[CWG-Stewardship] [client com] Draft: Summary of Legal Structure for CWG Proposal

Mon Apr 20 13:24:36 UTC 2015

I do not have any problem with retaining the statements as long we add 'counsel advises'.  But I still believe that that we should say that we cannot truly know the significance of the cost impacts until we have further financial analysis of the legal separation model and I definitely think that we should request the ICANN Finance Team to start that analysis now.  It will probably take them several weeks to do it and the process will involve interaction with the CWG so that they understand the model sufficiently to do the analysis.

Please understand that I am not suggesting that the publication of the proposal for public comment be delayed.  The first analysis can be done in parallel with the public comment period.  But if we wait to initiate the analysis until after the public comment period, it will likely not be completed when we submit a proposal to the SOs/ACs for approval.

Finally, let me also point out that the first such analysis will not be the last.  As the proposal continues to be refined, the analysis will also need to be refined.  But I think we will need more objective information about estimated cost impacts than just counsel advice and that the Finance Team will be able to help us in that regard.

Chuck

From: cwg-stewardship-bounces at icann.org [mailto:cwg-stewardship-bounces at icann.org] On Behalf Of Matthew Shears
Sent: Monday, April 20, 2015 3:29 AM
To: Jordan Carter; Greg Shatan
Cc: cwg-stewardship at icann.org
Subject: Re: [CWG-Stewardship] [client com] Draft: Summary of Legal Structure for CWG Proposal

I agree with Jordan and Greg - these statements should be retained (or if necessary modified with the addition "counsel advises").
On 4/20/2015 6:21 AM, Jordan Carter wrote:
+1 to Greg.

Jordan

On 20 April 2015 at 16:05, Greg Shatan <gregshatanipc at gmail.com<mailto:gregshatanipc at gmail.com>> wrote:
Respectfully, I disagree with Eduardo and Chuck on the following issue:

2] Items (a) & (c) in section  "The weaknesses of the proposed structure are as follows." (page 3):

"(a) Requires forming a new entity and on an ongoing basis attending to a set of  associated corporate formalities, although those can be fairly minimal;"

" (c) May have some negative impact on operational efficiency due to the functional separation, and the separate legal status will introduce some additional costs, although those should not be significant."

I suggest to delete the two statements pointed here by an underline/italics. Both statements are seemly subjectives and tend to steer the reader
 to think that this will be easy to implement and that it will not be costly. There has not been any deep analysis done on these to support either statement.

As a general point, we have asked counsel to provide us not only with their technical expertise, but also with the benefit of their practical experience.  Here they are telling us two things based on their experience:

-- corporate formalities "can be fairly minimal."
-- additional costs introduced by operating PTI with a separate legal status "should not be significant."

Our counsels' practical experience certainly includes forming corporate entities and attending to corporate formalities (sometimes called "corporate housekeeping") -- I'd daresay among our counsel they have done and continue to do this for hundreds (if not thousands) of corporations.  From my own experience and knowledge, corporate formation and corporate housekeeping are essentially ministerial tasks, and are neither particularly complex or time-consuming (though it requires some familiarity and experience to do these tasks).  It's really a fairly objective and entirely reasonable statement for someone with the requisite knowledge to say that these "can be fairly minimal."  Indeed, I can't think of a scenario where attending to corporate formalities would not be fairly minimal.

Similarly, I'm fairly sure counsel have dealt many times with the costs associated with having business units in wholly-owned or controlled subsidiaries rather than divisions, and they are aware of what those costs are.  Again this seems like a reasonable statement and one that I'm sure is made objectively.  From my experience, the costs that are a direct result of running a business as a subsidiary, as opposed to as a business unit within the same entity, are not significant.

In sum, I believe these are both reasonable and very unsurprising statements.  I know that it is not the intent, but I think that giving the impression that the opposite (corporate formalities are not fairly minimal; costs resulting from operating a business as a subsidiary (vs. as a business unit) are significant) could be true creates FUD where there should be none.  Therefore, I think it would be appropriate to accept this advice.

If we don't want to accept counsel's advice, I don't think the appropriate response is to delete it.  Rather, I think the appropriate action would be to ask counsel to explain the basis of the statements.  Alternatively, we could insert "counsel advises" after "although" in each statement.  Let me say that I don't believe we need to do either of these things.  But, if the group is not willing to accept these and move on, these are the courses of action that should be considered.

Greg

On Sun, Apr 19, 2015 at 11:51 AM, Gomes, Chuck <cgomes at verisign.com<mailto:cgomes at verisign.com>> wrote:
I think that Eduardo is probably right that we really don't know whether the increased cost for the legal separation will be significant or not without a detailed analysis by the Finance Team.  Now that we are specifically leaning toward the legal separation approach, I suggest that we request an analysis by the Finance Team right away.  It will take them awhile to do it and they will probably have some questions for us but the sooner we get that started the better.  Xavier understands that a lot of the shared IANA costs can still be shared so that will minimize the increase but there will still be increases.  As far as the language in (c) below, I suggest we say something along these lines instead saying 'although those should not be significant':  "The significance of the increased costs cannot be determined until a detailed analysis is done by the ICANN Finance Team, but the CWG has requested that analysis and expects to have at least preliminary results before the public comment period ends."

Chuck

From: cwg-stewardship-bounces at icann.org<mailto:cwg-stewardship-bounces at icann.org> [mailto:cwg-stewardship-bounces at icann.org<mailto:cwg-stewardship-bounces at icann.org>] On Behalf Of Eduardo Diaz
Sent: Saturday, April 18, 2015 4:43 PM
To: cwg-stewardship at icann.org<mailto:cwg-stewardship at icann.org>
Subject: Re: [CWG-Stewardship] [client com] Draft: Summary of Legal Structure for CWG Proposal

My comments about the S-A document 20179247_3 on legal structure:

1] It is not clear who is going to decide about the concepts of designator vs. members (2nd para, page3). Is this an item for the CCWG to resolve?

2] Items (a) & (c) in section  "The weaknesses of the proposed structure are as follows." (page 3):

"(a) Requires forming a new entity and on an ongoing basis attending to a set of  associated corporate formalities, although those can be fairly minimal;"

" (c) May have some negative impact on operational efficiency due to the
functional separation, and the separate legal status will introduce some
additional costs, although those should not be significant."

I suggest to delete the two statements pointed here by an underline/italics. Both statements are seemly subjectives and tend to steer the reader
 to think that this will be easy to implement and that it will not be costly. There has not been any deep analysis done on these to support either statement.

-ed

On Sat, Apr 18, 2015 at 1:49 PM, Client Committee List for CWG <cwg-client at icann.org<mailto:cwg-client at icann.org>> wrote:
Dear All,

Attached is a summary of the current legal structure under consideration by the CWG.   This also includes the CCWG dependencies.

Please let us know if you have any comments or would like to discuss.

Best regards,
Sharon

SHARON FLANAGAN
Partner

Sidley Austin LLP
+1.415.772.1271<tel:%2B1.415.772.1271>
sflanagan at sidley.com<mailto:sflanagan at sidley.com>

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