One of the most prominent law firms advising the directors and managers of California common interest developments has a track record of support for dictatorial control and suppression of democratic rights in housing communities. Today this firm has once again dispensed advice that amounts to “Let’s do what we can to keep corporate corruption thriving”.
The advice showed up in the latest issue of the Adams-Kessler newsletter, over the signature of partner Adrian Adams. Here’s what Adams says:
If a director wants to personally investigate a particular matter (and is qualified to do so), he should first get board permission. Otherwise, he may be incurring liability for himself as well as the association.
Let’s see how this advice works. Suppose some condominium association or housing cooperative has 5 directors and 4 of them belong to a corrupt clique. The clique has been negligently wasting the corporation’s money, holding illegal secret meetings to make decisions, and denying the shareholders’ rights to check on the corporation’s income and expenses, while also letting safety and security hazards go unrepaired on the corporation’s property. Suppose the fifth director, not a member of the corrupt clique, decides that his duty to make reasonable inquiries into corporate operations requires him to investigate actions taken by managers and officers. For example, the fifth director may decide to look at the checks signed by the President and verify that they were approved by the Board of Directors in advance. Or the director may decide to check on whether construction work being performed on the property has satisfied local ordinances requiring building permits.
According to Adams, this diligent director should, before investigating anything, ask the corrupt clique to vote in favor of a resolution authorizing the director to investigate the very corruption being practiced by the clique. Of course, before getting such a vote, the director will need to get that topic onto the agenda of a meeting of the Board. Good luck.
What a clever idea, Adrian! Wave the red flag of “liability” in the face of any director who wants to check on your clients’ possible misconduct. Intimidate the director into humbly asking permission, which he or she will never be able to get, before doing anything that may expose corrupt practices of the Board’s majority. Threaten any would-be whistleblower with the wrath of the law.
Adams’s advice is not only morally repugnant. It is also more likely false than true. If a director has reason to believe that something rotten is going on and, for fear of “liability”, lets it continue without making inquiries into it, what defense will he or she have against the claim of complicity with the clique’s corruption?
Members of housing communities who maintain their moral compasses when elevated by their peers to directorships know that their constituents expect them to be on the lookout for waste and abuse. They’ll giggle or groan rather than tremble when they read advice from Adams-Kessler.