How Bill Masters Saved Lake Holiday $120,000

At the April board meeting, LHCC directors discussed a serious problem: they pledged the clubhouse (LHCC common area) as collateral for a loan from Wachovia without first obtaining owner consent. Several board members referred to this as a breach of their fiduciary duty, since common area can’t be mortgaged without first obtaining more than two-thirds consent of Lake Holiday’s owners and that consent was never obtained. GM Ray Sohl introduced the solution to this problem: “the board of directors has expressed an interest in re-collateralizing the existing clubhouse loan.”

The board’s solution: ask owners to retroactively approve mortgaging common area, and if approval were not obtained, to refinance the Wachovia loan at a great expense. Doing so would require paying about $18,000 in refinancing costs, paying approximately $20,000 more in annual debt service over 5 years, pledging 91 LHCC-owned lots, and allowing Wachovia to put a bank hold on $150,000 to $200,000 of LHCC’s cash. Add that up and you get a cash savings of $120,000.

That initial discussion of the problem was lengthy. Our nine video clips cover over an hour and ten minutes in Clubhouse Loan Pts 1-9:

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By July, preparations were underway to put the re-financing to an owner vote. LHCC announced the upcoming vote on July 21st. At the July 28th board meeting VP Dave Buermeyer, guided by Wayne Poyer, proposed the specific language to describe the issue to owners. Right away he met with resistance from 2 board members, John Martel and Jo-anne Barnard. Martel claimed that the language gave the refinancing proposal an “air of legitimacy that it probably never really achieved.” Then, Martel did an abrupt about-face and retreated from that position when Poyer seemed to be bothered by his remark. Jo-anne Barnard called the referendum “meaningless” because despite the high cost, the board had already decided to do the refinancing even if owners didn’t approve it. Nevertheless, every other director was satisfied with the decision to proceed with the refinancing. Many felt no further discussion was necessary.

Barnard and Martel felt the significant cost of the refinancing did merit further discussion. Barnard corrected the cost estimate served up by Poyer and Buermeyer. She observed:

It doesn’t cost $20,000. It costs $20,000 and $18,000 in the near term every year at the same time that we have to do the dam.

Here’s the July discussion in clips Oct 08 Referenda Pts 1-5:

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So what’s the biggest problem in refinancing the clubhouse balloon note to fix pledging the clubhouse without first obtaining owner approval? The clubhouse isn’t even pledged as collateral on that note. Either Poyer and Buermeyer weren’t being candid about their reasons for proposing the refinancing or they never even bothered to check the documents. If they had taken just a moment to read the collateral exhibit, they would have seen that it clearly contains a description of real estate that is not the clubhouse.

A cautionary word to the non-lawyers that try to comprehend an important legal document like the loan collateral exhibit: it’s a whopping 2 pages, and the description of the property used as collateral involves potentially hard-to-understand legal terms, such as “231 Redland Road.” Proceed carefully!

After watching the video of the July meeting, property owner Bill Masters did bother to check the documents, and the exhibit showing the collateral for the loan very clearly listed the collateral as 231 Redland Road, the location of Lake Holiday’s management office. Masters contacted GM Ray Sohl, and directors Barnard and Martel to understand how they missed this.

Sohl initially disputed Masters’ assessment and insisted the clubhouse was used as loan collateral. Masters had to show Sohl that the loan for which the clubhouse had been used as collateral was paid off and closed months ago. Keep in mind that Masters was making his argument to Sohl and several board members using documents he originally obtained from the Lake Holiday office in the first place.

Barnard and Martel were surprised by his claim but promised to investigate. To further support his contention, Masters supplied loan documents to Barnard and Martel and Frederick County tax maps, one of which appears nearby. In a few days, Sohl, Barnard, and Martel came to the same conclusion that Masters had: the clubhouse wasn’t pledged on the loan in the first place, so there’s no reason to spend all that money on the expensive refinancing supported by Poyer and Buermeyer.

The cash savings, as Barnard herself pointed out at the board meeting, is about $120,000 over 5 years. When Masters discussed with Barnard the significant cash savings, Barnard disputed her own number. Evidently, dollars that Masters saves don’t count as much as dollars that the board very nearly wasted. Beyond the cash savings, Lake Holiday retains clear title to its 91 lots and has unrestricted use of the $200,000 that it would have had to pledge to do the refinancing. Masters managed to accomplish all of this while holding down a full time job and not serving on the board.

Barnard’s attempt to discount the savings is just evidence of the board’s spin machine revving up. More evidence of that is Sohl’s email to Masters, thanking him for catching the “error,” but pointing the finger at Wachovia for not securing the loan with the right collateral. Maybe Wachovia’s Mike Wilkerson has a different opinion of who owns the “error.”

Much can be learned from this episode to improve Lake Holiday. LHCC directors voted to spend over $120,000 of the organization’s cash based on the erroneous belief that the clubhouse was pledged as collateral, a belief that reading the loan documents would have quickly corrected. While Barnard and Martel were against spending money on refinancing, at a minimum they and every other director are guilty of approving a significant expenditure without bothering to read the underlying documents. That’s wrong. If any director did read the collateral documents and recommended the refinancing based on a claim that he knew to be false, that would be far more troubling.

When Masters first called Ray Sohl, he encountered far too much resistance. Sohl spent too much time defending the position that the clubhouse was pledged as collateral, perhaps because the board had already invested so much time to approve the refinancing. If the clubhouse were not pledged, it would make all the resources devoted to the refinancing an embarrassing waste. Fortunately, Masters took the time to make the phone calls and send the emails to overcome Sohl’s resistance. Masters was in an exceptional position because he had previously requested the relevant documents and closely followed the board videos, two things for which he is often unjustly criticized. But it shouldn’t be that hard for owners to get the management office to reach an obvious conclusion. While this went from start to finish in about 3 days, that was too long because the loan collateral exhibit was so clear and unambiguous. The initial response involved too much defensive posturing. If Masters had not persisted after receiving Sohl’s initial response, the savings may have been lost.

Fortunately, Masters saved $120,000 of Lake Holiday’s cash. What the community learns from this affair may be even more valuable.

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Quick Takes on the April 28th Board Meeting

The April 28th was long – over 3 1/2 hours, not counting an executive session. We’ve included all but about 15 minutes of that meeting, spread over 26 video clips.

Review of a new front gate contract took about 5 1/2 minutes, but review of a $1500 reimbursement for additional lifeguard open water rescue training took over 30 minutes. The latter issue apparently stemmed from roving patrol/lifeguard supervisor Zeb Brevard, rather than the board, authorizing an expenditure made by the parent of one of the lifeguards.

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Just because review of the front gate contract took 5 1/2 minutes doesn’t mean there was serious review. The board rubber-stamped GM Ray Sohl’s recommendation of keeping the contract with Haines at a cost of $15 per hour rather than accept a much lower cost proposal from Spartan at a cost of $13.33 per hour. The potential savings from Spartan’s proposal? About $15,000. The board couldn’t spend a lot of time on this $130,000 contract because it had to have enough time to discuss a contract with the lifeguards requiring them to reimburse the $100 training cost if they failed to work the entire season. At one point, presumably just to shorten a ridiculously long (or was it just ridiculous?) discussion, an audience member volunteered that he would reimburse the $100 training cost if that event occurred.

For the monthly staples, Martel gave the Treasurer’s Report and GM Ray Sohl gave the Management Report. Martel also put forward a motion to fully expense rather than capitalize all of LHCC’s depreciable assets. No director asked whether that was GAAP-compliant. For that matter, no director asked what GAAP is.

Dave Buermeyer gathered up some projections from Miller & Smith and some boxes of old documents. He rolled them into his Vision 10, a plan for the next 10 years at Lake Holiday. It drew applause from the board, which is the only group that will pay any attention whatsoever. Buermeyer also brought back more modifications to a policy to fill board vacancies. Secretary Ken Murphy secured approval for a new Rules Tracking System. At least they’ll look pretty. Early topic of the video: picking the right font. We’ll state the obvious: when a simple community association has to have a rules tracking system, it has too many rules. The board also approved a motion to hire a new collection agency, Debt Recovery Bureau, to try to collect old LHEUC debts on a contingency basis. According to Ray Sohl, these debts are outside the 3 year statute of limitations, and 1 firm has already tried a similar approach and given up after about 2 months.

On a positive note, director Steve Locke brought up negative communications relating to architectural compliance during the Committee & Task Force Reports. He was critical of his own experience and said the board needed to find a “much more neighborly way of going about things.” He thought “a little conversation would have gone a long way.” Perhaps his wife Deborah is working with him to try to develop a “kindler, gentler” side rather than the pseudo-tough guy tactics he displayed in our Keep It Over Here Punk video. Imagine: one LHCC director thinks “a little conversation” with an adversary could go “a long way.” Believable? Enduring? Let’s wait and see.

In earlier meetings, the board concluded that LHCC lacked the money to install guard rails, a safety issue, but evidently the money is there for the GM to solicit proposals to improve the acoustics at the clubhouse. Safety, no. Better acoustics for board members to hear themselves talk, yes.

The biggest topic of the night: re-financing the clubhouse loan. GM Ray Sohl started the discussion by stating that the “Board of directors has expressed an interest in re-collateralizing the existing clubhouse loan.” Oddly, there’s no expression of such interest during open meetings. Since the board voted on a motion to direct the GM to get bids on changes to the clubhouse acoustics, why is there no approved motion to direct the GM to investigate refinancing the clubhouse? This is just more evidence of the backroom discussions that Wayne Poyer denied the existence of when questioned by Bill Masters at the February Round Table.

In a sometimes heated debate, the board decided what to do about the fact that it pledged common assets without first obtaining 67% approval of the membership. To those who say the board never violates LHCC’s governing documents, this is just 1 example. The board acknowledged it didn’t follow LHCC’s governing documents on one of the largest transactions in Lake Holiday’s history. Jo-anne Barnard expressed the view that had she been given a chance to vote to incur a big mortgage to remodel the clubhouse, she would have chosen not to do so.

According to some board members, to fix things would require:

  • pledging over 90 LHCC-owned lots
  • paying $18,000 in closing costs
  • paying an extra $1400 per month for 5 years
  • putting a bank hold on $150,000-$200,000 of LHCC deposits for 5 years

The hold would prevent LHCC from using the money. The board’s fix relies on an artificial distinction between “common area” and “common property.” Mortgaging the clubhouse without member approval was wrong because the clubhouse is “common area,” but mortgaging 91 lots without member approval is acceptable because these lots, according to the board, are something entirely different – “common property.” The extended debate is covered in a total of 9 parts, the first 8 of which include the discussion and the last of which includes the final vote.

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Several directors expressed the view that the fix was expensive at a time when money is tight and the damage from violating LHCC’s governing documents can’t be undone. The decision: put the issue to retroactively approve pledging common assets to a member vote (which will almost certainly fail, as Poyer himself acknowledged), and if it fails, to enter into the refinancing, probably in early 2009. Martel asked that the record reflect that this decision to refinance is a breach of directors’ fiduciary responsibility, and when Poyer objected to the minutes reflecting Martel’s comments, he withdrew them. Not to worry, John Martel. The record of your inability or unwillingness to stick to your position is amply reflected on YouTube.

We extend our continued thanks to Bill Masters for his unflinching efforts to let property owners monitor the conduct of LHCC’s board. Despite the board’s talk of openness, they blocked Masters’ videographer from the boardroom on the grounds that he wasn’t an LHCC member. Property owners should be deeply troubled by a board that blocks openness and at the same time denies it is doing such blocking.

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Twenty Certified Letters Later…

…can the President of LHCC just pick up the phone, call a homeowner, and say “Oops, we goofed. We’re truly sorry”? Apparently not.

That answer was hidden away in a tab of LHCC’s board book called “For Your Interest.” LHCC directors now bury letters and emails from property owners to the board in this tab instead of reading and discussing them during the open meeting. That’s one way of blocking criticism from making its way to video and onto the internet.

Fortunately for Lake Holiday property owners, this “don’t discuss criticism” technique flopped at the December 27th board meeting.

The first example of this involves homeowner Robert Middleton, whose property was hit with a lien of $1800 for alleged violations of Lake Holiday’s sign prohibitions. A hit of $1800 – ouch! As the board discussed in our Compliance Reporting video (it’s in our video gallery on our Videos page), if Middleton violated any sign prohibition, he didn’t do it on his own property. In that video, GM Ray Sohl said that the signs should have simply been taken down instead of placing liens on Middleton’s property. It’s possible that Middleton himself watched the video and used it to support an argument that the liens should be removed, which is something that the board did not acknowledge at the November meeting. At the December 27th board meeting, shown in the following video, the board finally decided that Middleton is “no longer liable for $1800.” It’s good that LHCC reversed course on this issue.

The board discussed how to communicate this good news to Middleton, who apparently refused to accept several recently-mailed certified letters from LHCC. Ray Sohl described that LHCC has sent 20 certified letters to Middleton over this alleged violation, which apparently turned out to be no violation at all. Perhaps Middleton grew tired of seeing his own money spent to send him certified letters to communicate the message “We are 100% right, you are 100% wrong, so we’ve put an additional lien on your property.” An unsurprising outcome.

Some directors were reluctant to communicate with Middleton directly. In the video the best option developed by LHCC President Wayne Poyer was to put a message in a plain, unmarked envelope addressed by hand. That only seems strange to someone who does not understand that the board prefers to sneak their good news to Middleton to avoid having to acknowledge their error. Director Pat Shields even recommended no further effort to reach out to Middleton, ignoring that LHCC decided to remove the lien. Shields tried to focus attention on Middleton as the culprit, rather than LHCC itself: “He’s played the rules since this whole thing started.”

We have a simple suggestion for LHCC: have a senior official pick up the phone and call the man. Try starting the conversation off with: “Ooops, we goofed. We’ve removed the liens. We’re truly sorry.” Stop trying to shift the focus to Middleton’s alleged wrongdoing and away from the fact that LHCC improperly filed liens. We’re sure a straightforward, sincere apology will go a long way toward addressing any bad feelings Middleton may have.

Ray Sohl supported further efforts to reach out to Middleton for a good reason:

…you want to encourage participation of all members. The more participation you have, the more responsible community you have.

The secretive “For Your Interest” tab also revealed the second example of the unwillingness of LHCC’s leaders to admit a mistake. In our post It’s Not Our Problem Anymore we criticized LHCC’s efforts to wash its hands of helping property owners deal with utility problems. Apparently, LHCC has reversed course on this issue. LHCC Secretary Ken Murphy, a former LHEUC board member, has initiated efforts to communicate with Aqua Virginia and the SCC about utility complaints from Lake Holiday homeowners. Judging from the discussion in the video, complaints continue to roll in. We don’t see entirely smooth sailing, based on Murphy’s comment that he has “yet to identify the person at Aqua who will listen to me.” A little more than 1 year ago, LHCC closed on the sale of LHEUC’s assets for more than $1 million, and Aqua Virginia continues to serve Lake Holiday. Given those facts, one would hope that the board identified some responsible people at Aqua Virginia who would listen. One would also hope the board kept the contact information of those people. Nevertheless, we applaud this long-overdue correction.

Burying these 2 fixes in a section of the board book that is not intended for open discussion shows just how hard it is for LHCC’s leaders to admit they made a mistake. When faced with having to admit its error in putting a lien on Middleton’s property, the board preferred to communicate via cold and impersonal certified letters rather than a simpler and cheaper phone call. The personal phone call is both simpler and more appropriate in this situation.

Lake Holiday property owners are justifiably concerned about utility problems, and the board has tried to distance themselves from these concerns. If the board abandoned that effort and plans to play an active role in resolving these problems, that’s a good thing. The proper response to both our post and the complaints raised by others would have been to publicly acknowledge the mistake and openly commit to a new course.

Stubbornly refusing to admit a mistake sends an “I’m unreasonable” message to the world.

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To Build a Class Act Type Thing, You Must Vote Your Conscience

One of the issues taken up at the November 26th board meeting was Ray Sohl’s appeal of the Architectural Committee’s rejection of his plan to locate boat and RV storage.

Director Robin Pedlar, a member of the Architectural Committee, summarized one of the reasons for that committee’s rejection: “It’s pretty ugly.” Why let a reasonable objection like that stand in the way of what the Board and the GM want to do, when the Board can simply overrule the committee?

Thus, we have the appeal of the Architectural Committee’s decision that’s shown on the following video clip.

In previous posts, we criticized several LHCC directors for their utter lack of meaningful contribution to the discussion taking place in the boardroom. We were pleased to see that at this meeting just about all directors present participated in the discussion at one time or another. Perhaps they didn’t want to win our Silent Sitter award. The absence of Suzy Marcus may have added to the pressure on some board members to contribute. With one of the best candidates absent, it was just about anyone’s award to win.

Director Rick Bleck, who did not meet the 1 year ownership requirement for nomination set forth in LHCC’s bylaws and was invisible on the campaign trail but was elected anyway, came out of his shell and offered these insightful comments:

I guess I’m going to show some ignorance and obviously not knowing the history of it and that’s why I’ve been learning a lot at these meetings and stuff. Is this the only common area that the association owns? To me it’s a real eyesore. You’ve got rusted out campers up there and you’ve got boats in disarray. … I don’t know how long the association’s been around and/or committees but…. I own property down in Orlando. The front of…when you enter the property, it’s got trees, palm trees, and flowers, and you come up here and it’s like holy smokes, who lives back in there? I know there’s some nice houses, nice lake back there, and all of a sudden you come in around the corner. You’ve got these beat up trailers and campers. I don’t know if you have any kind of regulations like if the camper is 10 years old you’ve got to get rid of it if it’s rusted out. I really hope there is a common area maybe in the back of, somewhere in the back where you’re not looking at this stuff. The other thing is I’m just surprised you’d allow this. I mean I’ve got my boats in my yard. That’s where I keep my boats. So, anyway, I’m not really sure about the issue here. But anyway, I was thinking, we need a…actually, the office should be a building with bricks and stuff, and you’ve got this old beat up house. I’m just kind of amazed that all these places I’ve ever had or lived in associations, it was really a class act type thing. This kind of parlays into maybe I’ll start getting active in this now. To entertain something like this, but again, my ignorance. We may not have any other land here and this may be the only solution. I hope someday that…I headed back to this one area, I’m going, I can’t believe that we’d ever entertain this.

When Rick Bleck described the treasured Lake Holiday office as an “old beat up house,” we wondered if we looked more closely, perhaps we might be able to see smoke rising from the other directors’ heads. Apparently, no one bothered to copy Rick on the memo that if you can’t mindlessly focus on positive, un-critical comments, you will be ostracized. We dreamed of a very brief return of Chris Allison. We can imagine his response to Rick Bleck would have created a memorable video moment.

We applaud Rick Bleck’s candor and his willingness to address things that perhaps other directors would like to cover up. Lake Holiday should and can be a class act, and Rick Bleck indicates he’s willing to tackle areas in which it falls short. For his straightforward, on-the-record statement that few of his fellow board members have the courage to make, we could just about eliminate Rick Bleck from consideration for our Silent Sitter award. Just about. But not entirely. And not so fast.

Rick Bleck discredits his own comments by remarking that he is showing “ignorance” and that the present proposal may be the only solution. You can’t persuade others if you can’t convince yourself. Board members need to come to meetings prepared. That means reviewing the topics in their board books and investigating other solutions before the meeting. If every board member does not diligently undertake these steps, the ability of the board to reach intelligent decisions at a meeting is lost. Rubber-stamping the decisions already made by other members is a problem fueled by the Silent Sitters.

Bleck raised a number of serious objections to the plan for boat and RV storage, and just before the vote director Steve Locke advised him that this plan is only temporary. However, Rick Bleck never got responses to his objections or answers to the questions about which he professed ignorance. He never pressed Locke or other directors on what the permanent solution would be, when it would be implemented, and what it would cost.

Compare Rick Bleck’s contribution to that of director Robin Pedlar. Our quote above represents nearly Rick’s entire contribution over 2 meetings. In addition to her comments shown on the video, Robin Pedlar weighed in on another topic at the meeting, John Martel’s proposal for board workshops to foster open communication between property owners and the board. We have a mixed view of 2 points she raised in that discussion. Robin thought that it would be helpful to have neighbors get together for coffee and talk about what they like about Lake Holiday, something that smacks of nothing more than a social gathering. But she also was one of few directors who expressed a willingness to listen to whatever complaints members had in an unstructured setting, something we support and that seemed to frighten other directors like Ken Murphy.

The standard for our Silent Sitter award is not purely the lowest number of comments made. We draw a more meaningful distinction than simply counting words. During the discussion on locating boat and RV storage, Robin Pedlar said she and her committee thought it was “pretty ugly.” Evidently, she voted her conscience, because she was the only director that voted against this plan. Rick Bleck, while strongly criticizing the plan, came to the meeting unprepared to discuss alternatives and didn’t press anyone else at the meeting for specifics. When the vote was taken, Rick Bleck voted in favor of a plan that he could not believe would ever be entertained. Steve Locke’s comments would not satisfy a person with serious objections. They would, however, satisfy a Silent Sitter.

For voting in favor of overturning the decision of the Architectural Committee, Rick Bleck is our Silent Sitter for the November meeting.

The question for December: will Rick Bleck three-peat? We hope he’s better prepared, more forceful and less equivocal, and votes according to his concerns, even if that means standing alone.

We support building a class act. To have any hope of doing so, each and every LHCC director must vote his conscience.

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Ushered Out of the Office To a Salary Increase and Bonus

Paying attention to body language is critical to understanding people. Folding one’s arms across the chest, especially when combined with leaning or turning away and avoiding eye contact, is thought by many to show rejection of the person or the person’s message. Think of it as one big push off.

LHCC’s board reviewed the compliance report prepared by GM Ray Sohl at the regular November board meeting.

Watch Ray Sohl’s body language when LHCC President Wayne Poyer attempted to hand him a folder of items he’d like addressed. Ray Sohl made no effort to reach for it, leaving Ken Murphy to take it from Poyer and try to pass it to Ray Sohl. Count the seconds while Ken Murphy holds the folder in space, waiting for it to be accepted by its intended recipient. The actual time may only be a few seconds, but if you are in Ken Murphy’s position, not knowing when if ever you’ll be relieved of the folder, those few seconds feel like an eternity.

Treasurer John Martel expressed strong dissatisfaction with Ray Sohl’s report:

To me…To me…I guess…I guess…I’ve worked for some very demanding people, I guess, and maybe you didn’t. Because if I had given them a report like this, they would have absolutely ushered me out of their office. They would have…They…There’s no summary. There’s no…There’s no kind of summary here for management. It’s a database with thousands of entries, and my boss never would have let me get away with giving him a database.

Martel was not alone in his assessment of Ray Sohl’s work. Wayne Poyer remarked that “it begs belief that this is so incomplete.” Jo-anne Barnard expressed surprise that the report showed no significant results.

We have no information about Ray Sohl’s body language or the position of his arms at the October 22, 2007 board meeting. At that meeting the board ratified Ray Sohl’s “annual salary increase and bonus” and confirmed publicly, for the first time that we are aware of, that upon completion of 6 years of service, Ray Sohl would be “given title to the lot at 626 Lakeview free and clear of any encumbrances.”

John Martel, now in part occupying the position of his own former boss, remarked at the November meeting that Wayne Poyer was an easy boss.

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Silent Sitters Vote Unanimously To Raise Dues

Have you ever read something and thought to yourself “Wow, that’s a great idea. Why didn’t I think of that?”

We had just such a reaction to the phrase coined by an anonymous poster on Bill Master’s website in a thread discussing LHCC’s then upcoming 2007 election of directors. The phrase: Silent Sitter. That phrase succinctly describes the conduct of too many of LHCC’s directors at board meetings. A Silent Sitter just occupies a chair during a board meeting, contributes very little and seriously questions even less, and ultimately votes in support of the decision already made by the powerful few.

We’re going to award a Silent Sitter award to that board member that contributes the least at each board meeting in the hope that highlighting this bad behavior prompts potential Silent Sitters to change their conduct. We make it in the spirit of Sen. William Proxmire’s Golden Fleece award.

The November 12th board meeting to review and approve the 2008 budget is a good place to start. After the organizational meeting on November 5th, this was the first meeting to take up the business of Lake Holiday. Despite the fact that the board was reviewing 2008 expenditures that will exceed $2.275 million, the board meeting on the budget was the shortest meeting that we’ve watched on video, coming in at 38 minutes. Most of the discussion for the entire budget focused on how a single, unbudgeted $9,000 dock repair expense could be deferred or delegated to a committee. This lack of debate shows that the Silent Sitter race will be a close one.

LHCC VP Dave Buermeyer said next to nothing at the November 12th meeting. But in light of the nearby photo from that meeting, we can’t be sure if Dave Buermeyer was actually awake throughout. We don’t want to turn the award into the Sleeping Sitter. We also don’t think it’s fair to the other board members vying for our award to credit what little he did say at the meeting in light of our uncertainty over his sleeping status.

We also had to seriously consider Jo-Anne Barnard. Among Jo-Anne’s many qualifications to serve on LHCC’s board, she is LHCC President Wayne Poyer’s neighbor. She recovered somewhat from the “deer in the headlights” look she displayed at the board’s organizational meeting and managed to ask several questions. One of her questions helped clarify a caption on a budget line item. Unfortunately, substantive contribution requires more than debating captions.

We also had to consider Suzy Marcus and Ken Murphy, who stayed true to their usual performances and contributed next to nothing. Had Noel O’Brien been in attendance, our decision may have been even more difficult since she’s expected to be a regular contender for our award. We’re sure these three will put up strong showings in future Silent Sitter contests.

Despite the close race, we give our first Silent Sitter award to LHCC board newcomer Rick Bleck, who did not meet the 1 year ownership requirement for nomination set forth in LHCC’s bylaws and was invisible on the campaign trail but was elected anyway. During the board’s organizational meeting, Rick Bleck managed to correct his own phone number on a board member contact sheet. That apparently talkative performance was not repeated on November 12th, when Rick Bleck was virtually silent. He didn’t question any element of the 2008 budget, nor did he suggest any change. When it came time to vote for the budget, he dutifully raised his hand. He fulfilled the role of a Silent Sitter to perfection. He questioned nothing and voted in favor of everything. Congratulations, Rick Bleck, the first recipient of our Silent Sitter award. We have to wonder: did his involvement peak very early?

We think LHCC’s board erroneously believes that unquestioned unanimity indicates a good decision. In contrast, we believe that open, thorough examination of alternate and sometimes opposing views is a better approach. At the very least, those holding the minority view can take comfort in the fact that their position was given careful consideration and had a fair chance to capture support.

For example, in an earlier post we reviewed LHCC’s administrative expenses and discussed the need to adjust these expenses downward by the portion reimbursed by LHEUC. This shows how dramatically LHCC’s administrative expenses have grown since 2006. After deducting LHEUC’s share, LHCC budgeted $182,826 for 5 administrative expense categories (office supplies, office equipment, printing/copying, administrative salaries, and telephone) in 2006. Based on the approved budget for 2008, these expenses are projected to jump to $297,429, an increase of $114,603 or about 63% in 2 years. That is one example of out-of-control spending. Yet no director had the common sense to ask: “Why are these expenses going up so much?” No director made any effort to discuss ways to reduce LHCC’s expenses at the November 12th meeting.

Another example of the perils of blind acceptance can be found in John Martel’s discussion of the balloon note used to finance the clubhouse remodeling, which is part of the above video clip. John Martel says that both he and the 2007 board have been criticized for committing LHCC to a balloon note. To directors operating reasonably, at a minimum criticism indicates an issue that should be carefully scrutinized. John Martel defends this decision:

We have a commitment from Wachovia that they will refinance the loan when it comes due in 5 years.

Unfortunately, the Promissory Note dated February 2, 2007 that John Martel himself signed doesn’t support his claim. That note provides for full repayment of all principal and interest by February 2, 2012 (which is less than 5 years away) and contains no language committing Wachovia to extend the loan. The Promissory Note itself states that:

This Note and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.

Yet no director – especially not the Silent Sitters – saw fit to ask John Martel if he had that commitment in writing. Apparently, they accepted his unsupported statements as fact. LHCC’s board operates on the principle of “don’t question – just blindly accept.” Silent Sitters are an important component of this “question nothing-act unanimously” culture.

Lake Holiday owners pay a price for Silent Sitters. A portion of that price is the higher dues discussed in the above video and unanimously approved by LHCC’s board. Lake Holiday does not have a board of 11 people who independently and critically evaluate information. Instead, it has a board packed with Silent Sitters that gives the community the illusion of an independent and thoughtful governing body yet keeps power in the hands of a few.

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Defendant Steve Locke Will Stop At Nothing…

At the June 25th board meeting, LHCC directors debated defending against the Masters lawsuit. Directors evaluated whether they should use Rees Broome, a Vienna-based law firm that LHCC Treasurer John Martel compared to an “ambulance chaser” with “extravagant” rates or the lower-priced Segan Mason & Mason. (For more on John Martel’s evaluation of Rees Broome, watch Use Rees Broome Pts 1 & 2 on our Videos page.) The board also considered whether LHCC should defend the 5 directors individually named in the Masters suit: Dave Buermeyer, Suzy Marcus, Ken Murphy, Noel O’Brien, and Steve Locke.

On this last point, defendant Dave Buermeyer suggested that the individual defendants recuse themselves or abstain from voting on whether LHCC should defend the 5 directors. After all, it would be very self-serving for these 5 directors to vote in favor of a motion to get LHCC to pay for their defense. But that created a little problem. Earlier in the meeting, with everyone – including Steve Locke – in the room, LHCC President Wayne Poyer announced that director Chris Allison was “called away unexpectedly.” At no time during the 3 hour meeting did Chris Allison appear and, in light of Wayne Poyer’s comment, there was no reason to believe that Chris Allison was nearby.

LHCC has 11 directors. With 1 absent, that left 10 directors. If the 5 director defendants recused themselves from voting on that motion, that would leave only 5 directors able to vote. However, 6 directors are required for a quorum, or the minimum number that can transact business. The 5 non-defendant directors actually present at the meeting would not be able to approve a motion to pay for the defense of the 5 defendants.

To get what he wants – a motion passed for LHCC to pay for his legal representation, director Steve Locke suggests:

I can go outside and in 30 seconds get Chris Allison’s signature on a piece of paper. I’ve been trained. I’ve watched and observed how to do that. Yeah.

Since Chris Allison was “called away unexpectedly,” he is not in the immediate vicinity. Obtaining his legitimate signature in 30 seconds is an absolute impossibility, particularly if Chris Allison were allowed any time to review what he is asked to sign. It’s pretty clear what Steve Locke is suggesting to the board. Steve Locke will do whatever it takes, even if it means coming up with the signature of a director who is not even present, to pass a board resolution authorizing LHCC to pay for his legal counsel.

Instead of a negative reaction to Steve Locke’s repugnant suggestion, he gets a warm reaction. Pat Shields can be heard on the video interjecting in a complimentary way: “You had training.” When Steve Locke says that he has “watched and observed how to do that,” one senses that this is business as usual. This conduct reminds us of defendant Noel O’Brien’s suggestion that LHCC fabricate costs for non-existent employees as a response to Masters’ information requests. Fabricating things must be, as Pat Shields and Steve Locke remark, part of the Lake Holiday training. Ray Sohl, the current GM, sat through this entire episode and said nothing. We can imagine that former GM Dave Ingegneri witnessed equally troubling episodes, yet said nothing.

When Bill Masters heads to court on Thursday against Steve Locke and the other defendants, these are the kind of people he will be up against: soul-less people who will stop at nothing to get their way.

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