Regarding Fiduciary responsibility of the Board
Hello Nigel,
From the link you have provided:
" A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence." At a straight legal level ICANN is a nonprofit public benefit corporation. So at the highest level ICANN is for public benefit. Our Articles of Incorporation - then defines the purpose in more specific terms including as you mentioned: - pursue the charitable and public purposes of lessening the burdens of government and promoting the global public interest in the operational stability of the Internet and - operate for the benefit of the Internet community as a whole I know from discussions we have had at the Board - that this is how Directors and Liaisons think of their role on the Board. In fact a key part of the training delivered to any incoming Board members from an SO and AC, is that their duty is to the Internet community as a whole now rather than just their home SO or AC. I think it is very clear who the Board acts for in the Articles of Incorporation, but I do note that the bylaws are less clear on the fiduciary duty of the Board in this regard, and that is certainly something that could be improved. Regards, Bruce Tonkin
Bruce: This is helpful, but, I think, your answer confirms my reservations regarding the careless use of the fiduciary terminology. Directors have a fiduciary duty to the Corporation, not to an amorphous 'internet community'. In fact, under trust law and Equity, one cannot hold something on trust for such a beneficiary as the "internet community as a whole" since the object towards which one has the fiduciary duty (that is to say, the owner of the ultimate property) cannot be identified with sufficient precision. This was discussed in the English case of The Queen -v- District Auditor (on the application of West Yorkshire MCC). As an English case, this would persuasive precedent in California only to the extent that there are no California case or statutory provisions, so I do not submit this as being decisive of the question. But it's certainly on on point, and remains influential precedent throughout those countries whose legal systems have have equitable jurisdictions (such as the USA, Canada, UK, and former British colonies) and include trusts and fiduciaries. The differences between a fiduciary duty and an ordinary duty of care are reasonably well understood. Indeed, my home jurisdiction, as it is a global financial centre has chosen to regulate, at a fairly detailed level, the activities of professional fiduciaries. As a former Board member of a similar (national) organisation to ICANN, of course, I understand the need for, and the nature of the training you refer to. But I sumbit the nature of the Directors' duty you refer to, is towards the corporation, in the pursuit of the goals set out in the Articles, and NOT towards the internet community, as such a duty would be regarded as legally unworkable. Thus a director should act in the best interest of the corporation. If a director proposed the corporation become a promoter of the next Kylie Minogue tour, or a producer of a Hollywood movie, he or she would be acting ultra vires their fiduciary duty -- as this is not in accordance with Arts. 3 or 4. But hiring Ms Minogue to perform at the next ICANN Gala in London or New York in pursuit of the corporations normal goals, might not be ultra vires, depending on a number of factors specific to the occasion, including price, and whether it advanced the goals in Arts 3/4. Nigel PS: An ICANN Director's fiduciary duty to the corporation should not override the reason he or she was seated by an SO or AC -- which is, IN THE PURSUIT of the corporation's public benefit role, to provide the perspective of the section of the community that seated them. So while a Director has a fiduciary duty to the corporation this does not extend to a prohibition on representing the views of their particular section of the community, and voting accordingly, so long as they do not so capriciously or ultra vires the Articles. On 03/10/15 23:54, Bruce Tonkin wrote:
Hello Nigel,
From the link you have provided:
This and similar discussions have gotten a little unmoored from the legal underpinnings relevant to this particular case. Talking about "fiduciary duty" as a monolithic concept is not all that helpful. For the members of a board of a U.S. non-profit, "fiduciary duty" is not an amorphous or singular concept. It really breaks down to three specific duties to the corporation: - the duty of care, - the duty of loyalty, and - the duty of obedience. This last duty is unique to non-profit boards, while the first two apply to all boards (for-profit and not-for-profit). Board members are required to carry out these duties “in good faith,” meaning honestly, openly, and faithfully in all organizational actions. More specifically, these duties can be defined as follows: *Duty of Care*: This is a duty to use at least the same level of care when attending to the non-profit's business as would a reasonably prudent person would use in conducting their own personal affairs. In the board context, this means attending board meetings and getting to be knowledgeable and informed about the matters the board deals with. It also means using well-informed independent judgment to make objective decisions that are in the best interest of the corporation. *Duty of Loyalty*: This is a duty to act in the best interests of the corporation and not for their own advantage. Directors must put the corporation’s interest in any decision ahead of their own personal interest (including personal business interests). Directors need to expressly attempt to avoid or resolve any potential conflict of interest related to any transaction. Clear conflict of interest policies are a key part of making sure that board members act consistently with this duty. (These policies cover disclosure of potential conflicts and include a process for handling conflicts when they occur.) While this may not be relevant in the ICANN context, the duty of loyalty requires that corporation have the opportunity to take advantage of an opportunity that comes before the corporation before a director can take that opportunity privately. *Duty of Obedience*: Board members of a nonprofit must be true to the organization’s purposes and goals, as stated in the articles and bylaws. Each board member must be faithful to the organization’s mission. Members need to make sure that any action taken by the non-profit is consistent with the corporation’s articles of incorporation and bylaws, as well as its status as a not-for-profit, tax-exempt corporation (note this is not the same thing as being a charitable or non-revenue generating entity, it relates to the purposes and uses of revenue). Board member's Duty of Care and Duty of Loyalty are owed to the corporation and not to "amorphous" others. *That is why the Duty of Obedience is critical here.* This requires the board to be "obedient" to the mission and purpose and goals of the corporation, as set forth in the Articles of Incorporation and the Bylaws. This distinguishes the non-profit Board from the for-profit Board, which only has duties to the corporate body itself. While in a sense the duty of obedience is a duty to the corporation, it is really a duty to the underlying *raison d'etre* of the corporation, and not to the current corporate body as it stands. There is clearly a balancing act that needs to take place here -- in particular, the duty of obedience can sometimes conflict with the duty of loyalty and with the corporation-centric aspects of the duty of care. It means looking beyond the immediate needs of the corporation and staying true to the public benefit reasons the corporation exists. In the posts above, I would say that Bruce is emphasizing the Board's Duty of Obedience, while Nigel is emphasizing the Board's Duty of Loyalty and Duty of Care. It is not an "either/or" situation. In truth, an ICANN Board member needs to act consistently with all three duties, and I would say a key difficulty is in balancing the duty of obedience against the other two less altruistic duties. Clearly there is a reason why non-profit board members have a duty of obedience and for-profit board members don't -- it is because the duty of obedience is powerfully linked to the public benefit that the corporation provides. Without appropriate attention to the duty of obedience (i.e., attention to the mission, purposes and goals, to the Articles and Bylaws, and to the broader public good for which a non-profit exists), a non-profit is essentially a failure as such. Greg On Sun, Oct 4, 2015 at 3:43 AM, Nigel Roberts <nigel@channelisles.net> wrote:
Bruce:
This is helpful, but, I think, your answer confirms my reservations regarding the careless use of the fiduciary terminology.
Directors have a fiduciary duty to the Corporation, not to an amorphous 'internet community'.
In fact, under trust law and Equity, one cannot hold something on trust for such a beneficiary as the "internet community as a whole" since the object towards which one has the fiduciary duty (that is to say, the owner of the ultimate property) cannot be identified with sufficient precision.
This was discussed in the English case of The Queen -v- District Auditor (on the application of West Yorkshire MCC).
As an English case, this would persuasive precedent in California only to the extent that there are no California case or statutory provisions, so I do not submit this as being decisive of the question.
But it's certainly on on point, and remains influential precedent throughout those countries whose legal systems have have equitable jurisdictions (such as the USA, Canada, UK, and former British colonies) and include trusts and fiduciaries.
The differences between a fiduciary duty and an ordinary duty of care are reasonably well understood. Indeed, my home jurisdiction, as it is a global financial centre has chosen to regulate, at a fairly detailed level, the activities of professional fiduciaries.
As a former Board member of a similar (national) organisation to ICANN, of course, I understand the need for, and the nature of the training you refer to. But I sumbit the nature of the Directors' duty you refer to, is towards the corporation, in the pursuit of the goals set out in the Articles, and NOT towards the internet community, as such a duty would be regarded as legally unworkable.
Thus a director should act in the best interest of the corporation. If a director proposed the corporation become a promoter of the next Kylie Minogue tour, or a producer of a Hollywood movie, he or she would be acting ultra vires their fiduciary duty -- as this is not in accordance with Arts. 3 or 4.
But hiring Ms Minogue to perform at the next ICANN Gala in London or New York in pursuit of the corporations normal goals, might not be ultra vires, depending on a number of factors specific to the occasion, including price, and whether it advanced the goals in Arts 3/4.
Nigel
PS: An ICANN Director's fiduciary duty to the corporation should not override the reason he or she was seated by an SO or AC -- which is, IN THE PURSUIT of the corporation's public benefit role, to provide the perspective of the section of the community that seated them.
So while a Director has a fiduciary duty to the corporation this does not extend to a prohibition on representing the views of their particular section of the community, and voting accordingly, so long as they do not so capriciously or ultra vires the Articles.
On 03/10/15 23:54, Bruce Tonkin wrote:
Hello Nigel,
From the link you have provided:
_______________________________________________ Accountability-Cross-Community mailing list Accountability-Cross-Community@icann.org https://mm.icann.org/mailman/listinfo/accountability-cross-community
Very well explained, Greg. +1. Rinalia On Oct 5, 2015 3:57 AM, "Greg Shatan" <gregshatanipc@gmail.com> wrote:
This and similar discussions have gotten a little unmoored from the legal underpinnings relevant to this particular case. Talking about "fiduciary duty" as a monolithic concept is not all that helpful.
For the members of a board of a U.S. non-profit, "fiduciary duty" is not an amorphous or singular concept. It really breaks down to three specific duties to the corporation:
- the duty of care, - the duty of loyalty, and - the duty of obedience. This last duty is unique to non-profit boards, while the first two apply to all boards (for-profit and not-for-profit).
Board members are required to carry out these duties “in good faith,” meaning honestly, openly, and faithfully in all organizational actions.
More specifically, these duties can be defined as follows:
*Duty of Care*: This is a duty to use at least the same level of care when attending to the non-profit's business as would a reasonably prudent person would use in conducting their own personal affairs. In the board context, this means attending board meetings and getting to be knowledgeable and informed about the matters the board deals with. It also means using well-informed independent judgment to make objective decisions that are in the best interest of the corporation.
*Duty of Loyalty*: This is a duty to act in the best interests of the corporation and not for their own advantage. Directors must put the corporation’s interest in any decision ahead of their own personal interest (including personal business interests). Directors need to expressly attempt to avoid or resolve any potential conflict of interest related to any transaction. Clear conflict of interest policies are a key part of making sure that board members act consistently with this duty. (These policies cover disclosure of potential conflicts and include a process for handling conflicts when they occur.) While this may not be relevant in the ICANN context, the duty of loyalty requires that corporation have the opportunity to take advantage of an opportunity that comes before the corporation before a director can take that opportunity privately.
*Duty of Obedience*: Board members of a nonprofit must be true to the organization’s purposes and goals, as stated in the articles and bylaws. Each board member must be faithful to the organization’s mission. Members need to make sure that any action taken by the non-profit is consistent with the corporation’s articles of incorporation and bylaws, as well as its status as a not-for-profit, tax-exempt corporation (note this is not the same thing as being a charitable or non-revenue generating entity, it relates to the purposes and uses of revenue).
Board member's Duty of Care and Duty of Loyalty are owed to the corporation and not to "amorphous" others. *That is why the Duty of Obedience is critical here.* This requires the board to be "obedient" to the mission and purpose and goals of the corporation, as set forth in the Articles of Incorporation and the Bylaws. This distinguishes the non-profit Board from the for-profit Board, which only has duties to the corporate body itself. While in a sense the duty of obedience is a duty to the corporation, it is really a duty to the underlying *raison d'etre* of the corporation, and not to the current corporate body as it stands.
There is clearly a balancing act that needs to take place here -- in particular, the duty of obedience can sometimes conflict with the duty of loyalty and with the corporation-centric aspects of the duty of care. It means looking beyond the immediate needs of the corporation and staying true to the public benefit reasons the corporation exists.
In the posts above, I would say that Bruce is emphasizing the Board's Duty of Obedience, while Nigel is emphasizing the Board's Duty of Loyalty and Duty of Care. It is not an "either/or" situation. In truth, an ICANN Board member needs to act consistently with all three duties, and I would say a key difficulty is in balancing the duty of obedience against the other two less altruistic duties. Clearly there is a reason why non-profit board members have a duty of obedience and for-profit board members don't -- it is because the duty of obedience is powerfully linked to the public benefit that the corporation provides. Without appropriate attention to the duty of obedience (i.e., attention to the mission, purposes and goals, to the Articles and Bylaws, and to the broader public good for which a non-profit exists), a non-profit is essentially a failure as such.
Greg
On Sun, Oct 4, 2015 at 3:43 AM, Nigel Roberts <nigel@channelisles.net> wrote:
Bruce:
This is helpful, but, I think, your answer confirms my reservations regarding the careless use of the fiduciary terminology.
Directors have a fiduciary duty to the Corporation, not to an amorphous 'internet community'.
In fact, under trust law and Equity, one cannot hold something on trust for such a beneficiary as the "internet community as a whole" since the object towards which one has the fiduciary duty (that is to say, the owner of the ultimate property) cannot be identified with sufficient precision.
This was discussed in the English case of The Queen -v- District Auditor (on the application of West Yorkshire MCC).
As an English case, this would persuasive precedent in California only to the extent that there are no California case or statutory provisions, so I do not submit this as being decisive of the question.
But it's certainly on on point, and remains influential precedent throughout those countries whose legal systems have have equitable jurisdictions (such as the USA, Canada, UK, and former British colonies) and include trusts and fiduciaries.
The differences between a fiduciary duty and an ordinary duty of care are reasonably well understood. Indeed, my home jurisdiction, as it is a global financial centre has chosen to regulate, at a fairly detailed level, the activities of professional fiduciaries.
As a former Board member of a similar (national) organisation to ICANN, of course, I understand the need for, and the nature of the training you refer to. But I sumbit the nature of the Directors' duty you refer to, is towards the corporation, in the pursuit of the goals set out in the Articles, and NOT towards the internet community, as such a duty would be regarded as legally unworkable.
Thus a director should act in the best interest of the corporation. If a director proposed the corporation become a promoter of the next Kylie Minogue tour, or a producer of a Hollywood movie, he or she would be acting ultra vires their fiduciary duty -- as this is not in accordance with Arts. 3 or 4.
But hiring Ms Minogue to perform at the next ICANN Gala in London or New York in pursuit of the corporations normal goals, might not be ultra vires, depending on a number of factors specific to the occasion, including price, and whether it advanced the goals in Arts 3/4.
Nigel
PS: An ICANN Director's fiduciary duty to the corporation should not override the reason he or she was seated by an SO or AC -- which is, IN THE PURSUIT of the corporation's public benefit role, to provide the perspective of the section of the community that seated them.
So while a Director has a fiduciary duty to the corporation this does not extend to a prohibition on representing the views of their particular section of the community, and voting accordingly, so long as they do not so capriciously or ultra vires the Articles.
On 03/10/15 23:54, Bruce Tonkin wrote:
Hello Nigel,
From the link you have provided:
_______________________________________________ Accountability-Cross-Community mailing list Accountability-Cross-Community@icann.org https://mm.icann.org/mailman/listinfo/accountability-cross-community
_______________________________________________ Accountability-Cross-Community mailing list Accountability-Cross-Community@icann.org https://mm.icann.org/mailman/listinfo/accountability-cross-community
Exactly so. On 06/10/15 08:04, Rinalia Abdul Rahim wrote:
Very well explained, Greg. +1.
Rinalia
only has duties to the corporate body itself. While in a sense the duty of obedience is a duty to the corporation, it is really a duty to the underlying /raison d'etre/ of the corporation, and not to the current corporate body as it stands.
Agree. But I suggest that there's a subtlety here. Who is the object? That is to say, to whom, in an actual and legla sense, is the duty owed. It seems that, as in all other fiduciary duties, the duty is owed, by the Director to the Corporation. Whilst not impossible, I would think it almost unthinkable for someone who is not a Member of a Corporation to show locus standi to enforce the duty of obedience (to the raison d'etre of the Corporation), for example, in Court. Particularly so as respect of this particular duty, the matters are subject to a wide margin of appreciation and different Directors could, in the legitimate exercise of their discretion, take wildly different views on the application of Article 3 to a particular issue. As indeed they are showing us at the moment.
participants (4)
-
Bruce Tonkin -
Greg Shatan -
Nigel Roberts -
Rinalia Abdul Rahim