Everyone who lives in a condominium or homeowner association knows that board meetings are no picnic. They can be confusing, loud and even get a little heated. However, some people may not know that the board also meets privately in executive session. Although this may seem secretive, it is necessary to keep the board, and board meetings running smoothly and it is necessary for certain legal reasons.
Some residents may imagine their boards secretly plotting some terrible thing, but unit owners should know, there are some rules of engagement, as well as rules for what can be decided in executive sessions.
What is the difference between a regular board meeting and an executive session? According to attorney David Dockery from Becker & Poliakoff in Morristown, New Jersey, it boils down to differences of what can be done by the board at each. “Typically, in most states, including New Jersey, a community association board is obligated to hold regular meetings to conduct business. Depending on what the governing documents dictate, the association in most states is required to hold, by law and the bylaws, at least one annual meeting of the association,” Dockery stated. “Throughout the year boards typically schedule executive session meetings where the board meets in private to discuss certain matters. In addition, in New Jersey there are also required open board meetings, where the membership, if they so choose, can attend and hear what the board is discussing and voting upon. There is a difference between the two regarding what can be done by the board at each meeting,” he continued.
He also said that the big difference between a closed executive session and an open meeting comes down to one action — ratification. “In most states, official ratification of board decisions for contracts or other business approvals must take place with a formal motion and vote by the board, usually done in an open meeting in front of the membership. Executive sessions are not intended for the normal ratification of contracts, official business, or enactment of the budget,” Dockery said.
What if no one from the membership shows up to a meeting where the board is voting on something? “The requirement for the board meeting to be open to the membership does not actually require that they actually attend,” said Dockery. “However, the minutes of the association meeting would need to reflect that at an open meeting the board ratified a decision to approve something.”
What are some of the reasons for having executive sessions and not discussing everything in an open meeting? “An executive session can consist of many things,” said Dockery.
“For example, an executive session might be where the board discusses bids from contractors. The discussion of those bids is usually done in executive session. Contractors really don’t want their numbers to be let out. It keeps healthy competitive bidding in that locale,” he continued.
Another reason for a matter to be discussed in executive session is to protect the personal information of the membership. “Other things that are discussed in executive session are those matters which might be an invasion of privacy to the unit owners, like collections,” said Dockery. “More importantly, if the board wants any subject to remain under attorney-client privilege, that has to be discussed in a closed executive session. Because under the privilege, if that matter is discussed outside the control group, here the board, it will no longer remain privileged.”
According to Dockery, New Jersey goes as far as listing a handful of specific circumstances that determine matters that may be discussed behind closed doors. “In some states, like New Jersey, by statute, there are four enumerated things that can be discussed in executive session of the board: disclosing matters that would be unwarranted invasion of privacy, anticipated litigation or contract negotiations, matters falling within the attorney-client privilege, and any matter involving employment, promotion, discipline or dismissal of a specific officer or employee of the association. These matters do not, and should not, need to be ratified in an open meeting” Dockery said.
Dockery made another distinction. “It’s important to note that even in an open meeting, it’s only the board that votes for those decisions. It’s not the membership. It’s a board vote in front of the membership,” he said. “Typically, unit owners only vote for the election of board members, or as required by the bylaws, such as an amendment or special assessment. But, not all bylaws are alike and some may or may not require unit owner votes as to a particular action.”
Usually you will see executive sessions taking place the same day as a regular board meeting. This is more a matter of convenience than necessity according to Dockery. “An association might only have four open meetings per year, or quarterly. But the board might meet every month in what are sometimes called executive sessions or workshops. They’ll try to fit it all into one evening,” said Dockery.
Is there anything that shouldn’t be discussed in executive session? “Anything can be discussed. In most states, the only thing that you can’t do in executive session is ratification, subject to some exceptions,” Dockery reiterated.
Are all debates between board members settled prior to a vote in an open meeting? “Basically what happens is when something is ratified in an open meeting, the board has worked out all of their differences beforehand. If there is an ‘opposed’ vote in an open meeting, a board member could say why they are opposing it,” Dockery said.
Who are the participants in an executive session? “It’s a confidential meeting. It’s the board, a property manager, and sometimes legal counsel. The property manager is an extension of the association,” Dockery said.
According to Dockery, the board can call for an executive session while in an open meeting. “It’s basically up to the board’s discretion,” he said. However, he suggested that certain procedures take place to keep order. “Every meeting, whether executive or open, needs to be open and closed by an official motion of a board member. The minutes of the open meeting, at the very least should reflect those motions, and any ratifications,” said Dockery.
But the board has very little requirements when it comes to meetings and the frequency of them. “The board, by law, is required to hold, in most state’s nonprofit corporations act, one meeting of the members, meaning an open meeting once a year. That’s all the board ever has to do. Anything beyond that, is up to the board’s discretion or what the bylaws require,” he said. “However, for practical purposes, boards need to meet throughout the year to vote on ratifications to approve certain actions and/or contracts.”
Do individual states have different guidelines when it comes to executive sessions? “States have different requirements as to what can or cannot be done or ratified in an open meeting versus an executive or closed meeting, however, it’s generally dictated by that state’s corporation law. It’s pretty standard,” Dockery said.
Is it necessary to give notice to the membership that the board is meeting in executive session? “No,” he said. “The board is not required to notify anyone that they are meeting in an executive session. The only thing the board is required to do is notify the membership every time there’s an open meeting.”
Dockery’s advice on taking minutes in an executive session may surprise you. “It depends on the association. I discourage comprehensive minutes. It’s not to hide anything, but why memorialize the complete transcript of discussion that really won’t come to anything. Board members should be able to speak freely without impunity if minutes are later released to the membership. Therefore, if the board wishes to produce some summary of what was discussed at an executive meeting it is best to simply provide a simple bullet point outline of what was discussed without any detail of the actual discussions. Obviously it’s best to have draft minutes reviewed by counsel before finalization to ensure that any protected and/or confidential information is not disclosed.”
How much detail on the subject matter of an executive session should be disclosed to the membership at large? “I always think transparency is a good thing,” Dockery explained. “Obviously some things have to be confidential. If you are going to sue, if someone is in arrears or things like that, you can tell the membership what was discussed without revealing all the confidential stuff you wouldn’t want to be disclosed,” he concluded.
Dockery shared three common mistakes boards make in regard to executive sessions. “Number one is taking a vote on an official act of the association in an executive session. A lot of boards make this mistake,” he said. However, he quickly pointed out this may be an inadvertent error caused by poor attendance at meetings by the membership. “It’s not malicious,” he said. “It’s really hard to get people to come to an association meeting for a lot of communities. They kind of get in the habit of no one being there anyway. So for a lot of boards the line can get blurred between an open and an executive session,” he continued. “So they do these things without memorializing that certain actions were taken in an open meeting even though no one came.”
“Number two is boards talking outside of the official board meetings about what happened in executive session,” he said. “I try to get our client’s board members to sign a confidentiality agreement so that members of the board don’t have to fear that their confidential comments in executive session will be broadcast throughout the community.,” he advised.
Number three on Dockery’s list is the notion of the board having a united front. “Third, executive session is the opportunity for the board to fully deliberate the merits of any decision with each other. If a board wants to keep any credibility or prestige with its membership, once it goes into that open meeting it should be one voice, and dissension should be kept to a minimum,” he said. “If a board member feels strongly about putting an objection on the record in an open meeting, that’s fine. But full debate should be limited to executive sessions.”
He also warned that the board has to be concerned with how it appears to the membership at meetings. “There shouldn’t be arguments among the board in front of the membership. The optics of that are horrible,” he said. The board sets the tone for the membership at large and displaying comradery and business like behavior goes a long way.