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Habitat Magazine Insider Guide



A Conflict That Wasn’t

Read this article in the digital edition.

It’s a conflict of interest. In co-ops, that’s the rallying cry of suspicious shareholders. But is it, really?

This issue came up in a recent series of e-mails between the board of a small Manhattan building and a longtime shareholder. It started out with an e-mail that praised with faint damns: “The building is clean. The super [is] great. Repairs required by Owners get done. Laundry works. Storage bins are full. Place is clean. Bills are paid. New mortgage properly in place. Financials look good except for one item. But, I’m sure you won’t ask me what it is because you know... is it because the Board acts only in the best interest of the sixth [top] floor Owners when it comes to large building repairs?? Called conflict of interest.”

The board sent a pro forma response to this bizarrely phrased letter, but the secretary took it more personally (feeling he was the sixth-floor owner who was referenced) and wrote a brief reply that listed all the capital work performed in the co-op during the previous 10 years. He also attached a detailed description (which had been presented to the shareholders in 2007) of the past and future work. “As you can see,” he concluded, “there seems to be little evidence for any bias toward specific shareholders. If, however, you have reason to believe otherwise, I invite you to clearly present your case before the shareholders...”

Reasonable, right? Well, never let it be said that facts get in the way of a good innuendo-drenched, mudslinging “debate,” for the shareholder responded with mock surprise, smiling as he twisted the knife: “You misunderstand! I’m not angry at you. I think you have done a great job. The perception of the Owners is that nothing gets done except for the sixth floor Owners... You have the [largest apartment and the] biggest investment in the building. If I were you I would do my best to protect that investment. Unfortunately, you are wearing two hats. That is a conflict of interest...”

It was at this point that the board president stepped in. “Anyone who serves on the board of a co-op or condo faces a conflict of interest because of the nature of the job,” he wrote to the bullying shareholder. “We all have a self-interest in the place because it is our home. When we repair the roof, we are making choices that affect the corporation’s bottom line but also affect our home. And everyone – not just the top-floor shareholders – has a stake in every decision we make. Leaks that get in through the roof ultimately affect the stability of the structure of the entire building; should we NOT repair the roof because the top-floor shareholder is on the board? We have shareholders from the third, fourth, and fifth floors on the board, and they all have votes in these matters. Nonetheless, we are constantly aware of the appearance of self-dealing, which is why everything we do is clearly documented, and why we only take action after consultation with experts... If you are accusing [the treasurer] of self-dealing, that is a serious matter and any evidence you have should be brought to the board for investigation...

“Finally, I have worked with [the treasurer] for over eight years now. No one on the board has worked harder and more selflessly than [he] has for [the building]. He has researched and implemented ways to save us thousands of dollars; worked closely with [professionals] to see that the building gets the best deals and stays financially and structurally healthy; he has responded rapidly to requests from shareholders – indeed, I can go on and on about the huge amount of time, energy, and intelligence he has put into making the building a success. For you to make a comment like ‘If I were you, I would do my best to protect that investment’ is not only insulting to [the treasurer] but tells me that you don’t know what you’re talking about.”

The shareholder did not respond.

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