[CCWG-ACCT] WG: question on fiduciary duties and their objectivity

Mathieu Weill mathieu.weill at afnic.fr
Mon Oct 5 06:43:34 UTC 2015


Dear Jorge,

We are planning an initial discussion during our next ccwg call, in order to ensure clarity on the request, and we will certify during the meeting. 

Best,

Mathieu Weill
---------------
Depuis mon mobile, désolé pour le style

> Le 5 oct. 2015 à 08:14, <Jorge.Cancio at bakom.admin.ch> <Jorge.Cancio at bakom.admin.ch> a écrit :
> 
> Dear Co-Chairs,
>  
> May you please kindly confirm that this question will be certified to our lawyers?
>  
> Thanks and best regards
>  
> Jorge
>  
> Von: Cancio Jorge BAKOM 
> Gesendet: Freitag, 2. Oktober 2015 17:02
> An: Greg Shatan <gregshatanipc at gmail.com>
> Cc: Mathieu Weill <Mathieu.Weill at afnic.fr>; accountability-cross-community at icann.org; Thomas Rickert <thomas at rickert.net>
> Betreff: Re: [CCWG-ACCT] question on fiduciary duties and their objectivity
>  
> I feel Greg captures and explains (much more eloquently) the issues I think we should be clarifying.
>  
> Thanks!
>  
> Jorge
> 
> Von meinem iPhone gesendet
> 
> Am 02.10.2015 um 16:52 schrieb Greg Shatan <gregshatanipc at gmail.com>:
> 
> I am quite confident that there are standards (objective or otherwise) for the definition and exercise of "fiduciary duty" by directors, both in the statutes and in case law, as well as in commentary (i.e., books and articles) and legal advice.  Of course, the advice that the Board has received over the years in applying "fiduciary duty" as an ICANN Board member almost certainly takes a particular view of the legal standards and their application.  Our counsel may well take a different view.  We should get our counsel's view (and if possible, our counsel's view on ICANN's counsel's view).  
>  
> As a general matter, Boards are bound to to make all their decisions consistent with their fiduciary duties.  This does not need to be set out in any document.  It's a legal duty.  Our issues don't focus on this overall exercise of fiduciary duty; rather, I think our primary concern is when the Board invokes fiduciary duty as a reason not to accept the recommendations, advice or decisions of the community or any part thereof.
>  
> After that comes the question of whether and how to bind the ICANN Board to specific and explicit standards or interpretations for fiduciary duty, rather than relying on an unstated interpretation based on the advice of counsel.
>  
> Then comes the questions of whether the Bylaws can include any specific requirements (e.g., extended rationale, supermajority) when the Board goes against the decisions of the Community and does so based on "fiduciary duty."
>  
> After that comes the question of whether the Board's exercise of fiduciary duty can be challenged in RfR, IAP, MEM, etc.  
>  
> Finally, the question comes whether this challenge would be significantly different if brought by the Sole Member vs. any other entity.
>  
> I don't believe "enforceability" hinges primarily on whether there are explicit standards for fiduciary duty set forth in the bylaws.  As noted above, it is an inherent duty.  If a Board violates its fiduciary duty, a party with standing (i.e., affected by the outcome) and the capacity to sue (i.e., legal personhood) can challenge that in court. However, explicit standards may make "enforceability" easier, since the complainant could point to specific bylaws that have been violated, rather than challenging the board's interpretation of fiduciary duty.  Since there are a range of interpretations of fiduciary duty, and the Board has broad (but not boundless) discretion to interpret fiduciary duty, it becomes more difficult to challenge -- but not impossible, since some actions objectively violate fiduciary duty based on existing legal standards (e.g., if the Board exhausts its reserve fund to pay for trip to Las Vegas, any claim that this is consistent with their fiduciary duty is likely to fail).
>  
> I hope this helps inform the questions we need to ask counsel in this situation.
>  
>  
> There is also a second question arising from Jorge's email, which is:  What are the duties and obligations that must be considered when the membership makes a decision.  Are the decisions of membership (in a California public benefit corp.) utterly arbitrary and without regard to any standard, or are they limited by some legal standards or duties?  If so, what are those standards and duties? If there is no legal standard for member's decisions, how can these decision-making powers be constrained, e.g., in the Articles/Bylaws of the corporation, and what standards and mechanisms would typically be used to do so?  This should be explored as well.
>  
> Greg
> 
>  
> On Fri, Oct 2, 2015 at 10:25 AM, Mathieu Weill <mathieu.weill at afnic.fr> wrote:
> Hi Jorge, 
> 
> Thanks for providing these additional thoughts and refinements. The way I read these is that you are not only looking for clarity of what fiduciary duties imply, but also on potentialoptions to make them enforceable (by specifying them in the Bylaws, etc.) ? 
> 
> This is certainly an aspect we need to clarify . 
> 
> Best
> Mathieu
> 
> 
> Le 02/10/2015 11:43, Jorge.Cancio at bakom.admin.ch a écrit :
> 
> Hi Mathieu,
>  
> After reviewing the legal memo you just sent and what it says about fiduciary duties, I feel that the question I’m presenting is not tackled in that Memo and that we still would largely benefit right now from a better understanding of the question I was proposing.
>  
> I’ve tried to specify the question a bit more, and it would look as follows:
>  
> Is there any means under Californian Law that would allow to subject the exercise of fiduciary duties to objective and controllable standards? For example, could the following or similar means be acceptable and usable under Californian law:
> ·         concretizing these fiduciary duties in the Bylaws;
> 
> ·         subjecting their correct interpretation to arbitration;
> 
> ·         imposing special requirements on the rationale needed to be provided if they are used to override community decisions;
> 
> ·         imposing extra-supermajorities in the Board in order to being able to invoke such duties?
> 
>  
> The underlying idea is IMHO very relevant to our present discussions on the Model, especially for those of us who are not experts in Californian Corporate Law: i.e. is there a legal means to subject those fiduciary duties to specific and objective standards and/or third-party control? If there are, could we use those means (if they exist) to develop our model? If they do not exist, or are too limited, this might speak for a membership structure.
>  
> Please let me know if you can proceed with this.
>  
> Regards
>  
> Jorge
> 
>  
> Von: Mathieu Weill [mailto:mathieu.weill at afnic.fr] 
> Gesendet: Freitag, 2. Oktober 2015 11:06
> An: Cancio Jorge BAKOM <Jorge.Cancio at bakom.admin.ch>; accountability-cross-community at icann.org
> Cc: leonfelipe at sanchez.mx; thomas at rickert.net
> Betreff: Re: question on fiduciary duties and their objectivity
>  
> Dear Jorge, 
> 
> You are rightly pointing out one of the key areas where a shared understanding of the concept and consequences has not been achieved so far. $
> 
> Our 2nd report highlighted this issue for further investigation during WS2, but I note that some comments mentioned that this should not be clarified as part of WS1. The exact wording of our work item was :
> 
> o   Clarifying understanding of the fiduciary duties of Board Directors and related expectations concerning Director behavior for the Board.
> 
> 
> Past work on the topic include several mentions in legal memos. Most notable is on page 4 of one of the initial memos from our Counsel dated 12 april (https://community.icann.org/download/attachments/52890082/Combined%20CCWG%20Cover%20Memo%20and%20Templates.pdf?version=3&modificationDate=1428797461000&api=v2) which addresses the balance between accountability and decision making authority. 
> 
> If we were to pursue this at this stage, we probably should flesh out some questions to direct work from our Counsel. What would be the type of questions you would raise Jorge ? (or others) ? 
> 
> Best
> Mathieu
>  
> 
> Le 01/10/2015 10:41, Jorge.Cancio at bakom.admin.ch a écrit :
> Dear all,
>  
> During the debates we had on the last conference call I put forward a question which I feel could be important to better understand under Californian corporate law.
>  
> This is whether there are any means to subject the exercise of “fiduciary duties” (by the Board) to objective standards.
>  
> As I have understood the discussion so far, the membership model allows the member to override “fiduciary duties” of the Board. However the member itself has no fiduciary duties vis-à-vis the organization.
>  
> On the other hand, fiduciary duties are apparently a useful tool within corporate law, as it imposes a duty to care for the welfare of the whole of the organization.
>  
> The argument which is made by some, as far as I understand it, is that there is however a problem in the exercise of “fiduciary duties” as it would provide the Board with an “arbitrary” power, e.g. to override community decisions (in exercise of community powers) without being bound to any objective standards.
>  
> Considering all this, my question (to the Lawyers, if this is certified as a question to them) would be: is there any means under Californian Law (or other US jurisdictions…) that would allow to subject the exercise of fiduciary duties to objective standards? (e.g. be it through concretizing these duties in the Bylaws, subjecting them to arbitration, imposing special requirements on the rationale needed to be provided if they are used to override community decisions, or, for instance, imposing extra-supermajorities in the Board in order to being able to invoke such duties?)
>  
> Hope this helps,
>  
> Regards
>  
> Jorge
>  
> 
> -- 
> *****************************
> Mathieu WEILL
> AFNIC - directeur général
> Tél: +33 1 39 30 83 06
> mathieu.weill at afnic.fr
> Twitter : @mathieuweill
> *****************************
> 
> 
> -- 
> *****************************
> Mathieu WEILL
> AFNIC - directeur général
> Tél: +33 1 39 30 83 06
> mathieu.weill at afnic.fr
> Twitter : @mathieuweill
> *****************************
> 
> _______________________________________________
> Accountability-Cross-Community mailing list
> Accountability-Cross-Community at icann.org
> https://mm.icann.org/mailman/listinfo/accountability-cross-community
> 
>  
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://mm.icann.org/pipermail/accountability-cross-community/attachments/20151005/7c6e3884/attachment.html>


More information about the Accountability-Cross-Community mailing list