and on drafting an agreement that addresses the relationship between GDC and GHI as one currently doesn’t exist.