Q. We have a board member who has been locked out of meetings. According to that board member: “The board has formed an executive committee that has, for all intents and purposes, shut me out. I am no longer able to view board discussions and cannot participate in board debates, decisions or activities. I’ve been disenfranchised and marginalized for reasons that have me stymied. My perspective is obviously not accepted, and the executive committee felt the need to censor me.”
Is this action legal? And if shareholders and especially board members are privy to all finance records and any meeting
minutes, why would the board do such a thing? Why the secrecy? What action can be taken to stop this rogue board other than waiting for election day? As a previous board member, it is my understanding that we have the right to see all minutes and finances of the building!
— Tired of This Stonewalling
A. “It is well established that members of a board of directors have a nearly absolute right to access corporate records so that they can properly discharge their fiduciary duties,” says attorney Matthew Z. Earle, a partner at the Hackensack law firm of Kates Nussman Ellis Farhi & Earle, LLP.
“In addition, unit owners (in the case of condominiums) and shareholders (in the case of cooperatives) have rights to inspect corporate records pursuant to Title 15A (the New Jersey Nonprofit Corporations Act in the case of condominiums) and Title 14A (the New Jersey Business Corporations Act in the case of cooperatives). Pursuant to the applicable provisions of those statutes owners have the right to obtain copies of, among other things, corporate minutes, and have the right to inspect other corporate records upon demonstrating a proper corporate purpose. Furthermore, the New Jersey Condominium Act grants unit owners the right to inspect the corporation’s financial records, and the governing documents of both condominiums and cooperatives often grant owners the right to inspect certain records.
“Both the Nonprofit Corporations Act governing condominiums and the Business Corporations Act state that board meetings shall be noticed to directors in the manner set forth in the bylaws. Association bylaws often provide that board meetings may be called by the president, or another combinations of officers and board members, and that same shall be held on two or three days written notice. In the absence of appropriate notice to all board members, there can be no valid board meeting, and no board action can be taken.
“The law further provides that an ‘executive committee’ can only be formed if the certificate of incorporation or the bylaws so provide, and the resolution appointing the executive committee must be by way of a resolution approved by a majority of the entire board. The executive committee, if validly formed, cannot amend or repeal any prior decision of the board, and it must report to the board at each board meeting. In addition, the board ultimately has authority over the executive committee and is responsible for its actions. The authority for the appointment of an executive committee is not commonly found in the governing documents of community associations.
“In addition, it must be noted that in the community association context, with few exceptions, all board actions must be taken a meeting open to attendance by unit owners that has been adequately noticed to both owners and board members. Therefore, the ability of a so-called ‘Executive Committee’ to take action and function in compliance with law should be carefully reviewed by association counsel.
“In the event that you wish to take action against a board for improper conduct, the owners have the right to submit a petition forcing the association to call a special meeting of the owners to remove board members. The number of petitioners required calling the meeting, the voting percentage required to remove directors, and whether good cause for removal is required must be determined by review of the governing documents. The directors whose removals are sought may be entitled to some type of due process proceeding. In addition to the above political remedy, there may be various court remedies that an aggrieved owner or board member may pursue.”