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101 Ways To Improve Your Cooperative

 CHAPTER TWO: FUNCTIONS OF THE BOARD

        This section deals with the day-to-day operation of the Cooperative and those charged with carrying out their specialized duties, as overseen by the Board of Directors.

20. The essence of the Board’s role is to oversee the operations of the Cooperative. This means you hire, evaluate and fire management and other professionals.

21. Maintain the proper role of the Board in relation to the professionals. The professionals support the Board, and are subordinate to it. They advise but do not dictate. They counsel the Board and then carry out the Board’s directives – even if they disagree (unless illegal or unethical).

22. Evaluation of the management should take place at least annually. There needs to be a time of “give and take” wherein the Board and Management Agent speak frankly on the relationship and how it can improve. This should not be a punishing session but rather a professional, civil meeting in which everyone comes prepared to share concerns and praise. Set aside a special meeting to focus on this and make it part of the regular calendar. Detailed minutes should be taken and kept.

23. Hiring the Management Agent is one of the most important tasks of the Board. A request for proposals should be prepared and agreed upon by the Board. It should be distributed to a good number of candidates. The Board should “short list” those who look experienced and which seem to have the correct view of management within the cooperative structure. Only those who actually have managed cooperatives should be considered, and of those, you want only the ones which respect the role of the Board. Interviews and reference checks are the next stages, followed by the negotiation of the contract. If you have an experienced Coop Attorney, he or she can be invaluable in providing a list of candidates that are capable of doing the work, and serve as a reference and guide in the process. Any Agent should belong to MAHC and NAHC, and espouse the values of the cooperative movement. Remember that Illinois now has a certification requirement for Management Agents.

24. The Management Agent contract is an extremely important document. Essential clauses include insurance, indemnity, term and early termination. We recommend that you require the Management Agent to submit its proposed contract as part of the RFP response, so you will be able to see whether it is reasonable and responsible early on, rather than find out that the Agent is overreaching and unreasonable. The Cooperative Attorney needs to review and critique the contract as soon as possible in the process.

25. Using the Management Agent in the proper way is critical. Too many Boards inappropriately delegate policy decisions to the Agent. As noted above, the Agent advises but does not dictate to the Board. Minutes are extremely important. Often Boards complain of poor management but when we start discussing firing the Management Agent, we find that the Board has failed to articulate its directives to the Agent in the official minutes. If you want the Management Agent to do a task, adopt a motion at your Board meeting which spells out the assignment, the deadline and other necessary details in order to hold it responsible.

26. Hiring the Attorney is as important as getting the right Management Agent. The Board should be seeking an Attorney that has specialized experience and expertise in the field of housing cooperatives. There are not many around. The Attorney needs to be independent of the Agent. While they may work together elsewhere, the Attorney owes his duty of loyalty to the Board and must be able to advise you on sensitive matters including how to fire the Agent. As in selecting the Agent, check references and conduct an interview. Ask other Boards. Look into which lawyers belong to MAHC and NAHC, and play an active role in promoting the values of the cooperative movement.

27. The Board needs to understand how to properly use the Cooperative Attorney. He or she is more than just the lawyer that goes to court for you. Indeed, a more important function is to serve as your Board’s counselor, giving advice to you on any matter which may involve “legalities.” Too often the Board will be “penny- wise and pound foolish” and not ask the Attorney for an opinion, or ask the Management Agent to play lawyer and give legal advice. While we do not advocate paying an attorney to attend all of your meetings, there are occasions when attending – whether in person or by conference call – is vital. Opinions should be in writing. A liaison among the Board should be chosen to interact with the Attorney, so there are not multiple voices (with possibly varying degrees of information). In routine matters, it is fine to use the Management Agent to serve as the contact with the Attorney but on major issues, or those involving the Agent, you should have direct access to the Attorney.

28. Hiring the Auditor is a Board function that is often not given much thought, yet this is your Cooperative’s financial watchdog. Again, your Attorney and Management Agent should be able to offer a list of Certified Public Accountants that have expertise in dealing with Cooperatives. If you are still with HUD, there are extra requirements that also require expertise. As in the case of the Attorney, it is vital that the Auditor be independent of the Agent, and owes loyalty to the Board and no one else.

29. The reason an Auditor is necessary is that the bylaws require it. So does HUD. But beyond that, the Auditor serves the Board and the members of the Cooperative by ensuring that the financial records are in order. Sampling of records takes place during the audit that is designed to identify accuracies. The Auditor is expected to turn up fraud and negligence and thus serves a critical role as no one else is privy to the details of the finances. When an audit is complete, make time in your Board meeting to bring in the Auditor and discuss the findings. Ask questions beyond the financial statements, such as the level of internal controls in place to prevent embezzlement. Seek advice on how the finances can be better handled. Find out the vulnerabilities and weaknesses in your system. Ask for a written “Management Letter” that spells out these concerns.

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