A quick update to my earlier post about voting to ensure that the .uk registry isn’t regulated by the government.

The top civil servant at the Department for Business (BIS, formerly BERR, formerly DTi), David Hendon, has sent a letter [pdf] back in response to a letter [pdf] from Nominet’s chairman Bob Gilbert saying that the EGM proposed changes would “largely remove the concerns” that the government has about Nominet.

There are several interesting aspects about this. The first is that David Hendon has sent a response at all, particularly considering that there are several clauses in an ongoing Bill going through Parliament that specifically address the question of Nominet governance. This is almost certainly why it is a personal letter – signed “David” and written to “Bob” – there is no way a civil servant would be allowed to write on behalf of the department at this time.

So the fact there is a response, and that Nominet has published it – something that both sides would definitely have checked and approved with each other before making public – demonstrates that the UK government is trying to work with Nominet in overcoming its concerns. And that gels with Board member Gordon Dick’s assertion that civil servants really do not want to take over the .uk registry.

The fact that Mr Hendon – who I have met a few times and have a lot of respect for – also chooses to highlight only one of the four EGM proposals will also give them both some leeway if members fail to vote in favour of the other three, less unanimous, proposals.

In publishing the letter Nominet’s chairman, Bob Gilbert, is clearly trying to signal to his members that this is the right path to go down and, speaking personally, I agree. I hope that Nominet members vote unanimously for all the EGM proposals — for their self-preservation if nothing else.

It would be a dark day for the Internet if the UK, of all countries, was to introduce government regulation of an Internet registry. I am pretty confident that, having stared into that particular abyss, we will be able to walk away and learn some lessons. But that rests in the hands of just a few thousand Nominet members that get to vote.

Below is the full text of the letter:

Dear Bob

Thank you for your letter of 26 January enclosing proposals to implement the Garratt Report that Nominet intends to put to its membership at a forthcoming EGM.

I am grateful to have a chance to study the proposals. I am particularly pleased to see a specific proposal to amend the Articles to reflect Nominet’s public benefit purpose. That recognition is important and is an indication of the crucial role Nominet and the .uk domain plays in the UK’s Internet economy.

I hope that your membership will vote to accept these proposals which certainly would largely remove the concerns that I have explained in a couple of speeches to some of your member over the last year or so.

Yours sincerely,

David

David Hendon
Director, Information Economy

For the past year, the company that runs the UK’s Internet registry has been the unlikely location for a corporate soap opera, complete with scandals, villains, twists and turns, allegations of corruption, resignations, grand plans thwarted at the last minute and some nasty in-fighting that has left people alternatively amazed, entertained and worried.

The dust finally began to settle in January this year when a second director resigned (loudly) from not-for-profit Nominet and ever since the management team has been frantically trying to tidy up. In an effort to avoid the same problems emerging further down the line, a big spring clean was ordered and an independent expert brought in to assess what had gone wrong and what needed to be done.

Last week, that expert – Professor Bob Garratt – delivered a surprisingly frank and blunt assessment. In it, he told Nominet – and Nominet’s members – that they had to sort out a list of issues, and they had to sort them out fast.

In effect, he gave Nominet three months to live. If the warring tribes can’t find a settlement before then, Garratt warns, the UK government is going to step in and Nominet as it has existed since 1996 will cease to be.

It now rests on the shoulders of Nominet’s CEO, Lesley Cowley, to make enormous progress within an extremely short period of time, and persuade groups that were until recently at war with another to come together and rebuild the organization.

Here’s what needs to be done and how Cowley says she is going to do it.

Click here to jump the history and get into the actual recommendations and what Nominet is going to do.

How the review came about

It was back in November 2008 that Professor Bob Garratt was selected to carry out an independent governance review of Nominet. The decision to have such a review was agreed to, and effectively ordered, by the UK government in a letter to Nominet [pdf] a month earlier.

Lesley Cowley and Nominet’s chairman Bob Gilbert had visited the head honcho at the Department for Business, Enterprise & Regulatory Reform (BERR, formerly the DTI), David Hendon, on 8 September. Hendon and the UK government have been on very friendly terms with Nominet for a number of years, often working side by side on Internet issues.

It’s not known exactly what transpired during that meeting, probably a combination of gentlemen’s agreement and a governmental warning.

Bob Gilbert no doubt explained his previous efforts to fix the overriding problem of Nominet’s corporate rules where too few people have too much power. And where an impossibly-high required voting percentage means that Nominet’s management is effectively hamstrung from making changes to keep the company up-to-date in a rapidly changing industry.

David Hendon would no doubt have noted that the first effort to fix this – back in March 2006, incredibly – led to an embarrassing defeat of all three votes, and, in many respects, fired the starting pistol on Nominet’s current problems. At a second EGM in November 2006, Nominet tried to make much smaller changes and got them through by the tiniest of margins.

Not only that but both before, during and since, the company was beset by controversial elections for Board members and Policy Advisory Body members that saw not one but two directors elected to the Board who openly and publicly opposed the plans of the CEO and Chairman. It was the accumulation of two years’ of rising tension.

The only solution was a government-ordered and independent root-and-branch review of Nominet’s structure, Hendon, Cowley and Gilbert agreed and so while Cowley and Gilbert returned to Oxford to start looking for the right person, Hendon and his team set about drawing up a letter outlining what they felt needed to be reviewed and decided.

The Garratt and Mutuo Reports

So Garratt prepared his report and handed it to Nominet in January. Unfortunately, as he himself recognises in a subsequent overview letter, much of this work became moot when the Nominet Board entered trench warfare with itself.

One director – Jim Davies – was actively working against the remainder of the Board and, the Board suspected, providing confidential information to others. So the Board tried to strong-arm Davies into complying with rules that would force him to declare any conflicts he might have. Davies fought back. All this prompted a second Board member – and one that backed up Davies in many respects – Angus Hanton, to resign. More fighting ensured both inside and outside the Board and eventually Davies also resigned in January this year.

What Nominet realised at this point – or perhaps it was prodded by Garratt – was that an external third-party making recommendations wasn’t going to cut it. The organization had to ask the members themselves what they thought and bring them along with any plans for reorganization.

And so, a week or so after Davies’ resignation, the company announced it had hired research firm Mutuo to “research stakeholders’ views” on the issue of Nominet’s governance.

It was a very rushed affair but it might be the one thing that saves Nominet. The Mutuo report [pdf] spoke to eight focus groups and 21 individual interviews with stakeholders, and told everyone what they already knew: that Nominet was widely respected for the work that it did, but that it hadn’t evolved as a corporate entity in line with the changing Internet world, and that much of that was down to the fact that due to its corporate rules caused it to be predominantly owned and controlled by private commercial customers.

But what the report also did was say the unsayable – that there was a huge amount of mistrust between certain key groups, particularly Nominet’s staff and “domainers” – those that make a living from buying and selling domains.

It also did a crucial thing that Nominet had not done enough of, and for which it has suffered considerably, and it asked people for their views and then accurately reflected them. Now, it didn’t talk to enough people and the report suffers from being written extremely quickly, but the Mutuo report had three strong and useful impacts:

1. It made the warring tribes feel listened to
2. It caused Bob Garratt to understand the issues better from an on-the-ground perspective and sparked his interesting overview letter, and
3. It reminded Nominet’s management and the CEO in particular of the value and importance of putting open debate at the forefront of much-needed changes

The Garratt letter

So, what Nominet ended up promoting when it released the results of all of this work was a rather unusual and surprisingly frank 16-page letter [pdf] from Bob Garratt in which he himself recognises that he is stretching beyond the remit he was given.

Garratt is quite clear that he believes that the UK government will step in if Nominet’s members can’t sort out the problems themselves (something that the CEO Cowley also has no doubt about).

And Garratt comes to many of the same conclusions that were reached by Nominet chairman Bob Gilbert over three years ago:

• The Board members need to be given more power to act in the interests of the organization
• Nominet needs to have some experienced independent non-executive directors
• The voting rules need to change to make Nominet more flexible

Garratt also suggests a range of measures to make sure the Board is more accountable for this increased level of power:

• Separate out the Managing Director and Chairman roles
• Hire a company secretary to act as “the conscience of the Board”
• Evaluate Board members and Board Committees annually
• Publish more information about the directors and their activities
• Make the Policy Advisory Group (the other arm of Nominet at the highest level) more “outward facing”

When it comes to Nominet itself and its difficult structure (which was designed in a very different Internet era), Garratt crucially makes it extremely plain that the solution lies with the members and NOT with the Board.

Nominet needs to:

• Define its purpose
• Get rid of the system that has caused much of the problems – where if you become a member of Nominet you can buy .uk domains more cheaply. This has created a situation where a majority of those with power over Nominet have little real interest in the organisation’s future, meaning that a small number of people have disproportionate influence
• Broaden the membership of Nominet to include people affected by the Internet in the UK but who don’t have much to do with the registering of domain names
• Revise the current structure i.e. find a way of spreading the power
• Remove entrenched positions i.e. change the voting rules so the organisation can’t be prevented from moving forward

Garratt sums all this up at the end by saying that his “fundamental recommendation” is that Nominet and its members “engage in an urgent, positive and thoroughgoing dialogue on all the constitutional and corporate governance issues which I have set out earlier, with a view to making appropriate changes as soon as reasonably can be made”.

In order words: you need to bury the hatchet and sort these problems out – and do it quickly.

So what is Nominet going to do?

So it all falls down to Nominet’s CEO, Lesley Cowley, to make sure this happens. On top of an official Nominet statement that outlined the next steps as:

• A formal consultation in May
• Open meetings in London, Manchester, Glasgow and Cardiff
• An Extraordinary General Meeting (EGM) in the “autumn”
• The Annual General Meeting (AGM) in early July

Lesley was good enough to answer some questions from me:

What consultations are you running to make sure the members are heard?

In addition to the meetings specifically on this topic, it will be covered at:

• The next 3 registrar information days (Leeds, London & Birmingham)
• Member lunches up to the EGM in London on 21 April, Liverpool in June and Birmingham in September
• The afternoon session at our AGM in July
• Our stand at Internet World 28-30th April
• The meetings we have with registrars at other events such as ICANN, LINX, UKIGF etc
• Meetings and discussions that the account manager team and registrar support team have with all Nominet registrars

We plan to promote these discussions and meetings via the website, direct email, telephone calls etc. We’re also doing PR to raise awareness. We plan to do an online consultation too.

How are you going to fix the high level of suspicion and mistrust between staff and domainers as identified in the Mutuo report?

By discussing it and how it might be resolved – and I hope that the domainers who feel this way will be willing to do so too.

Will the autumn EGM aim to give the Board the broader “normal” powers that Garratt suggests it needs? And to get some non-execs on the Board? And to try to fix the high percentage approval needed (again)?

We don’t know yet. As you are aware, previous attempts to do these things have not had sufficient member support – and there is a 75 percent vote in favour required for many of these. For example, the introduction of independent non-execs was actually supported by 60 percent of those who voted last time, but that was not enough to ensure it happened.

What will be put to the vote in the Autumn depends on what members indicate they would support via the consultation and debate.

What does making the PAB more “outward facing” mean in reality?

I’m not entirely sure. My take on the statement would be that more diverse inputs are needed into the policy process for .uk and the PAB’s role could be to seek and channel those views more actively.

Do you think there is a real threat that the UK government will step in if this process doesn’t work out?

Absolutely. It is very clear indeed that the Government will step in to regulate/legislate both Nominet and this industry if the current issues are not satisfactorily resolved.

Are you going to open up and/or moderate Nom-Steer?

We do need to look at better ways of broadening membership participation and engagement and we are continually working on improving member communication.

How are you going to broaden the membership?

Firstly we need to hear from the members whether they agree with the suggestion that membership should be broadened.

In conclusion

So, a personal summary of all of this:

• Nominet and its members need to make great strides in the next three months or the self-regulating UK registry model is going to be revamped by civil servants whether they like it or not
• The CEO and staff are serious about it and they are in listening mode, and it’s up to the members to meet them halfway with some tough but realistic conversations
• Hopefully those conversations will start to bring the domainers and the rest of the membership and staff together
• The big companies that effectively stymie Nominet’s efforts to fix itelf need to be shamed into giving their power away. So let’s start by naming the big three: GX Networks, Schlund and NetBenefit
• Nominet has to be opened up to more than companies that register domain names – the company is too important to the UK and the UK’s Internet for just domain companies to decide its future. In this respect, Nominet can learn from ICANN and ICANN’s successes and mistakes
• Those voting percentages have to be lowered
• When this is all done and over, Nominet and its stakeholders are going to have to look at the culture they have created over the past three years and actively work to remove some of their self-destructive tendencies

So there you go. As someone who has followed Nominet for years and as an individual deeply committed to the UK’s Internet industry, I sincerely hope that everyone sees the logic in working together and so ensuring that Nominet survives this and comes out stronger as a result.

Related links:

The Garratt overview letter:
http://www.nominet.org.uk/digitalAssets/34979_GarrattGovernanceReview.pdf

The Mutuo Report
http://www.nominet.org.uk/digitalAssets/34976_Mutuo_Report.pdf

The Garratt Board evaluation study:
http://www.nominet.org.uk/digitalAssets/34977_Review-Comparison-with-2006Combined-Code.pdf

Nominet stories on this blog:
http://kierenmccarthy.com/tag/nominet/

A quick timeline:

20 Apr 09: Garratt report, Mutuo report and Garratt overview published
29 Jan 09: Survey company Mutuo starts research into stakeholders’ views on governance
20 Jan 09: Jim Davies resigns as a director
25 Nov 08: Bob Garratt chosen to head independent review
18 Nov 08: Six registry CEOs send letter of support for Nominet CEO and chairman
13 Nov 08: Board decides to take legal action against director Jim Davies
29 Oct 08: Nominet announces Corporate Governance Review
15 Oct 08: UK government sends letter to Nominet outlining its “unresolved concerns” about Nominet’s constitution and structure
8 Sep 08: Nominet CEO and Chairman visit BERR (UK government) in London
1 May 08: Jim Davies voted onto Nominet Board
21 Apr 08: Nominet puts out extraordinary memo warning members about several of the individuals put up for election to the Board
22 Nov 06: Second EGM votes scrape through
16 Mar 06: EGM votes collapse

Nominet very narrowly scraped the 90 percent it needed to be able to expand beyond the .uk registry this morning in Oxford.

In fact, 90.97 percent – which in reality meant that a Nominet member or two either way would have seen the whole thing fall over. I’m very pleased this got through. I think Nominet should be able to move into other areas – particularly ENUM and particularly the next generation of Net infrastructure. The domain name system in itself is a set system now and despite the expansion in new gTLDs, and the upcoming IDNs, it’s not where the growth and Nominet has bigger eyes and better talent than that.

Of course, there is always the risk that it could become increasingly corporate and aggressive. But then shoulda, woulda, coulda. The Board has learnt its lesson about not taking the members for granted, and these two votes – especially the e-voting one which got 96.66 percent approval – are good for the company.

I’m particularly interested to see what Jay Daley comes up with along his digital identifier lines.

Anyway, I have to go as I have some fancy black-tie do in London to get to – the BCS Annual Dinner, but here are two stories I have done about it for The Register and for Techworld.

Well, I thought it would be a close thing. And I was completely wrong.

Nominet this morning lost all three votes called at its Extraordinary General Meeting and lost them by a massive margin. Why? Because, completely unexpectedly, two of the three biggest Nominet members decided they didn’t like them.

In the end, all the objections eloquently put forward by some members of Nominet’s Policy Advisory Board were as nought when big companies Fasthosts and Pipex turned against the deal.

But what I thought was a battle over Nominet’s future direction has suddenly become something much, much bigger. It’s now about who controls Nominet, and so by extension, the UK’s Internet space, and the UK’s biggest beast in the global Net infrastructure market.

The three resolutions were:

1. Rewrite Nominet’s Memorandum of Association – this required a 90 percent approval
2. Rewrite Nominet’s Articles of Association – this required a 75 percent approval
3. Reorder Nominet’s weighted voted system – this required 50 percent approval.

Resolution 2 was linked to Resolution 1, so effectively Resolution 2 also required 90 percent approval. All three failed to get even a simple majority.

The figures:

Resolution 1
For: 2,360
Against: 2,538

Resolution 2
For: 2,352
Against: 2,546

Resolution 3
For: 2,437
Against: 2,451

What has emerged however is that through the existing vote weighting that Pipex actually has more than 10 percent of all votes, it has 1,041 votes of a total of very close to 10,000 overall votes. The result: Pipex can effectively veto any changes to Nominet’s structure.

Fasthosts – the other big beast – has 880 votes and so is also in a position to disrupt any changes. So has a third company – Schlund (which runs 1and1 Ltd), with 795 votes. But Schlund is in favour of the changes and voted yes.

But there is another fundamental issue. Only 10 percent of Nominet’s members actually voted. Considering this is the biggest change to Nominet in its 10-year history, the appallingly low turnout is not encouraging. It also gives disproportiate weight to the few members that do vote, and overwhelming power to the three companies at the top of the tree.

The resolution to change the voting method will see any member restricted to a cap of 10 percent of votes cast. But with that 10 percent enough to prevent changes to Nominet’s memorandum, the company finds itself in a very difficult position.

I’ve done some number crunching to understand Nominet’s member system better. The simple explanation is that power in Nominet is massively disproportionate. There are over 2,800 members (2,822 according to my calculations).

Of this 90.1 percent of members (2542) have either one or two votes out of total of roughly 10,000 votes. Because their individual power is so minimal, this large majority of members in effect have almost no connection to Nominet at all.

Next, there are 196 (6.9 percent) of members with between 3 and 10 votes. Then 71 (2.5 percent) members with between 11 and 100 weighted votes a piece. Just 10 companies (0.4 percent) have between 101 and 500 votes. And the right at the top, three companies – representing 0.1 percent of members but 27 percent of total votes (significantly more in the real world where most members don’t vote) have over 500 votes.

And what tops all of this off is that Pipex – the company that has effective control of Nominet – is rumoured to be the target of a takeover bid.

According to the FT this morning: “Pipex Communications gained 14.7 per cent to 16p, its highest level for five years, amid rumours of a possible takeover and talk that a large shareholder had been cleared out.”

Clearly there are some very large implications here. I have put in calls to Schlund, Pipex and Fasthosts, and I have an interview with Nominet Bob Gilbert lined up for later today, so hopefully I should be able to make more sense over what happened this morning soon.