March 28, 2005

ICANN's Two-Bit Answer to A Twenty Dollar Question.

My comments on ICANN's Core Principles and Corporate Governance Guidelines

The oath at the bottom is contrary to the obligations imposed as a matter of law on Directors to make independent judgements.

As a director I sued ICANN on exactly this kind of unlawful restriction - and I won. See the file at:

These principles unlawfully restrict the Directors individually and as a body from properly exercising their obligations.  On this basis alone these "principles" are fatally flawed.

In addition many of these "principles" have nothing to do with corporate governance and, instead, amount to a kind of kow-tow procedure through which the Board, and the individual directors, reduce themselves to a subservient status vis-a-vis the corporate management.  That is the obverse of what corporate governance is all about.

Overall, this document is unacceptable.  The principles are naive and demonstrate a lack of adequate appreciation of the proper and legal relationship between the parts of a corporation, particularly the relationship between the board and management.

These principles also fail to address institutional shortcomings that have been with ICANN since before its inception - a lack of open access to those concerned (particularly the community of internet users), a lack of transparent decision making, and a lack of accountability in the making of decisions.

Where, for example, is an expression that all meetings (such as the board's telephone meetings) should be at least hearable by the public?

Where, for example, is a requirement that management ("staff") back its decisions with a written opinion that fairly expresses the opposing viewpoints, articulates the process through which the decison will be made, identifies the weights to be given to different goals, states the assumptions, and visibly works through the decision process to reach the result?

Where, for example, is an expression that meeting agendas should be published sufficently in advance as to prevent surprise and to allow proper deliberation before a meeting?  And where is an expression that minutes be published in a timely manner?  (ICANN's failure to meet even the minute-publishing obligations contained in the existing bylaws speaks volumes regarding the degree of committment, or lack thereof, to any principle.)

Where is an expression that indicates that governance of ICANN requires that those affected by a decision have a role in the making of that decision, or are even given access to the fora in which those decisions are to be made?

In the rest of this note I will speak more specifically about a few, but not all, of the more egregious failures of these "principles":

Section 2.f greatly waters down the rights of directors under law, which is that each director, without the need to obtain any approval whatsoever from any other director or from the Board, has the absolute right to inspect and copy (and retain those copies) of any and all corporate documents and to inspect any and all corporate property, even such property as the corporation may consider "secret" (such as the IANA root server.)

Section 2.f, were it to be written properly, could allude to the fact that a Director who does avail him/herself of the right to copy and inspect is subject to extremely strong fiduciary obligations that govern how that information is to be used.

Section 2.h is unlawful.  It is true that an individual director - whether that director be the chairman or not - has no right to speak on behalf of the corporation.  However, in the exercise of an individual Director's duties it is often necessary for that director to interact with the community.  Section 2.h as it is written amounts to a gag order that not only improperly restricts the ability of a Director to carry out his/her obligations but it also creates an improper role for the Chairman as an official spokesman of corporate policy even without action by, or a decision by, the board.

As a whole, section 2 reminds me that it has long been my opinion that any person who considers a role on the ICANN board take a course on the rights, duties, and liabilities of a Director of a California non-profit/public-benefit corporation and should retain his/her own counsel.  Perhaps ICANN should consider whether a Director's fee would be an appropriate vehicle to help directors deal with the expense?

Section 3 has nothing to do with corporate governance and should be elided in its entirety.

Item 4.e misconstrues the relationship of individual Directors and the corporate counsel - Corporate counsel represents the corporation. Corporate counsel does *not* represent individual directors.

Section 4.e should be replaced by a section that clearly indicates that corporate counsel is not in a position to advise individual directors and that to do so would put corporate counsel into a situation of potential conflict.  Section 4.e should also clearly suggest to individual Directors that they obtain advice from their own separate legal counsel.

Section 4.e also, to the extent that the word "should" is more than merely advisory, is unlawful.  A Director is obligated to exercise independent and informed judgement and to make his/her own determinations as what constitutes the best interests of the corporation.  For a Diretor to pre-bind the outcome of his/her decisions in the way suggested by section 4.e would be an abrogation of that Director's fiduciary duties.

Section 5 is very simplistic.  Section 5 conceives of an almost peer-to-peer relationship between the Board as a body and the corporate management.  Nothing could be further from the truth.  The Board has the ultimate power over the corporation.  The board has ultimate responsibility.  Management is merely the hired means through which the board decisions are concretely realized.  In other words, corporate management works for the board; there is no peer relationship at all.

The board retains the right to remove any and all management from their posts.  (The board may have to continue salaries and benefits, but that does not diminish the board's authority to place new hands on the corporations day-to-day controls.)

In a well governed corporation the board sets policy and defines the scope of authority and the degree of flexibility that the board is delegating to management.  ICANN's board has historically been very lax in making such definitions and in holding management to those definitions that have been set forth.

Section 5.e is unacceptable.  It is neither the role nor the duty of the Board or of any Director to refrain from critical thought, particularly if that critical thought might bring into question the acts or decisions of a member of corporate management.  Indeed, it would be a dereliction of a Director's fiduciary duties to reduce him/herself to that of a bowing and curtseying courtier who simply flatters and never contradicts or raises potentially unpleasent questions.


          Karl Auerbach
          Former North American Elected Director
          Board of Directors, ICANN

Posted by karl at March 28, 2005 7:38 PM