[Acct-Legal] Sidley Austin and Adler & Colvin: Legal Assessment: Proposed Accountability Mechanisms

Sat Apr 11 19:39:08 UTC 2015

Robin, I agree with Josh, at least some of the answers you seek are in the other templates, which is why we gave such a short answer to the Community Veto template.

But I would also just point out that there is one option, the two-tiered board approach (which I prefer to call the board-in-a-board approach, to be more accurate), that would allow the Community Board (the full board, all with fiduciary duties) to overrule virtually any decision they chose to of the Executive Board (the small committee within the full board).  This extreme flexibility and high level of empowerment, accompanied by fiduciary duties, are the primary characteristics of this model that I believe should drive accepting or rejecting it -- both these characteristics might be viewed as positive or negative, depending on one's point of view.

On the fiduciary duty issue, so long as the Community Board properly delegates management of ICANN to the Executive Board and exercises minimal oversight (getting reports on Executive Board actions and reviewing them to see if anything is amiss, for example, and not ignoring reports of mismanagement), the Community Board members who are not on the Executive Board may fully rely on the Executive Board directors to fulfill their fiduciary duties. But whenever the Community Board takes a decision away from the Executive Board, then all Community Board directors would have full fiduciary duties in making that decision.  While there is potential personal liability to Community Board for a breach of fiduciary duties on these decisions taken from the Executive Board, there are also mechanisms to lessen the exposure in many circumstances (insurance and indemnification among them).  Moreover, a director's breach of fiduciary duty would involve either (1) not paying attention or not acting when the need for action arises, (2) acting in bad faith, (3) acting for personal self-interest, or (4) acting contrary to the best interests of the corporation.  As to the first three standards, it seems difficult to me to argue one wants directors to do nothing, or act in bad faith, or for personal interests.  As to the final standard, it's important to note that assessing what the corporation's best interests are is an individual and subjective matter for each director, which should be informed by each director's knowledge and beliefs about their constituency's interests and values.

I also note that the board-in-a-board approach could be used whether the community members were legally structured and designators or members.

I've drafted the foregoing based on discussions with Sidley, but they have not signed off on this, so until they have that opportunity, please treat this as an Adler & Colvin answer.

Rosemary

Rosemary E. Fei
Adler & Colvin
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From: Hofheimer, Joshua T. [mailto:jhofheimer at sidley.com]
Sent: Saturday, April 11, 2015 12:11 PM
To: Gregory, Holly; Robin Gross
Cc: Jordan Carter; León Felipe Sánchez Ambía; Greg Shatan; Rosemary E. Fei; ccwg-accountability5 at icann.org; Rosemary E. Fei; Clark, Michael A.
Subject: RE: Sidley Austin and Adler & Colvin: Legal Assessment: Proposed Accountability Mechanisms

Robin,

In the meanwhile, you might also refer to WP1-C: Statutory Delegates and WP1-D: Statutory Members.  They both provide a good overview of how the "community" can "veto" Board decisions and the limitations on those powers.  As discussed last Wednesday on the WP1, though, "veto" may not be the most accurate term in this context.  There is no broad veto power over every board decision; rather there are certain powers that can be reserved to the community, and certain decisions that can be reserved for approval/disapproval to the community, through particular structures.  Sidley and Adler's responses to the two templates noted above provide an assessment of the two most viable structures that may be used to give effect to the powers desired to be reserved to the community.  WP1-E: Two Tier Board Construction provides an assessment of a third, alternative structure as well.

Hope this helps,
Josh

JOSHUA HOFHEIMER
Sidley Austin LLP
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From: Gregory, Holly
Sent: Saturday, April 11, 2015 11:53 AM
To: Robin Gross
Cc: Jordan Carter; León Felipe Sánchez Ambía; Greg Shatan; Rosemary E. Fei; ccwg-accountability5 at icann.org<mailto:ccwg-accountability5 at icann.org>; Hofheimer, Joshua T.; Rosemary E. Fei; Clark, Michael A.
Subject: RE: Sidley Austin and Adler & Colvin: Legal Assessment: Proposed Accountability Mechanisms

We will revise and resend Robin.

Sent with Good (www.good.com<http://www.good.com>)

________________________________
From: Robin Gross
Sent: Saturday, April 11, 2015 01:46:52 PM
To: Gregory, Holly
Cc: Jordan Carter; León Felipe Sánchez Ambía; Greg Shatan; Rosemary E. Fei; ccwg-accountability5 at icann.org<mailto:ccwg-accountability5 at icann.org>
Subject: Re: Sidley Austin and Adler & Colvin: Legal Assessment: Proposed Accountability Mechanisms
Thanks, Holly.

Would it be possible to get analysis of the community veto proposal rather than the one sentence: "This type of community veto power is not legally viable unless it is accomplished through other structures discussed, such as with statutory members or with a full board / small board approach."

Perhaps it wasn't clear in the template that this mechanism would have to be exercised under one of the different corporate governance models under consideration.  So we were hoping to see some evaluation of the *how* this power could be exercised under the different models under consideration.  I note in the template for "existing AC/SO structures" describes a designator structure in which the Advisory Committees and Supporting Organizations form unincorporated associations and are provided with some of the powers at issue here.  This specific community veto proposal could be one example of these designators exercising powers.  And the legal memo says (without saying) that some kind of community veto proposal could be legally viable under a membership structure, the full/small board approach and possibly other structures - like described in the earlier template on existing AC/SO structures.

So I was hoping we could get the evaluation of this community veto proposal that the other proposals were given: *how* would we exercise a power like this under the structures in consideration?  Would that be possible?

Thank you,
Robin

On Apr 11, 2015, at 5:07 AM, Gregory, Holly wrote:

Jordan,  Here is the email that I sent last night .  Not sure why it hasn't gone through.  Holly

HOLLY GREGORY
Partner

Sidley Austin LLP
+1.212.839.5853
holly.gregory at sidley.com<mailto:holly.gregory at sidley.com>

From: Gregory, Holly
Sent: Saturday, April 11, 2015 12:24 AM
To: León Felipe Sánchez Ambía; ccwg-accountability5 at icann.org<mailto:ccwg-accountability5 at icann.org>; Gregory S. Shatan (gsshatan at lawabel.com<mailto:gsshatan at lawabel.com>)
Cc: ACCT-Staff; rfei at adlercolvin.com<mailto:rfei at adlercolvin.com>; Steven Chiodini; Stephanie Petit; Boelter, Jessica C.K.; Boucher, Rick; Clark, Michael A.; Flanagan, Sharon; Fuller, Miles; Gregory, Holly; Hilton, Tyler; Hofheimer, Joshua T.; Kerry, Cameron; McNicholas, Edward R.; Mohan, Vivek; Tam, Tennie H.; Zagorin, Janet S.
Subject: Sidley Austin and Adler & Colvin: Legal Assessment: Proposed Accountability Mechanisms

Dear Legal Sub-team and CCWG,
Attached please find a joint preliminary analysis from Sidley Austin and the Adler & Colvin firm of the viability of various accountability mechanisms and powers currently under consideration by CCWG, as reflected in the draft templates that you provided us.  In addition to the cover memo, we have provided analysis at the end of each of the templates  in  sections entitled "Legal Analysis and Viability."
We look forward to presenting to CCWG an overview of the key legal issues that should frame your consideration.
Kind regards,
Holly
HOLLY J.  GREGORY
Partner

Sidley Austin LLP
+1.212.839.5853
holly.gregory at sidley.com<mailto:holly.gregory at sidley.com>

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<Combined CCWG Cover Memo and Templates.pdf>

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