What is a Board of Directors?*

Talking PointThe Board of Directors governs the co-op community, planning its growth, monitoring its progress, and resolving problems. Its role in the co-op is crucial, not ceremonial. Its members, elected by the shareholders, need be both willing and able.

The annual shareholders meeting is on the calendar, and people are talking. Since the primary purpose of the meeting is to elect a new Board of Directors, a lot of the talk is about the Board — what it is and what it does.

Quick Definition. The Board of Directors is a group of individuals elected by the shareholders to promote their interests through the governance of the corporation.

Not Like Non-Profits. A co-op Board is not like the Boards of non-profit institutions, such as museums, friends of the arts, and charities. Those Boards serve primarily to raise funds. Their members need not be versed in the business of the organization, nor in governance. They have Directors to do that.

Oversight Body. Like those of major public companies, a co-op Board of Directors is primarily a high-level oversight body, which delegates the day-to-day running of the corporation to management — in our case, Robert Orlofsky Realty, Inc. The Board has a fiduciary responsibility for issues of ownership, strategy, and financing.

Powerful or Powerless. The power exerted by a Board varies from co-op to co-op. In some, the Board is a powerful body, providing strong direction to the management it selects. In others, the Board is a virtual formality, rubber-stamping management’s decisions.

Citizen Directors. Whether a Board is powerful or not has a lot to do with its makeup. Powerful Boards tend to include outside directors and shareholders selected for their expertise. Weaker Boards often consist of conscientious citizen shareholders whose chief credential is a willingness to serve in what many view as a thankless cause.

Role of Management. Weak Boards tend to occur when management sits on the Board. Some hold it is inappropriate for management to be included since this gives it too much power over the Board — which is supposed to provide oversight of management. Others think without management, the Board would be without direction.

Local Government. No matter who controls it, a co-op Board is unique in its responsibility. Unlike most corporate Boards, it is concerned both with the governance of the corporation, and the governance of the community. Its decisions impact not only the financial well-being of the shareholders, but also their comfort, convenience, and the relations among them. Charged with making and enforcing community rules, it is a de facto local government.

Strong Credentials Needed. The judicial, ethical, and fiduciary responsibilities of a co-op Board are so daunting — director’s liability insurance notwithstanding — it’s amazing that anyone runs for the Board. Nevertheless, shareholders must look past their amazement and gratitude to seek Directors whose expertise and experience match the awesome responsibilities. The Directors of our $10 million corporation with its $4.25 million annual budget need to be a lot more than willing, open-minded and fair.

Good Governance Needs Good Guidance

*This blog post originally produced by Bryant Hills Director Louis J. Bruno for the 409-unit Bryant Gardens cooperative of which he is now President.

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