[CCWG-Accountability] Regarding Non-profit and public-benefit legal structure

Thu Jan 8 14:40:03 UTC 2015

This is great information Ed, many thanks for it.

I have only one comment to add: You say “it is too early to sort out exactly what powers we want to give to Members.”   May I offer the respectful view that the time for that discussion is now…. If we think that Membership control is critical (an assumption not yet adopted by this group, but indulge me) and if such a change would require amendment of the Bylaws and/or articles of incorporation (clearly so) and if we accept Bruce’s input that a Bylaw change would require on the order of 60-90 days with the Board (as he has previously said) and finally, if we accept that the Board needs to convey its proposal to ICANN no later than July 31, then, working backwards, a Bylaw amendment proposal that we think is necessary for accountability must go to the board by April 30 …. More or less.

Time is fleeting ….

Paul

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From: Edward Morris [mailto:emorris at milk.toast.net] 
Sent: Wednesday, January 7, 2015 11:06 PM
To: Robin Gross; Accountability Cross Community
Subject: Re: [CCWG-Accountability] Regarding Non-profit and public-benefit legal structure

A few comments on some quite interesting posts: 

1. I think it is important to acknowledge at the outset that the only way we will be able to create and implement  any type of membership based organisational structure is if everyone 1) checks their egos at the door, 2) actually listen to the concerns and needs of the other groups and 3) understands there will have to be a lot of compromises to get to a product we can all live with, if not completely agree with in every detail.

I'm as big a supporter of creating a membership based ICANN as you're likely going to find in the noncommercial community yet Robin is right: I could never sell an organisational scheme to my colleagues that is based upon what we consider to be the unequal and biased representation scheme embedded in the constituency model. Yet I realise the commercial community, registrars - on down the line - all groups have their own needs, wants and desires. We're going to have to be creative, perhaps, for example,  by creating different membership classes, while recognising that 1) we don't have the time to re-fight past battles and 2) every group in ICANN will have to buy into the final product or we will not succeed. There are a lot of people on the outside who believe we are destined to fail: let's not prove them right.

2. I agree with Greg: it's too early to sort exactly what powers we want to give to Members. That said, if we are to become a California Public Benefits Corporation with members,  there are two potent statutory  provisions of the California Corporations Code that are designed to make the Board accountable to its Members:

a. California Corporations Code §5222 allows Members to remove Board members without cause provided certain voting thresholds are met. The general rule is that a majority vote would suffice for the removal, but the statute has a number of provisions that makes things a bit more complex. The threshold is generally not something we would decide, it's there in the statute. 

b. California Corporations Code §5710 allows for Members Derivative Actions. A derivative action is perhaps the most potent accountability tool available for Members / shareholders in any corporation: the right to sue on behalf of the corporation those harming the corporation. Well, it's a bit more complicated than that but that is the general idea. I'm a huge supporter of derivative actions as a means of ensuring the ultimate accountability of the Board. I realise, however, not everyone shares my enthusiasm and this may be a lightening rod for those opposing the membership scheme.

3. I just wanted to briefly note that California Corporations Code §5152 does provide for something called "delegates" which have "some or all of the authority of members". This could be considered if we decide to go to a membership type based organization but don't want to give all of the statutory powers provided under California law to our members.

Thanks to everyone for contributing to such a lively and important conversation.

Best,

Ed Morris

-----Original Message-----
From: Robin Gross <robin at ipjustice.org <mailto:robin at ipjustice.org> >
To: Accountability Cross Community <accountability-cross-community at icann.org <mailto:accountability-cross-community at icann.org> >
Date: Wed, 7 Jan 2015 11:44:28 -0800
Subject: Re: [CCWG-Accountability] Regarding Non-profit and public-benefit legal structure

One of the concerns I have with this proposed model is how non-commercial users as a whole would be treated.  Non-commercial users had to fight for many years simply to achieve parity in representation with commercial users within the GNSO.  My concern is that this type of model simply re-opens the door for non-commercial users to go back to a model of inequality with commercial users (if representation rights are given to "constituencies" rather than "stakeholder groups").  NCSG has members who do not belong to any constituency or who belong to more than one.  So the devil is in the details of how these models are created.  The same old battles fought among stakeholders for greater proportional representation will carry over to the development of the "member" model.  It isn't a simple solution when you get into the specific details of precisely how representation is apportioned.  Details like whether it is to "constituencies" or to "stakeholder groups" have a lot of impact and will be hard fought as a result.  So this 1 example illustrates the concern I have about how this model could impact the stakeholder group I represent and perhaps not be quite as simple as it seems at first glance.  I'm sure other stakeholders might have similar concerns.  Who is a "member" and how much proportional representation is afforded will present the same old battles, just in a new suit.

Thanks,

Robin

On Jan 7, 2015, at 11:08 AM, Steve DelBianco wrote:

Some clarifications about the Member concept, as described on the Work Area 2 inventory <https://community.icann.org/pages/viewpage.action?pageId=51416471> :

Members are not outside of ICANN — they are designated by their respective AC/SO/Constituencies.  So not sure there is much risk that a majority of these Members could be captured.

Members would be given only these enumerated powers:

Appoint members of Affirmation Review teams

Review [and perhaps reverse] any board decision.  Non-approval would send decision back to bottom-up policy development process.

Approve proposed changes to ICANN Bylaws or Articles of Incorporation.

Approve annual proposed budget 

Members could not re-write contracts or budgets or bylaws.   If a bottom-up consensus process generated a bylaws change that was rejected by the board, the Members could reverse that decision, however.

Steve DelBianco

From: Greg Shatan < gregshatanipc at gmail.com <mailto:gregshatanipc at gmail.com> >
Date: Wednesday, January 7, 2015 at 12:45 PM
Cc: " accountability-cross-community at icann.org <mailto:accountability-cross-community at icann.org> " < accountability-cross-community at icann.org <mailto:accountability-cross-community at icann.org> >
Subject: Re: [CCWG-Accountability] Regarding Non-profit and public-benefit legal structure

I would not rush to the conclusion that a membership group is per se prone to capture.  A poorly designed membership group, yes.  The devil is in the details -- who are the members? if they are individuals, who do they represent? how do they act? when can they act, and how quickly? how many of them are there? what are their powers? who is excluded? are there classes of members? is voting weighted? 

Also, I'm not sure if (or why) the community accountability mechanism needs to be "outside" (depending on what that means).  Members in a membership corporation are not really outside, unless I am not getting the sense of the word as used here.

As for the dispute resolution mechanism, that will depend on the other two factors (among other things).  If the members have the "last word" on something, and the board fails to act, binding arbitration (or litigation) would be a reasonable step (although some escalation mechanisms might be appropriate before getting there).

Greg Shatan 

On Wed, Jan 7, 2015 at 10:37 AM, Paul Rosenzweig < paul.rosenzweig at redbranchconsulting.com <mailto:paul.rosenzweig at redbranchconsulting.com> > wrote: 

I think that the potential for capture of the outside member group is the reason that the accountability system probably needs to be linked to an independent judicial/arbitral function to resolve disputes.   [Of course that institution, too, could be captured … but at some point we have to end the “who guards the guardians?” question].  And that, in turn emphasizes why it is necessary as part of the transition to define the Board’s/ICANN’s scope of authority.  A judicial/arbitral function can only resolve disputes and cabin capture/abuse if it has an articulated standard against which to measure the dispute.  In the absence of such pre-existing guidance the judiciary/arbiter is simply substituting his/her/its own judgment for the Board and the Community, which is not a good thing.

Hence the bottom line:  We need a) an outside accountability mechanism representing the community; b) an independent dispute resolution mechanism; and c) clearly articulated standards against which to measure and resolve any dispute 

Paul

From: Mathieu Weill [mailto: mathieu.weill at afnic.fr <mailto:mathieu.weill at afnic.fr> ]
Sent: Wednesday, January 7, 2015 9:04 AM
To: accountability-cross-community at icann.org <mailto:accountability-cross-community at icann.org> 
Subject: Re: [CCWG-Accountability] Regarding Non-profit and public-benefit legal structure

Dear Colleagues,

Many thanks for this very valuable discussion.

While it confirms that our initial orientation towards the ability to, somehow, oversee the Board, is relevant and worth exploring, the latest comments (regarding risk of capture) highlight that we should also anticipate on the accountability of the overseeing mechanism itself.

If "the community" (through a mechanism yet to be determined) oversees Board and staff, can we ensure all stakeholders, especially those who are less familiar with Icann, that "the community", in turn, is accountable (ie has the relevant independent checks and balances, review and redress mechanisms) ? A significant challenge, but I'm confident our group can address that.

This aspect might, however, need to be addressed in our definition of WS1, if there is agreement that is a necessary element for the transition to take place.

Best,
Mathieu

Le 07/01/2015 09:07, Dr Eberhard W Lisse a écrit :

I am not interested much in the details, interesting as they are :-)-O, but would like to pick up on  Bruce's last paragraph, because in my view, the "membership supervision" is not going to help much as it is prone to capture, quite the opposite of the accountability we want.

greetings, el 

Sent from Dr Lisse's iPad mini 

On Jan 7, 2015, at 02:40, Greg Shatan < gregshatanipc at gmail.com <mailto:gregshatanipc at gmail.com> > wrote:

What Bruce has set forth is close to correct.  However, I can't help but do a little legal nit-picking. 

"Public benefit corporation" is a term used in California (among other places) as a term for non-profit corporations generally.  (In New York State, we use the term "not-for-profit corporation" to mean basically the same thing as a California "public benefit corporation" (and we use the term "public benefit corporation" to mean something quite different -- a quasi-public corporation like the Metropolitan Transport Authority).)  California public benefit corporations are not really "chartered by the state" (though New York ones like the MTA are chartered by the state).  [Wikipedia isn't always a great source....]

In California, public benefit corporations may be created with or without members, or may convert from member to non-member and vice versa.  However, a public benefit corporation with members is still a public benefit corporation.   

(California also has "mutual benefit corporations" which are non-profit but never charitable (and are also not tax-exempt).  Mutual benefit corporations are run for the benefit of their members, and not for the benefit of the general public.)

The term "member" can also be used to mean people (or organizations) who aren't really members.  For instance, when you become a "member" of a museum, you are not becoming a member of the corporation (i.e., what some in ICANN-land have termed a "statutory member").  These non-statutory "memberships" are more for marketing purposes and have no governance role.  "Statutory members" on the other hand, have a role in governance (which can vary markedly depending on the by-laws of the particular corporation.

Hope this helps.

Best regards, 

Greg Shatan 

(Speaking for myself, and not giving legal advice as I am not a member of the California Bar)

On Tue, Jan 6, 2015 at 6:54 PM, Bruce Tonkin < Bruce.Tonkin at melbourneit.com.au <mailto:Bruce.Tonkin at melbourneit.com.au> > wrote:

Hello Phil,

>>   I would envisage the Board having to be compliance with all Corporate Governance Codes specific to Companies Law in the country of incorporation, subject to a community consensus override. But what is its corporate status - not for profit or for profit - as different codes would  apply ?

The legal status  of ICANN is as specified in its articles of incorporation:

https://www.icann.org/resources/pages/articles-2012-02-25-en

"This Corporation is a non-profit public benefit corporation and is not organized for the private gain of any person. It is organized under the California Non-profit Public Benefit Corporation Law for charitable and public purposes. The Corporation is organized, and will be operated, exclusively for charitable, educational, and scientific purposes within the meaning of § 501 (c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), or the corresponding provision of any future United States tax code. Any reference in these Articles to the Code shall include the corresponding provisions of any further United States tax code."

Also from:

http://en.wikipedia.org/wiki/Public-benefit_nonprofit_corporation

"A public-benefit non-profit corporation  is a type of non-profit corporation chartered by a state government, and organized primarily or exclusively for social, educational, recreational or charitable purposes by like-minded citizens.  Public-benefit nonprofit corporations are distinct in the law from mutual-benefit nonprofit corporations in that they are organized for the general public benefit, rather than for the interest of its members."

I believe it was deliberately set up as public benefit rather than a member organization - to avoid the situation where the members become limited to say gTLD registries and registrars and hence it ends up operating primarily for the benefit of the domain name registration industry.

Any move away from a public-benefit corporation to a membership corporation - would need to carefully consider how to ensure that the members are reflective of the broader Internet community and don't become limited to a few members as interest in "ICANN" drops over time.   I.e. a failure scenario of membership organisation is what happens to the membership base over time and how it can be protected from capture.    I have seen some membership based ccTLDs get into problems when their membership becomes dominated by domain name investors for example.

Regards,
Bruce Tonkin
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