(001) When it comes to
decision-making in your building, attending meetings in person is always best.
(002) But should the need arise,
shareholders and unit owners are permitted to vote in board elections and other
matters of corporate governance by proxy or absentee ballot.
(003) Proxies are a valuable part
of the voting process, but boards need to be aware of the legal implications
that can arise when proxies aren't handled properly, as well as the potential
for abuse that can result in a subversion of the electoral process.
(004) A better understanding of
these issues as well as how and why proxies are used and the technical rules
governing their issuance and solicitation will greatly benefit your building's
election process.
(005) Proxies are written
statements by a shareholder or unit owner authorizing another person (the proxy
holder) to vote his shares or common interests at a shareholders or special
meeting.
(006) In some instances, such as
a lease amendment vote, proxies may actually substitute for a meeting.
(007) The general proxy gives the
proxy holder complete discretion to vote any way he wishes.
(008) The specific proxy provides
the holder with explicit instructions as to how the owner wishes to vote.
(009) A hybrid format can also be
used in which the proxy is general in nature, but space is provided for
specific directions to the proxy holder.
(010) Boards often rely upon the
collection of proxies to fulfill the quorum requirement at the annual
shareholders meeting or any special meetings, but may not use them at board
meetings.
(011) Under statutory law and
virtually every set of association by-laws, no official business (including
board elections) may be conducted without the presence of a quorum, which
usually consists of a majority of outstanding shares or common interests, in
person or represented by proxy.
(012) It's a good idea to remind
shareholders or unit owners in writing before the meeting to send in their
proxies, if they will be unable to attend, so they can be counted toward the
quorum.
(013) Include a stamped,
self-addressed envelope for return of the proxy and follow up with a
door-to-door or telephone lobbying effort.
(014) Shareholders and unit
owners should be urged to submit a proxy even if they intend to be at the
meeting.
(015) This way, if a last minute
conflict makes it impossible for them to attend, their vote can still be
counted.
(016) Sometimes shareholders and
unit owners refuse to furnish a proxy because they don't want to take a stand
on a contested vote.
(017) This is especially true of
sponsors or banks (that have acquired their units through foreclosure) that
don't wish to take sides in a squabble between residents.
(018) Such a loss of votes can
account for the failure to achieve a quorum; however this obstacle can be
circumvented by providing a space on the proxy in which the proxy holder is
instructed to record a vote for quorum purposes only, meaning that the vote is
registered as part of the quorum but not counted for one side or another.
(019) Sometimes board members
undertaking a proxy solicitation are concerned that designating one or more of
themselves as proxy holders creates an appearance of impropriety.
(020) In order to preserve the
integrity of the electoral process, these boards may appoint independent
employees or principals of the managing agent as proxy holders.
(021) Boards following this route
should make absolutely certain that only a specific proxy form, giving the
proxy holder no discretionary authority whatsoever, is used; otherwise the
managing agent may be inadvertently handed the power to elect the board.
(022) Many boards and dissident
groups organize proxy solicitations to elect a particular faction of
candidates.
(023) They not only mobilize the
vote, but also marshall it in favor of the candidates whose election they are
seeking.
(024) An organized lobbying
effort is of paramount importance in this context; but, the rules concerning
issuance, drafting and solicitation of proxies are also relevant, because any
infraction could result in disqualification which defeats the purpose of their
collection.
(025) The cardinal rules
regarding issuance of a proxy are that the document must be in writing, and it
must be dated and signed by the record owner or his attorney in fact.
(026) Unless indicated otherwise,
the term of a proxy is 11 months from its
issuance.
(027) If multiple proxies are
issued by the same shareholder, the only valid one is that which was issued
latest in time.
(028) Proxies signed by any
person other than the owner of record are invalid unless accompanied by
documentary evidence such as a duly executed Power of Attorney, Letters
Testamentary or Letters of Administration that this person is signing as
attorney in fact.
(029) If the record owner dies or
is found incompetent after issuing of a proxy, the proxy is valid unless the
association's secretary has been notified in writing prior to the meeting.
(030) If the subject shares or
common interests are jointly owned and a proxy is issued by only one of the
owners, he is presumed to be acting on behalf of the other owners, and the
proxy is considered valid and binding, unless a written notice from the
dissenting joint owners is made to the association's secretary before the
meeting.
(031) If the owners are evenly
split, the votes are pro-rated. In the event of a disagreement between joint owners,
and a majority favors one position (i.e., three joint owners split two to one),
the majority preference rules as to how the vote should be counted.
(032) A shareholder or unit owner
who changes his mind can issue a new proxy reflecting his revised preference.
(033) A proxy can also be revoked
by written notice to the association's secretary.
(034) Or, a shareholder or unit
owner can revoke the proxy by attending the meeting and casting a ballot that
reflects the new preference.
(035) The ballot will supersede
the previously issued proxy; however, merely attending the meeting, without
actually casting a ballot, will not serve to revoke the proxy.
(036) In most cases proxy forms
designate more than one proxy holder.
(037) If the form is drafted to
designate A or B as proxy holder, then either one may act independently of the
other, and the actual bearer of the proxy is the one who gets to cast the
votes.
(038) If, on the other hand, the
proxy form is drafted to designate both A and B as proxy holders, they must act
jointly in order for the proxy to be valid.
(039) This distinction is crucial
when the proxy holders each represent different factions of candidates or
different sides of an issue being voted upon.
(040) Proxies may not be
purchased in exchange for money or anything else of value such as a promise of
favorable treatment after the election.
(041) To the writer's knowledge,
there are no court decisions with respect to the validity of fax proxies.
(042) But while the use of fax
proxies would probably be upheld in the event of legal challenge, it is safer
to enact a by-law amendment sanctioning their use.
(043) An awareness of common
pitfalls can help preserve the integrity of your association's future proxy
solicitations.
(044) The overwhelming majority
of proxy forms circulated by boards are general in nature, giving the
designated proxy holder unfettered discretion in casting the votes represented
by the proxy.
(045) Shareholders and unit
owners should be told how the proxy holders intend to vote, so that the
issuance of proxies becomes a process of informed consent.
(046) They should insist upon
this kind of disclosure before issuing their proxies.
(047) Or they should change the proxy
form to a specific proxy (initialing all changes to authenticate them) or
compose their own proxy form.
(048) Individuals soliciting
proxies might consider using the hybrid general/specific proxy form referred to
above.
(049) The issue of whether multiple
proxy holders have joint or separate authority to cast the votes represented by
a proxy can be critical.
(050) Joint authority should not
be considered unless all of the proxy holders are firmly allied with each other
on the slate of candidates to be elected or the issue being voted upon.
(051) If the shareholder or unit
owner whose proxy is being sought is not comfortable with one or more of the
designated proxy holders, he may make the appropriate deletions (initializing
the changes) or simply substitute his own designated proxy holder.
(052) It's important to be aware
that pre-dated proxy forms reflecting the day of the meeting or the day before
the meeting are sometimes circulated.
(053) These proxies are illegal
because they curtail the right to revoke a proxy before the meeting.
(054) Whenever there is a
contested election or issue, inspectors of election should be selected at the
meeting.
(055) If the association's
by-laws permit the appointment of inspectors, and at least one shareholder or
unit owner demands such an appointment, compliance with the request is
mandatory.
(056) Inspectors have the
authority for resolving challenges to proxies in only two areas: Do the books
of the association indicate that the person issuing the proxy is the record
owner of the subject stock or common interests?
(057) Is the proxy, on its face,
legally valid?
(058) Inspectors don't have the
power to determine whether the shareholder or unit owner was legally competent
when the proxy was issued, or whether the proxy is a forgery or was obtained
under duress.
(059) Inspectors are required
under the Business Corporation Law to issue a written report of any challenge,
question, or matter determined by them and execute a certificate of any fact
found by them upon request of any shareholder or unit owner.
(060) Such findings, as well as
any others that are outside their scope such as fraud, duress, forgery or
incompetence to issue the proxy are subject to judicial review in a supreme
court proceeding.
(060) However, the commencement
of such a proceeding is subject to a strict 120
day statute of limitations.
(060) Proxies are a useful tool,
but even when handled correctly they are an imperfect substitute for attendance
at association meetings.
(060) It is only at these forums
that a full exchange of views between voters can occur.