[governance] ICANN stumbling on a hornet nest

[Karl Auerbach]

On 09/03/2012 07:19 PM, Chaitanya Dhareshwar wrote:

> No more public seats!? Gone the voice of reason is..?
>  
> There's QUITE some detail in your diary Karl. I understand how this
> gives the public information - but how does this become insurance? Could
> you elaborate please?

That is an extremely complex question and it is affected by laws that
vary from jurisdiction to jurisdiction.  I can only begin to touch the
surface in an email.

Let me begin by reflecting that ICANN obtains it legal existence from
the laws of the State of California under a provision pertaining to
non-profit/public-benefit corporations.  (There are many kinds of
corporations and many kinds of non-profits, so the public-benefit part
is important.)

California isn't particularly unique in its laws - it, like much of the
world, is a blend of Civil Law and Common Law concepts diluted by a lot
of modern thought and pragmatic experience.  As such one will tend to
find that what is true in California will often have counterparts in the
laws of other places.  As a result I tend to be mildly amused by those
who argue that ICANN should be moved elsewhere - my amusement comes from
my thought that "the corporations laws of all those other places are
probably more similar to those of California than they are different".

The USA is also a federal system in which power is divided between the
national level and the state level.  As such ICANN also has status under
the national tax law as a "501(c)(3)" which means that it gets an
exemption from taxation because of charitable of scientific purposes.

It is important to distinguish between those two things.

With regard to the US national, 501(c)(3) status there is a thing called
"intermediate sanctions" which occurs when a body of that status pays an
"excess benefit" to a closely related party.  Generally that means
paying above fair market value to someone who is a director, officer,
founder, or in some other way exercises a strong level of control.  That
sanction is cast as a 200% tax and insurance policies tend not to insure
against the risk of taxation.  This law was intended to be draconian.
Since those intermediate sanctions can fall directly onto the personal
assets of corporate directors there is a possibility that ICANN's
insurance for directors may not provide protection.  (The situation gets
even more complicated when directors are compensated - one can drown in
the details of this stuff.  Suffice it to say that prudence suggests
that one should try to avoid getting anywhere near entangled by this stuff.

The point about the diary is more at the level of state law.  Typical
corporate law imposes very heavy duties on corporate directors - the
word is "fiduciary duty".  It is a very, very heavy burden and contains
a large amount of risk to a director's personal assets.  It is also an
extremely complicated duty.  For example, as a California public benefit
corporation ICANN's directors are obligated to consider the impact upon
the public well being when evaluating whether a proposed action is in
the best interest of the corporation or not.  Many directors do not
understand this and consider only the best interest of the public
benefit corporation without recognizing the need to incorporate the
effect upon the public.

Because of the difficult and potentially draconian nature of fiduciary
responsibilities there is an escape valve built into most corporation
laws - which is the idea that directors are allowed some flexibility as
long as they act in certain ways.

One of those ways is that a corporate director obtains a degree of
protection if he/she can demonstrate that he is making an informed,
reasonable decision in the context of a business purpose.  The rule
allows a director to make a mistake and yet avoid liability for that
mistake - It's a rather sensible idea, otherwise no one would risk
taking on the role of a director.

So my diary was intended to demonstrate that when I was making a choice
that I had tried to become informed, that I tried to evaluate the
alternatives, and that the decision was being made in the context of the
purpose of the business.

That point about being "informed" is more tricky than one might think
... being on ICANN's board requires an enormous amount of work just to
keep up, and much more to understand, and even more to really comprehend
the competing issues.  Any person who considers the role should
recognize that it is more than a full-time job.

Becoming informed is hard - that is why when I was on the board I'd ask
many questions, often to the point of annoying those who wanted to move
ahead.

But I discovered that some disputes coming before ICANN were really not
disputes at all, but rather were people who were talking past one
another using different words.  Asking questions tends to reveal when
their are real differences or merely much more easily correct
mis-understandings.  There are plenty of real and hard issues in
internet governance, so it is nice to be able to find the easy ones by
asking some questions.

And the diary was also meant to be a two-way street - by exposing my
thought processes others could see where I had gone awry and could try
to change my point of view.

I found that very valuable - there is nothing like disagreement to cause
two people to explain themselves to one another.  ;-)

This is an area in which internet governance is weak - We Americans tend
to feel comfortable with a rough-and-tumble dialog - an argument - as a
means to illuminate and comprehend issues.  Other cultures work through
less confrontational means.

Both methods are correct, neither method is wrong.  I found, however,
that there is not enough accommodation by those who use one of these
methods for those who use the other.  As an American I found myself
often upbraided (often rather subtly) for being very direct in my
questions and words.  And as an American I often found it difficult to
comprehend how I was to learn enough about issues if I did not ask
direct questions and used, instead, indirect means.

	--karl--




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