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    Highlights of the ICANNWatch Archive
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    ICANN Staff and Structure Cavebear meets stonewall
    posted by michael on Wednesday December 05 2001, @02:52AM

    fnord writes "ICANN elected Board Member Karl Auerbach has released a letter on Dave Farber's interesting people list, reprinted on Declan McCullagh's politechbot list, and on the ICANN DNSO GA list, and if the ICANNWatch editors consider it appropriate, copied here, which details his year-long quest to inspect ICANN's records.

    As someone who has served as a Director or senior staff of various Canadian non-profit organizations, including Canada's largest (larger than ICANN in terms of budget or membership, including the AtLarge), I wholeheartedly agree with everything Karl says, except I fail to see why Karl's second option (his first implies resignation) should require lots of money. I can't imagine it being a difficult or drawn out process to get a court order that compels the staff to act properly, at least unless the staff opposes it, which strikes me as not a good career move. Unless CA law is far different than .ca law or I've missed something in the Bylaws, even the rest of the Board would have trouble opposing it, and again it would be suicide. I say get on with it, and would be only too happy to lend a hand."

    Mr. Auerbach himself is an attorney, and surely there must be other attorneys who would consider acting pro bono to do the necessary legal work. This is the best, and perhaps last, hope to rein in the staff, as well as to make sure the rest of the Board is aware of their own fiduciary responsibilities and that that trumps any other concerns, at least in civilized nations. It is just this kind of nonsense that causes some of us in the rest of the world to question why we should continue to accept this hybrid non-profit US corporation (that charges $50k for a sniff at a TLD and $15k for a display table) having any say outside of its own borders. To paraphrase Henry David Thoreau, we can raise lots of money and hack at the branches of this growing mess, or dig in and get at the root. -g

    Following is Karl Auerbach's letter, modified only by removing quote brackets and reformatting for linebreaks...

    Here's more on my now year-long quest to inspect ICANN's records:

    A Director of virtually any corporation in the US has several rights and obligations.

    The obligation side of the equation is very strong - it's called a "fiduciary" duty, which is one of most stringent obligations that our legal system can impose on a person. As part of that duty, a Director is compelled to exercise his or her *independent* judgement. The ability of a Director to elect to rely upon the judgement of others is very tightly circumscribed.

    As a Director I could be personally liable for corporate misdeeds. There are laws that protect some directors, but they are largely really not much more than rice-paper walls that may easily be pierced.

    In other words, there are big Swords of Damocleas that hang above Directors.

    The legal system recognizes that it is useless to impose responsibility on Directors without also giving them, each of them individually, the powers to become informed so that they may make informed judgements. To that end the law gives Directors strong powers to inquire into every aspect of a corporation's operations.

    Under the California corporations code that governs non-profit/public-benefit corporations (such as ICANN) those rights are "absolute":

    6334. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director.
    It's not often that a legislature underscores that a right is "absolute". ;-)

    This right to inspect and copy not a collective power that may be exercised only by the board acting in concert. Rather it is a distinct power that exists in each and every Director - it may be exercised upon the independent discretion of each Director.

    And a Director is not required to indicate to corporate management the purpose of his or her inspection or what he or she is looking for.

    I have asked to inspect ICANN's financial records along with several other documents (such as the employee handbook and proprietary rights agreements, if any, that govern employee conduct). I have also asked to review the billing statements and conflict waiver requests from those who render professional services to ICANN - that's a natural part of my role on ICANN's "conflicts" committee, but it is a request that I could make even were I not on the conflicts committee.

    In my experience as a Director of various corporations, inspection of the corporate financial records is a good way to inquire as to the efficiency and behavior of corporate management. In most corporations, requests such as mine are quickly and fully answered by management without stonewalling, without demands for restrictive covenants that would force a Director to surrender his or her rights of independent judgement, and without statements from management that more than implicitly assert that the Director has some nefarious purpose.

    One must remember that those fiduciary obligations that I mentioned impose upon a Director an obligation of loyalty to the corporation. That obligation generally requires that a Director keep confidential that corporate information that is, in-fact, confidential. However, the Director is not compelled to blindly and unthinkingly accept any self-serving labels of confidentiality that corporate management may chose to apply.

    I made my initial request to inspect the financial records - in particular the general ledger - more than a year ago. Despite repeated efforts and requests, I still have not been allowed to see those records.

    Oh, ICANN's management will say that they have afforded an opportunity; that I merely need to sign away my duty of independent judgement, that I merely need to allow corporate management to bind me in advance in how I may review the activities of that very same management; that I allow management to set conditions on the inspection that are so limiting that they would render any such inspection marginal and superficial.

    To sign these agreements would be to abandon my Director's obligations of independent judgement - I would be agreeing to allow my decisions to be controled by ICANN's management - by exactly the same people whose actions I am obligated to review.

    To add insult to injury the "agreements" that ICANN has demanded that I sign are cast in the most condescending of language and contain unfounded assertions against my personal integrity.

    All of this has occurred for the most part outside of the public eye. And even if I do gain access to corporate records the information that I review will almost certainly remain inaccessible to the public - My obligation of loyalty to the corporation demands that I use the information only to improve the corporation and it is unlikely that disclosure would further that obligation. But one can not agree in advance, as ICANN's management is demanding, that disclosure may never occur. For example: In the unlikely event that I were to discover information that must be disclosed - such as evidence of criminal activity - then, of course, my duties would be affected accordingly.

    ICANN's management has demonstrated over the course of the last year that it has an institutional hostility and an intent to preventing me from carrying out my duties as a Director of the Corporation.

    My recourse is to either abandon my obligations as a Director or to initiate such steps outside of the corporate boundaries as are consistent with my obligation of loyalty to the corporation.

    Such steps cost money, potentially lots of money.


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    This discussion has been archived. No new comments can be posted.
    Cavebear meets stonewall | Log in/Create an Account | Top | 36 comments | Search Discussion
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    M. Stuart Lynn's response
    by fnord (reversethis-{moc.oohay} {ta} {k2yorg}) on Wednesday December 05 2001, @08:21PM (#3942)
    User #2810 Info
    I reformatted Mr. Lynn's letter, already provided by Anon, to respond to it. I reprint it in its entirety here, my attempt at deconstruction follows. -g

    Date: Wed, 5 Dec 2001 14:01:31 -0800
    To: David Farber , "Declan McUllough" [sic]
    From: "M. Stuart Lynn"
    Subject: Response to Karl Auerbach's note

    The postings from Karl Auerbach to your lists regarding access to records were forwarded to me. I thought each of you might be interested in my response below. Feel free to post or not, of course, as you see fit.

    Many thanks


    Karl is free to examine ICANN records any time he is ready to comply with established procedures that apply to him and any other Director -- in complete accordance with California law. Karl is not being singled out.

    Among other reasonable provisions, these procedures are designed to protect confidential records, such as personnel files. Karl wishes to set himself above the direct or delegated authority of the ICANN Board of Directors, in declaring himself as the sole determinant of what is confidential and what is not. That is not his prerogative according to California law or ICANN bylaws.

    The procedures to which he objects were endorsed by the Audit Committee of the ICANN Board, to whom the Board has delegated responsibility for this general area. He is always welcome to take his objections to the full Board should he wish. So far, he has not chosen to do so.

    Stuart Lynn
    President and CEO
    4676 Admiralty Way, Suite 330
    Marina del Rey, CA 90292
    Tel: 310-823-9358
    Fax: 310-823-8649
    Email: lynn@icann.org

    [ Reply to This | Parent ]
    More from politechbot
    by fnord (reversethis-{moc.oohay} {ta} {k2yorg}) on Thursday December 06 2001, @04:57AM (#3944)
    User #2810 Info
    here. -g
    [ Reply to This | Parent ]
    Re: Cavebear meets stonewall
    by PMaggs (p-maggs @ uiuc . edu) on Thursday December 06 2001, @05:23AM (#3945)
    User #3061 Info
    The following quote is from a California case (45 Cal.Rptr.2d 1) about a different, but identically worded ("absolute right to inspect") section of the California Corporations Code:

    " Moreover, because the right of inspection under Corporations Code section 8334 has no exceptions, a director's motive for requesting an inspection is irrelevant. No reported decisions construe Corporations Code section 8334, but cases involving virtually identical provisions elsewhere in the Corporations Code conclude motive is irrelevant. For example, Valtz v. Penta Investment Corp. (1983) 139 Cal.App.3d 803, 188 Cal.Rptr. 922 concerned the "absolute right" under Corporations Code section 1600 of any shareholder with more than five percent of a company's stock to examine the shareholder list. The corporation contended a shareholder's inspection request was prompted by his desire to form a competing enterprise and refused the demand, asserting an unclean hands defense. (Id. at p. 806, 188 Cal.Rptr. 922.) Rejecting the argument, the Court of Appeal declared, "The California Legislature chose to allow inspection without any restriction based on the shareholder's purpose and we cannot impose such a restriction via the unclean hands doctrine." (Id. at p. 810, 188 Cal.Rptr. 922.)
    True, Valtz involved a shareholder rather than a director. But a director has a stronger case for unqualified inspection rights than a shareholder. A director is a fiduciary charged with running the corporation in an informed manner. (National Automobile and Cas. Ins. Co. v. Payne (1968) 261 Cal.App.2d 403, 412-413, 67 Cal.Rptr. 784.) Because a director, unlike a shareholder, is potentially liable for failure to exercise appropriate oversight, an unconditional right to inspect is essential. (Hoiles v. Superior Court (1984) 157 Cal.App.3d 1192, 1201, 204 Cal.Rptr. 111; see also 1A Ballantine & Sterling, Cal. Corporation Law (4th ed.1995) § 272.02 at p. 22 ["A director must be familiar with the affairs of the corporation in order to perform his duties and the absolute right of inspection is to assist him in performing (those) duties in an intelligent and fully informed manner."].)
    Also, in light of a director's potential exposure, the denial of unconditional access to corporate books and records constitutes poor policy: Well qualified individuals might decline to serve with something less than absolute inspection rights. (Cf. Gould v. American Hawaiian Steamship Co. (D.Del.1972) 351 F.Supp. 853, 859.) As this case illustrates, to allow defenses based on a director's alleged motive would in many cases result in the right to inspect being buried in litigation before it could ever be exercised, good motive or bad.
    Nor does a director's unfettered access to corporate books and records leave the corporation unprotected. Any number of tort theories may be used to redress a misuse of information gleaned via an improperly motivated inspection. (Hoiles v. Superior Court, supra, 157 Cal.App.3d at p.
    1201, 204 Cal.Rptr. 111.) Damages for misapplication of corporate information, rather than a threshold rejection of a director's inspection rights, is the appropriate remedy. [FN2] (Ibid.)
    45 Cal.Rptr.2d 1
    [ Reply to This | Parent ]
    Query to Karl
    by hofjes on Thursday December 06 2001, @12:52PM (#3956)
    User #60 Info

    Why don't you simply file a lawsuit? This is not a complicated issue requiring years of discovery, experts, and rooms full of documents.

    Additionally, because you are a director, the corporation will be required to indemnify you for the costs you incur in fulfilling your obligations as a director.

    This case requires a complaint and motion for a preliminary injunction. After the injunction hearing, the case is basically over.

    Quick and dirty action with your attorneys' fees paid by ICANN.

    What are you waiting for?
    [ Reply to This | Parent ]
    Re: Cavebear meets stonewall
    by Muhhk on Wednesday December 05 2001, @06:28AM (#3933)
    User #3085 Info
    Depends on whether it is easier to change from without or from within. I would suggest the only way ICANN is going to change is from within, unless the US government does something drastic (or ICANN becomes redundant due to the spread of alternative roots, "Internet Keynames" or even the ccTLDs going nuclear).
    [ Reply to This | Parent ]
    Re: Cavebear meets stonewall
    by eric (eric@godbless.info) on Thursday December 06 2001, @01:44PM (#3958)
    User #2784 Info
    You post anonymously and so I call you a coward.

    Do you do more than he who you criticize?

    We have a duty to accept, move to alter or leave. You Mr. anonymous do nothing but obstruct.

    [ Reply to This | Parent ]
    Re: Cavebear meets stonewall
    by eric (eric@godbless.info) on Thursday December 06 2001, @01:50PM (#3960)
    User #2784 Info
    Your error is in speaking against a man who puts it on the line while you speak anonymously.

    Karl is speaking out for us dotcommoners is real time in virtual time and yet all you do is detract.

    You do not seem to have complaints against the BS members that do nothing.

    Why is that?
    [ Reply to This | Parent ]
    Re: Cavebear meets stonewall
    by fnord (reversethis-{moc.oohay} {ta} {k2yorg}) on Saturday December 08 2001, @12:45PM (#4007)
    User #2810 Info
    Mr. Auerbach responds to Mr. Roberts on the ALSC list. There's also a thread on the DNSO GA list.

    I was going to wait until after the archives are posted to report on the recent CIRA [administrators of the Canadian .ca ccTLD] General Meeting here, but will cover a few relevant points now. CIRA's meeting was webcast (in two languages, English and French, Canada is officially a bilingual country), and included a mechanism for online voting. Any .ca registrant is considered a voting general member of CIRA (the general membership also elects nine of the twelve CIRA BoD members, one of the remaining three is appointed to represent end-user interests). The general membership votes on the appointment of the external auditors.

    Compare and contrast. CIRA is only a year old yet somehow has managed a number of things that ICANN has spent a few years promising will happen real soon now. It was Mr. Roberts at the helm of ICANN for most of that time whilst it went in circles, floundered, and reversed course. The most polite thing that can be said is that he lacks credibility. Less politely, one could muse whether he knew exactly what he was doing. If not, he was in the wrong job. If so, who was he really working for? -g

    [ Reply to This | Parent ]
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