The Proposed Changes to the By-Laws: JUST SAY NO!

You know what I love? Gaslighting! At the information sessions run by the Governance Committee, Owners were assured that the proposed changes were “housekeeping” in nature. Wrong. The proposed changes include several substantive changes among numerous trivial changes, and the substantive changes are both overinclusive and underinclusive. The proposed changes are overinclusive in that they include changes that are bad for the Owners by further empowering the “insiders.” And the changes are underinclusive in that they do not include changes that would ensure that “outsiders” have a level playing field and access to the actions of the Board.  

A preliminary word. Colleton River is subject to the "governance documents." A fair number of documents fall under this description, but the two at issue now are the By-Laws and the Declaration of Covenants. Generally speaking, the By-Laws deal with the process of governance and the Covenants deal with specific rights and duties of both the Club and its Owners. When you buy a Lot at Colleton River, you become subject to the "governance documents." It doesn't matter whether you know what's in those documents or agree with them--they bind the Owners. Each document, however, includes the rules for how that document may be changed. Again generally speaking, a majority vote of the Owners can change the By-Laws while a 2/3 vote is required to change the covenants. This post deals solely with the changes proposed to the By-Laws. I'll comment on the Covenants in a later post.

 

The bottom line is that the proposed substantive changes to the By-Laws are intended to make it more difficult for petition candidates to successfully pursue a Board seat and easier for a bare majority of the Board to pass a “code of conduct” that will impair the ability of elected Board members who find themselves in the minority to aggressively represent the interests of the Owners who elected them and to kick off the Board any member who runs afoul of the "code of conduct." Finally, the proposed changes divest a majority of the Board members of their current "absolute right" to review any corporate document, including documents relating to management compensation. 

 

First, the proposed changes that further empower the Board:

 

·       Proposed Section 3.4(c) eliminates so-called “bullet voting.” A more accurate characterization of “bullet voting” is that each Owner has the right to vote only for candidates that Owner believes will represent the Owner. The intent of this change is to require Owners to vote for candidates chosen by the Nominating Committee—regardless of whether the Owner believes those candidates to be acceptable. Just by way of example, assume that the Nominating Committee nominates three candidates for three Board positions. Another Owner submits a petition pursuant to Section 3.4(a). Under the existing By-Laws, each Owner has the right to cast a vote for one, two, or three of the four candidates. If the Owner believed that only the petition candidate espoused positions consistent with that Owner’s views, the Owner could vote for the petition candidate only. Under the Governance Committee’s proposal, the Owner would be required to vote both for the petition candidate and two of the three other candidates—none of whom he believes will represent him. This is a horrible idea intended to perpetuate the power of the insiders. JUST SAY NO.

·       Proposed Section 6.6 empowers the Board to “adopt and enforce a code of conduct for directors” and Proposed Section 3.5 empowers a bare majority of the Board to remove any director for a violation of the “code of conduct” that may be imposed by a bare majority of the Board—with no input from the Owners (and possibly over the objection of as many as four Board members). According to the Governance Committee, the code of conduct hasn’t yet been drafted, but you can bet that the “insiders” have a pretty good idea what they want it to say. Here are some of the problems with the “code of conduct”:

 

o   Owners—not the Board—elect Board members.

o   South Carolina law already imposes duties on Board members—generally the traditional duties of care and loyalty.

o   There is no reason for a bare majority of the Board to impose its beliefs on members of the Board who are in the minority as long as the members of the minority comply with their duties of loyalty and care—which they are already required to do by SC law.

o   Section 3.5 of the By-Laws already empowers the Owners to remove Board members.

 

There is no reason for this change other than a desire among the insiders for a bare majority of the Board to be able to impose its views on disfavored Board members who were elected by the Owners. JUST SAY NO.

·       Section 9.4 proposes a change to divest the Board members of their "absolute right" to review the compensation of Club employees. Think about this. Not only does this Board resist posting Club employee salaries for review by the Owners who pay them, it also wants to limit the access to salary information to the three members of the Compensation Committee (who, by the way, are not listed on the website’s committee section (as of December 9, 2021). So only 1/3 of the Board would be able to review salary information. This is ridiculous. JUST SAY NO.

 

And second, some changes that should be made aren’t included:

 

•  There is no requirement in Section 3.4(c) for the Club to use an independent vote counter. In the recent past, the Board has used both a public accounting firm and an independent vote manager to conduct the elections. BUT THERE IS NO REQUIREMENT THAT THEY DO SO. Who knows? Maybe part of their “code of conduct” will be that the Board or the General Manager counts the votes—and that no Board member may inform the Owners.
• There is no requirement in Section 3.4(c) that the results of the election be published. The Board continues its practice of simply announcing the winners of an election and does not provide any further information about how many Owners voted and the number of votes that each candidate received. This third world practice is unacceptable pretty much everywhere else in our society. In fact, even the results of an Owner's “action without a meeting” at our Club are announced to the Owners, including the number of votes for and against. Secrecy is bad and the Governance Committee would be well-advised to change the By-Laws to increase openness, rather than to further shroud the actions of the Board in secrecy.  Not to put too fine a point on it, but the Board President and the General Manager know the results of the election—why shouldn’t the Owners? Just for your information, two unsuccessful petition candidates received 182 and 130 votes from the 418 Owners who chose to vote in the recent election. And another petition candidate obviously received even more votes. These results occurred even with the Board actively campaigning against the petition candidates. It’s clear that quite a few Owners don’t appear to be buying what the Board and the Nominating Committee are selling.
• The timing for special meetings of the Owners initiated by the Owners under Section 2.3(b) is unreasonable. Giving the Board 60-90 days to schedule a special meeting in this day and age does nothing more than enable the Board to drag out the process. Five days (versus 30 days) to send a notice and 30-45 days (rather than 30-60 days) to set the date after notice is given is more than enough time.
• The requirement to give notice of Board meetings is outdated. Section 3.8(b) provides three alternatives to provide notice to the Owners of Board meetings—only one of which is reasonably calculated to actually give notice to the Owners. I hate to break it to the Governance Committee, but neither “posting the notice in a conspicuous place” nor “mailing notice of the meeting” is calculated to give notice. Few Owners will see the notice—even if it is posted in a conspicuous place—and mailing the notice is not only costly and inefficient, but requires an extended notice period. The second alternative—publicizing notice on the “community intranet or website . . . at least seven days prior to the meeting”—is actually calculated to give notice. Sending electronic notice should be the required method to give notice of Board meetings. There’s no need for seven days’ notice with electronic notice—the 48 hours that works for sticking a notice up outside the pro shop would be sufficient. An electronic notice would reach all Owners who provide the Club with an email address—not just the small number of Owners who happen to see the notice posted within the Club. But maybe the Governance Committee considers that a feature, rather than a bug?
• Section 3.12 permits the Board to take action without a meeting by unanimous consent. But doesn’t require the Board to immediately notify the Owners of such action. So you have to tell the Owners if you plan on holding a special Board meeting (including the topics to be considered), but there is no requirement that action taken by unanimous consent be promptly communicated to the Owners.

 

Finally, some parts of the By-Laws are internally inconsistent or simply don’t work. Just by way of example, § 2.6 requires a vote to adjourn a meeting if a quorum isn’t present, which § 2.8 provides that the meeting shall be adjourned for 10-30 days if a quorum isn’t present. Proposed § 3.13 defines executive sessions and provides that “no action may be taken during an Executive Session"—yet proposed § 8.2 provides that disciplinary hearings must be decided during Executive Session and simply recorded in the minutes. Fun fact: neither the current By-Laws nor South Carolina law authorize “executive sessions,” yet the Board conducts such unauthorized sessions regularly and does not disclose the minutes to the Owners.

 

In any event, the proposed changes to the By-Laws are horrible. Some of the true “housekeeping” changes are probably OK—but I suspect that the ballot will be quite confusing—at one session the Governance Committee stated that there may be 20+ changes to be individually voted. I’m confident that the Board will offer people the opportunity to vote in favor of everything. Just to be on the safe side—JUST SAY NO.  Alternatively the Board can put true “housekeeping” changes in one vote and the power grabbing features in another. Just saying.

 

I’ll post an analysis of the proposed changes to the Declaration of Covenants when I’ve finalized my review.