The fundamental organizational structure of Cooperative living is founded on the tenets of self-communal governance. As the membership depends on its elected Board Members to effectively oversee the conduct and affairs of the Cooperative, it is unfathomable to think that a Board Member would do anything during the course of his/her duties as a Board Member that would jeopardize the Cooperative and its Members. However, it is unfortunately becoming more common to hear about a Board Member going “rogue.”
You may be asking yourself how it could be possible for a Board Member to go “rogue” without the other Board Members knowing? Well, it happens and we have seen this scenario play out more than we would like to admit. So what do we mean when we say that a Board Members has gone “rogue?” Well, it can happen when Board Member unilaterally and without board approval makes decisions that negatively affect the Cooperative and its Members; or a Board Member unilaterally and without Board approval binds the Cooperative to a contract that is actually to the detriment of the Cooperative; or a Board Member unilaterally discloses confidential information about the Cooperative or one of its Members; or unfortunately there is always the case of a Board Member embezzling, defrauding the Cooperative of its funds, committing immoral, self-dealing, illegal and criminal acts to the detriment of the Cooperative.
Aside from the engagement of illegal and criminal activity committed at the hands of a Board Member, the most destructive action that a “rogue” Board Member can commit that not only has the most adverse effect against the Cooperative, but also to the Membership, is when the Board Member unilaterally discloses confidential information or produces confidential documentation regarding the affairs of the Cooperative and its Members. This unilaterally action can be especially harmful to a Member, if said disclosure contained sensitive information concerning a specific Member and his/her family. So how does the Cooperative fully protect itself from a “rogue” Board Member from the above scenario? Well the answer is quite simple; a confidentiality agreement between the Cooperative and the Board Member.
The confidentiality agreement works to protect the Cooperative and the Membership from the unauthorized disclosure of confidential information and documentation regarding the affairs of the Cooperative and its Members. Board Members have a fiduciary duty to not only protect the Cooperative, but also protect the sensitive information of its Members. In the event that a Board Member violates or continues to breach his/her confidentiality agreement, then the Cooperative is afforded a legal right to enforce the default terms of the confidentiality agreement against the offending Board Member.
As each Cooperative is uniquely created, the confidentiality agreement must not only conform to the uniqueness of the Cooperative, but also to the current environment of the Cooperative. Therefore, it is vital that the Cooperative’s Attorney prepare the confidentiality agreement. Moreover, as the environment of a Cooperative can change periodically, it is vital that once a confidentiality agreement is in place between the Cooperative and its Board of Directors, the confidentiality agreement gets reviewed each year or on an as needed basis by the Cooperative’s Attorney.
As annual meeting season is quickly approaching with the possibility of new board members being elected, it is smart for all Board of Directors to contact its Cooperative Attorney to be sure that if the Cooperative has a confidentiality agreement already in place, it gets reviewed and updated, if necessary. But if the Cooperative does not have a confidentiality agreement in place, then it is extremely vital that the Cooperative’s Attorney draft a confidentiality agreement immediately. We would also urge that the Cooperative should have its Cooperative Attorney attend the annual meeting so that in the event that newly elected board members need to effectuate a confidentiality agreement or the existing confidentiality agreement has been updated or in the event that where the Cooperative would be enforcing the confidentiality agreement for the first time, then the Cooperative Attorney would be able to seek signatures from all incumbent and newly elected board members right after the election and without delay.
In sum, the confidentiality agreement creates a layer of protection for the Cooperative when a Board Member goes “rogue.” We understand that it may be unfathomable to think that your beloved Board Member would do anything detrimental to the Cooperative, but it has happened and, unfortunately may continue to happen. Therefore, it is in the Cooperative’s best interest to have a confidentiality agreement in place to protect the Cooperative. We urge all Board of Directors to contact their Cooperative Attorney immediately.