The dot-uk registry Nominet has passed a crucial governance test with flying colours, voting yes [pdf] on eight Board resolutions with more than 93 percent member support.

The resolutions will make a variety of changes to the organisation, ranging from an increase in the number of Board members to an explicit statement that Nominet will work in the public interest. The vote was a crucial test for both Nominet’s Board and members: trust and confidence in the Board had been damaged by an acrimonious internal battle, which had subsequently led to the UK government threatening to end self-regulation of the UK’s registry operations.

Overwhelmingly support for the changes will help put Nominet back on the right path and, members hope, enable work to begin on a range of pragmatic issues surrounding the registration of dot-uk domains, such as the ability to register domains for terms other than two years.

Nominet itself called the votes “a defining moment for the UK domain market and the UK Internet landscape” with CEO Lesley Cowley saying that she believed Nominet’s members had “proven their commitment to considering the needs of all stakeholders” and that the changes would demonstrate to the UK government that the reserve powers currently contained in a Bill going through Parliament “will not be necessary”.

Here’s a quick rundown of the changes with what they mean for Nominet and dot-uk:

Public purpose

Nominet’s articles have been changed to include that fact that the organisation works in the public interest i.e. the dot-uk registry has a duty beyond its members to make decisions that work in the overall best interests of the UK.

Upside: This change was highlighted in particular by the UK government as being crucial for continued self-regulation. Nominet’s unusual member model means that those who register dot-uk domains are the only people entitled to vote on changes. This worries people because dot-uk has a far bigger impact than just a market for selling Internet addresses. With this change (with was made up of three separate resolutions that got 95, 96 and 97 percent support), the threat of government regulation should be quashed. It also demonstrates a willingness by Nominet’s members to be pragmatic. All of this is excellent news for a healthy, independent dot-uk registry.

Downside: You can expect the public purpose clause to be quoted by the Board in future for decisions unpopular with members. The public benefit aspect of Nominet’s work was also used as justification for the suspension of several thousand dot-uk domains which the UK police said were being used to sell counterfeit goods. The decision raised concerns that the UK police may be provided with an effective bypass of the law courts when dealing with dot-uk domains.

Board and vote changes

The Board will be expanded from the current six (four non-exec directors plus CEO and chairman) to 11 (three independent directors and up to two more Nominet executives). And the voting threshold for ordinary Board resolutions will be reduced from two-thirds to a simple majority, which is in line with standard company law (measures passed with 94 and 96 percent approval).

Upside: You get a bigger Board, which allows for more expertise and helps spread the load. You also get more day-to-day managers on the Board – which is crucial with helping to introducing pragmatic information and advice (although I think the plan is to add only one more Nominet exec at this time). This should help Nominet deal with its expansion and make the whole outfit more robust and professional.

The voting change should also make the organisation more flexible, which is crucial in an increasingly competitive registry market – particularly with ICANN about to introduce potentiually hundreds of new top-level domains. Nominet’s low turnout problems are also lifted slightly by lowering the voting percentage. And it reduces the possibility for large members to effectively hold a veto over the organisation – which is not in the wider interests of anyone.

Downside: The three new directors are not directly elected but are chosen by the Board and then put to the membership for approval. This approach was specifically designed to prevent possible capture by a determined group. In this case, it was domainers frustrated with what they viewed as unfair decisions, who started using Nominet’s own systems to put representatives on Nominet’s Board and Public Advisory Body. And it was this action that led to the Board crisis, worried the UK government and eventually led to this whole voting situation.

So while having three directors chosen by the Board should effectively prevent the situation from happening again, so making Nominet itself more stable and robust, there is a risk that this approach could cause resentment and, over time, pressure may start building up again. Hopefully what will happen is that Nominet members and Board will settle down, introduce more balancing mechanisms and start addressing domainer concerns – at which point the three directors can be made directly electable.

There is a potential downside in reducing the voting threshold. Nominet largely survived the dotcom boom and crash intact because it had been set up with tight rules that shielded it from speculation. As Nominet opens itself up more to making changes, it is conceivable that there could be a repeat of the crazy dotcom days and the organization be on shakier ground. However, considering where the registry world is now, considering where Nominet is now and considering the other changes made, this is a pretty unlikely scenario.

Also, one important aspect that I believe I’m right in saying still hasn’t been tackled is that there is *still* a 90 percent voting approval requirement. That is something that needs to be dealt with some where down the line. A 90 percent voting restriction just doesn’t make sense.

Pricing

This was the riskiest one. The Board was asking for the right to change prices without requiring a formal vote from members. The logic was good: the current system provides no flexibility and the Board was effectively unable to steer the organisation. The approach where members’ consent was required to make changes to prices was potentially destabilising, and it meant that several large companies had an effective veto over Board action.

Nonetheless, asking people to give up a power that has a direct impact on their businesses and hand it to a Board in whom some do not currently have confidence was a tall order. Incredibly, it passed with a hefty 93 and 95 percent.

I think here was a clear example of the Board listening and explaining and gaining the confidence of its members. The Board dropped initial plans to also give itself the right to change member pricing after a few members said they were uncomfortable with it. Calm reason has prevailed in this case.

Upside: Nominet can start playing more effectively in its market. The Board is also put in a situation where it can act like a Board. And the effective veto over finances by some members, which is not a healthy dynamic, is largely pulled out. The vote also demonstrates that members are willing to hand over some power in the expectation of a Nominet Board making good decisions. It will also please the UK government which in its darker moods looked at Nominet as a price-fixing cartel.

Downside: The Board needs to use its new power carefully and only with respectful engagement with members. This is a big trust issue. The current Board has already said it has no plans to change prices, but a Board in a few years may do so and if the new Board doesn’t have sufficient institutional memory it may make changes bluntly and cause tremendous ill-feeling in its members – who will probably be the same people and so remember the trust that provided in this vote.

Membership

A slightly vague resolution was passed that Nominet would look at its membership model. A 95 percent vote agreed “in principle” that Nominet’s constitution should be “further revised to provide for wider stakeholder involvement”. And that the Board should develop “one or more proposals to achieve this” which it will then put out to public consultation.

This is a big issue. In fact, it is the biggest issue in terms of Nominet’s future. Whichever way it goes, members will at some point have to vote to give themselves less power. This will be a good thing because dot-uk is much, much more than just those companies that sell domains, but a large number of members will need to be persuaded of the greater good and why handing over some power is in their own interests.

I think Nominet risks underestimating the trickiness of this task, especially since it will need to combine gentle persuasion with hard rulemaking, carrots and sticks, to make it work. The best example of this is the voter turnout for these resolutions.

Of 2,727 members, only 1,055 or 39 percent of them actually voted. Nominet went to great lengths to engage its membership on these votes and was very successful in that double the number of people that normally vote turned out this time. And 72 percent of all possible votes were received (there is a vote weighting system in place).

Now, a 72 percent vote turnout is good (although considering its importance you would really want 80+ percent), but a 39 percent voter turnout is terrible.

It’s not hard to figure out why: if you randomly pick Nominet members from its list, chances are that a third of them don’t even have functioning websites, or have websites that haven’t been touched in 10 years.

A HUGE number of Nominet members aren’t really doing anything. And the reason for that is Nominet’s member pricing model. You pay a big upfront fee for joining of £400, and then after that a £100 annual subscription. The problem with this is that people will think the £100 is worth it each year even if they do nothing because they paid such a large amount upfront. So you end up with large numbers of completely disinterested members.

Nominet also does a pretty poor job of engaging its members (although it has hugely improved in recent years) explaining to them why they should get involved and how to get involved. The company also doesn’t actively canvass for members so it is a little out-of-tune with why people would want to become members, and what it is that the silent majority actually want from Nominet.

There are a number of things the organisation could do, but the risk is that it could end up upsetting members but penalising some unnecessarily. I think there are two initial solutions:

1. Change the membership pricing model – decrease the initial fee and pay for it by increasing the annual fee. The problem here of course is that the Board specifically pulled out the right to change membership fees from this round of votes after members got nervous.
2. Start enforcing some compliance. If members haven’t updated their websites or contact details, they can be given a warning. Likewise if their website doesn’t exist. Give people a reasonable period of time to update details and if they don’t, cancel their membership when it comes up for renewal.

It would take 12 months for these two changes to work themselves through the system but at the end of it you would have cut out the huge amount of member dead wood that Nominet carries, and it will have put members in the position of deciding whether they really want to engage with Nominet.

But that is just one side of the membership coin – dealing with existing members. The other side is pulling in people that are not Nominet members, and may not even wish to register domains, into Nominet so that the organisation can become more representative and make decisions on behalf of a broader cross-section of people (its public purpose aspect).

Fortunately there are plenty of case studies here – ICANN and the IGF being the most obvious. And, fortunately Nominet’s management and some of its members, know both ICANN and the IGF and the whole idea of “multi-stakeholder” decision-making pretty well. There are also some organisations that would help, such as the Internet Society, who president Lynn St Amour specifically mentioned her interest in this aspect in a supporting quote to the votes.

But that doesn’t mean it will be easy – Nominet will need to develop a hybrid system that accounts for Nominet’s unique membership model and the fact that it has a direct relationship with registrants.

It is possible that recently announced changes to the Policy Advisory Body – where people self-create in order to help develop new policy rather than leave to a selected group – may be helpful in developing a way to get Nominet members working with those that share a common interest.

But at some point you will need to give people who are not Nominet registrars the right to vote on decisions – and most likely without paying for the priviledge. This is not going to be an easy model to create, and it will be the next stage in the evolution of Nominet as the dot-uk registry operator.

In conclusion

Stepping back from the details to the fact that eight Board resolutions were passed with 93 percent and up member approval, this is great news for Nominet and its members. The issues garnered huge support. Vital changes can now be made. The UK government should get off Nominet’s back. And it will be possible to start rebuilding trust and heal wounds. And, most vitally, it means that Nominet can now focus its attention on doing what it is there to do – making the dot-uk registry work better.

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

Nominet is canvassing support for a crucial Net governance vote that it says will help prevent government regulation of Britain’s dot-uk registry.

The company has just published a series of resolutions to be put to a member vote at an Extraordinary General Meeting on 24 February in London. The resolutions will see several significant changes made to Nominet’s structure, including a larger Board, lower voting thresholds, explicitly recognising that Nominet has a “public purpose”, giving the Board the right to set pricing, and a promise to review the organisation’s current membership setup to pull in more of the Internet community into its decisions.

In a letter announcing the EGM, Nominet’s chairman Bob Gilbert pleaded with members to vote to keep the government out: “Without significant membership support, the Government has expressed its intention to intervene and regulate Nominet and the domain name industry. The result will be increased red tape and the erosion of members’ business interests.”

He continues: “If your view of Nominet is that ‘it just works’ and you are happy with the way we operate and the services we provide for you, then it is crucial you express that support with a positive vote on the changes we are proposing.” The reason for the hard-sell is Nominet’s traditionally extremely low voter turnout: most members pay the membership fee just to be able to buy their dot-uk domains wholesale and have little interest in its day-to-day operations.

The changes have already met with public support from a number of other key Internet organisations, including ICANN, the Internet Society (ISOC) and Afilias (registry operator of dot-info, among others). The “Father of the Internet” himself, Vint Cerf, has also chimed in, saying that the changes “will produce a more agile and public-oriented institution”.

If accepted, the changes would bring to a close a very difficult few years for Nominet. It was nearly four years ago that Nominet lost all of its resolutions at a similar EGM – the organisation’s first attempt to modernise its governance structure in the face of a rapidly changing registry market. The company licked its wounds and came back to narrowly win two changes at a second EGM in November 2006.

But while reconsidering how to update its structure, the company was then pulled into a difficult and unpleasant Board fight, then eventually ended with the resignation of two Board members. And the combination of the failed EGM and Board fight, led to the UK government getting involved: first warning in a letter [pdf] that it expected Nominet to make changes soon, and then a year later writing into the upcoming Digital Economy Bill the right to take over the company.

Nominet responded with an independent governance review, a canvass of its members and then a a double roll-out of suggested governance changes. First, the company produced a Statement of Commitments, listing what its aims were and asking people whether they agreed with the principles (95 percent of respondents said they did). With that backing, a series of proposed resolutions were published and members again asked for their opinion. Nominet hasn’t said what, if any, feedback it received from this second round of public consultation, but it has now put out the formal resolutions and announced 24 February as the day when they will be put to a vote (online voting closes on 22 February).

Nominet’s Board is hoping that the very real threat of government intervention, and their efforts to engage directly with members on the changes will get the votes in. It will only become clear at the end of this month whether they have been successful.

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

Letter of support for Nominet CEO and Chairman from current non-exec directors, 12 November 2008

Dear Bob & Lesley,

We write in response to the allegations and demands in a letter Jim Davies published on public mailing lists and in the media.

We shall confine the scope of this letter to deal with the damaging and unwarranted suggestions from Mr Davies that you are unsuited to your roles, the other allegations are, properly, a matter to respond to as a company.

We believe that you have both worked tirelessly to further the development of Nominet and the “.uk” domain in the interests of our members and all stakeholders since your appointment and to suggest otherwise is palpable nonsense.

We note Lesley’s consistently high performance in her stewardship of the company where it has gone from strength to strength in financial performance, technical innovation, customer service and playing a leading role in the industry internationally.

We note Bob’s passion and effectiveness in chairing the Board in meetings and providing the support required for the CEO and senior management team between Board meetings. We have no doubt that his performance as Chairman has been first class and in the best interests of Nominet, it’s members and all stakeholders.

We note the importance to the UK economy of Nominet and the “.uk” domain name working effectively and the concern the Department for Business has already shown in the current governance structures which have brought about the current troubles.

We believe in a strong independent Nominet, free from vested interests, in the private sector, with a public purpose, a vision we know you share passionately. We therefore urge you to reject Mr Davies’ call for your resignations and to continue to work with us in these troubling times to safeguard the future of Nominet and the “.uk” name space on behalf of our members and all stakeholders.

We call upon all Nominet members, stakeholders and government to work in partnership with us to ensure that Nominet can emerge stronger from the current challenges with it’s private sector, public purpose ethos intact.

Yours sincerely,

Gordon Dick
Deputy Chairman & Non-Executive Director.

Sebastien Lahtinen
Non-Executive Director.

Resignation letter from Angus Hanton, Nominet director, 12 November 2008

Dear Board and Co. Secretary,

I am resigning my position as a non-executive Nominet director with immediate effect. As you know I have been unhappy for some time about how the company is being run – I have had to take legal advice on at least eight separate occasions over the last few months and on each one of them I was advised that what the company was doing was wrong. Furthermore the chairman has refused to pay the costs of non-executive directors getting independent legal advice which runs contrary to good corporate governance, as does too much else at Nominet. The problems clearly lie not with the corporate structure, as David Hendon of BERR has suggested, but with the way the company is actually being run.

Personally I do not believe Bob Gilbert and Lesley Cowley are the right people to lead Nominet at this point and I agree that their positions should be put to an immediate member vote.

I have been shocked by the board’s attitude on executive pay and senior staff disciplinary issues – both in substance and in procedure. I have also been concerned about unanswered questions relating to the last AGM and board elections. However, directors have collective responsibility for the actions and decisions of the board and I can no longer share responsibility for what is being done in the company’s name.

The company is meant to be controlled by, and answerable to, its membership as well as having duties to the wider community. My firm impression is that some other directors would like to eliminate the membership’s control of the organisation and are not committed to the company’s not-for-profit objectives.

On a more positive note, I am very pleased about the setting up of the Nominet Foundation and I am sure it will be a great success. I have also been privileged over the last 18 months to work with the Nominet staff who are a dedicated, friendly and efficient group of people – I wish them all the very best in their work.

Yours sincerely,
Angus Hanton

Resignation letter from Jim Davies, Nominet director, 20 January 2009

Dear Mr Gilbert

I hereby tender my resignation as a Director of Nominet UK with immediate effect. I regret having to resign; and I hope that the many members whose support enabled me to be appointed do not feel I am letting them down. However, the conduct of the Board is not something that I feel I have any prospect of influencing by reasoned debate; and it is certainly not something I wish to be associated with.

There are many reasons for my resignation, but the main one is exemplified by the recent approval by the rest of the Board of the LTIP executive bonus scheme, enabling the Chief Executive (Lesley Cowley) and the other senior executives to given a three year back-dated bonus of around half a million pounds – on top of their existing generous salaries and their annual PRP. To be making this payment in a not-for- profit company during the worst recession in living memory is, in my view, obscene. Nominet may be largely insulated from the current economic turmoil, due to its uniquely privileged position issuing all .uk domains, but to further reward the Chief Executive and others on profits that I believe flow directly from that monopoly is particularly inappropriate and I think it is a gross abuse of the company’s privileged position.

Even worse, you have done it secretly and without seeking the approval of the membership. To implement such a bonus scheme without membership authorisation is – as you know – contrary to the Combined Code of good corporate governance. Nominet purports to follow the Combined Code, but you have chosen not to in this case.

You are also aware of the independent legal advice that Angus Hanton and I obtained – which made it clear that this was a matter that should be put the members for authorisation at the next AGM before being implemented.

As you know, the Remuneration Committee that sets executive pay has been improperly constituted for some time – due to the fact that you (as Executive Chairman) sat on the Committee. It is also worth noting that Lesley Cowley routinely attended the meetings and (as I understand it) participated in discussions about the proposed LTIP, although she did not vote on it.

Certainly, I was not aware of the LTIP when I first joined the Board in May 2008; and it did not become an issue that was raised until Lesley Cowley returned to work in August. Likewise, much of what appeared to have been agreed in that three month period was subsequently overturned or sidelined, a process that was very frustrating when these were serious issues (such as what many see as the overcharging of British consumers and industry for their .uk domains) that needed dealing with.

I believe your contempt for the company’s constitution is demonstrated by the contract you entered into for the provision of your services as an Executive Chairman; when in fact it now seems clear that it was agreed between you and Lesley Cowley that you would be a de facto Non-Executive Chairman. As a consequence, your contract of engagement – which states that you are an Executive Director and Chairman – appears to have been a deliberate misrepresentation of the actual position. This arrangement is also contrary to Nominet’s Articles – something that you tried (and failed) to get altered at the first EGM in 2006.

A further case in point in relation to the management style at the head of Nominet is the way that you and Lesley Cowley dealt with Jay Daley as IT Director. As you know, he was very concerned about an email that Lesley Cowley sent immediately after the AGM, which revealed that she had advance knowledge of the AGM results. The email also indicated that she was so personally disappointed by the results that she felt unable to come into work for the rest of that week and to deal with the results on behalf of the company.

Jay Daley raised his concerns with a non-executive Director and in due course I became aware of it. I raised it with the company’s external legal advisers, since I had been advised that it could strengthen the company’s position in respect to any claim that Lesley Cowley might make at that time. However, rather than view this as proper conduct for a senior manager, you and the Chief Executive (on her return) chose to deal with it as a breach by him – notwithstanding the clear advice from Leading Counsel that Angus Hanton and I obtained to the contrary. As Counsel said, the way this was dealt with was unjustified and misconceived. As a consequence, the company has needlessly lost a valuable and very highly regarded member of the senior management team.

The points I have raised above also form an integral part of my defence to the specious claims that you and Lesley Cowley have brought against me in the company’s name. Over the years, you have allowed clear conflicts of interests to exist – most recently Gordon Dick’s involvement in the pre-AGM propaganda. Now you have levelled three false claims against me for alleged breaches and you have also sought outrageous undertakings – which were obviously aimed at preventing me from earning a legitimate living, despite the fact that you had specifically approved the nature of my work when Lesley Cowley was absent.

These claims are just a smokescreen and they will be vigorously defended. When they fail – and if you are still in situ – I trust the membership and other stakeholders will take the appropriate action against you and those on the Board who supported them.

Yours sincerely

Jim Davies

One day after the first announcement that angrily refused claims made in a resignation letter by former Nominet director Jim Davies, the .uk registry operator put out a second announcement covering in some detail why it believes Davies’ accusations are false and without merit.

The statement provides significant information about the executive compensation package that Davies had complained was providing the CEO with a large sum of money. It also deals with his accusation concerning the chairman’s role on the Renumeration Committee.

It strongly refutes the allegations laid against CEO Lesley Cowley saying they are “totally without merit and robustly denied” and it gives a pass on the allegations about why IT director Jay Daley has left the company, pointing out, not unreasonably, that since Mr Daley hadn’t discussed any of the issues that Nominet wasn’t going to comment.

It does leave the door open to commenting at a later date though – presumably in case Davies try to drip-feed gossip as a way of undermining the CEO and chairman.

My take on this is that I think this is a fair and honest statement and it reinforces my believe that both Bob Gilbert and Lesley Cowley are doing the best they can in difficult circumstances.

Related story

Nominet Board fight rolls on

Yet another extraordinary statement has come out of Nominet – the .uk registry owner – today.

This time, the chairman Bob Gilbert lambasts a “number of false allegations” made in a resignation letter from former director Jim Davies.

The letter was posted on the Nominet members’ private mailing list, nom-steer, and contains “sensitive and confidential board and HR matters”.

In it, Davies provides details of an executive compensation package through which he accuses the CEO of unfairly profiting from the non-profit organization, and also alleges that the previous head of IT was kicked out the company for raising a concern about the CEO’s behaviour.

This is just the latest broadside in a war that has been raging at the heart of Nominet for almost a year.

Davies was voted onto the Board as a non-executive director in May 2008 by an increasingly well-organised group of domainers. It wasn’t long before he started criticising the organization, its CEO and the chairman, initially internally, then to its members and then in the press.

Nominet knew what was coming – it sent a letter to all of its members on 21 April effectively warning them off Jim Davies. It also actively canvassed against candidates. The letter asked for all the candidates to disclose:

• Any previous occasions that they have stood for election to the Nominet Board and the platforms on which they stood.
• How they would deal with the conflicts of interest that will arise from their current employment or roles.
• All legal actions involving domain names, or Nominet DRS cases where they have been a respondent, or otherwise involved.
• Any ongoing matters/ investigations of any nature to which they may be subject.

Those implicit accusations – that Jim Davies has conflicts of interest – has grown and grown and eventually enabled the Board of Directors to push Davies out because of his refusal to sign an agreement stating that he would act in the interests of Nominet’s stakeholders – the implication being that was acting in his own or other parties’ interest.

That was just the latest in an avalanche of public and private battles since Davies and to a lesser degree fellow non-exec director Angus Hanton started making things difficult following Davies’ election. The situation became so bad that chairman Bob Gilbert and CEO Lesley Cowley ended up paying a visit to the UK government – a close partner of Nominet – to discuss the problem. The result was a letter from the Department for Business, Enterprise & Regulatory Reform (BERR) – formerly the DTi. Its head honcho David Hendon suggested a corporate governance review.

This was of course a gentlemen’s agreement for how to deal with the fact that Nominet is genuinely concerned that the registry will be overrun by domainers and its status – and in many respects the UK online industry – will be damaged or undermined by those who profit from the quick sale and resale of domains.

Review! Review!

Quick as lightning, Nominet announced a corporate governance review on 29 October. At the same time, the Board upped its pressure on Davies to sign the conflict-of-interests agreement. He refused.

This led to the previous troublemaker-in-chief Hazel Pegg (who I should say I like very much) to immediately call on Davies to resign. Davies responded by calling on the CEO and chairman to resign, and also infuriated them further by disclosing details of Board discussions and making various accusations.

Nominet responded by taking legal action against Davies to “to require him to comply with his statutory duties and remove and avoid conflicts of interest”.

So Davies went public just a few days later, going to the press – my old and favourite IT news outlet The Register – making vague threats and accusations against both the chairman and CEO and calling for them to resign a second time.

The only resignation though was that of Angus Hanton just two days after that. Angus was clearly very unhappy about what had been happening and also turned the screws on Bob Gilbert and Lesley Cowley in his resignation letter. “I do not believe Bob Gilbert and Lesley Cowley are the right people to lead Nominet at this point and I agree that their positions should be put to an immediate member vote,” he argued.

Pressure builds

This caused Andrew Bennett – another domainer that has also stood for election – to set up a whole blog specifically to call on the Nominet members to vote off Gilbert and Cowley.

With the domainers adding this much pressure, others were prompted into action in favour of the management. No less than eight previous non-executives directors signed a letter just over a week later in support of Gilbert and Cowley. And the two current non-executives directors did the same. “We believe that you have both worked tirelessly to further the development of Nominet and the .uk domain in the interests of our members and all stakeholders since your appointment and to suggest otherwise is palpable nonsense,” they wrote.

On top of this the CEOs of no less than six other registries soon signed another letter in support of Gilbert and Cowley: Australia, Canada, France, the Netherlands, Norway and PIR – the people that run .org.

But still Jim Davies refused to budge. That was November, and Nominet hired a new non-executive director to fill Angus Hanton’s post just before Xmas. Maybe it was the lack of support from a fellow Board member, very possibly the management upped the pressure a third time internally. But finally this Monday, Davies realised the game was up and resigned.

But not without posting a resignation letter and throwing out the worst accusations he could muster against Gilbert and Cowley in a last-ditch effort to bring them down. All that prompted the chairman’s response today, accusing Davies of “false allegations” and “a clear breach of his duties”.

The end game?

So, the big question is: is it all over?

Well, it has been a very shaky year for Nominet and the management team has been sorely tested. They have done what they felt was necessary to prevent Nominet from falling into the hands of individuals who did not have the organizations best interests at heart. And it is all too probable that in the heat of battle a number of things were done that will be regretted in retrospect.

Angus Hanton was a troublemaker but the right sort of troublemaker. And Jay Daley is as sweet and honest a bloke as you will ever come across. He is also extremely talented as made clear by his recent appointment as chief executive of New Zealand’s .nz registry operator NZRS.

But Gilbert and Cowley do appear to have staved off the threat of a Nominet with a strong domainer influence. It is a threat that a large number of registries worldwide are concerned about as domainers have the profit incentive and hence the will to get on the Boards of companies created in a much more gentle time by Internet pioneers and idealists.

Threat: real or imagined

Is this threat real? At the moment, yes. Domaining remains a very young industry led by cyberpunks in search of quick and easy profits. There are clear signs of that industry maturing and it wouldn’t surprise me at all if in just a few years the Nominet Board was seeking a representative from the domaining community to be on the Board. But at the moment that’s not the case.

Is there a risk that the domainers will rise again, infuriated by the tactics used by Nominet’s management to defeat them and this time breach the barricades? Well that all depends on Nominet’s members – companies that have been defiantly lazy and unbothered by all the drama over the past three years. Just so long as they get cheap domains, the rest of it is a hassle. And with Nominet’s member structure as it is, it does remain susceptible to capture by apathy.

That is almost certainly what Professor Bob Garratt is looking at revising in Nominet’s Corporate Governance review. So, the window of opportunity for domainers to muscle their way in is rapidly diminishing. And when the door is closed, they will have to come in the front way like everyone else.

Which, in the long run, is good for the Internet and for the .uk registry in particular.

From: BERR – Department for Business Enterprise and Regulatory Reform
To: Bob Gilbert Esq, Chairman, Nominet

15 October 2008

Dear Bob,

I was most grateful for you and senior members of your team finding the time to visit BERR on 8 September in response to my request for a meeting. I found our discussion very helpful in understanding the present direction of the company.

We discussed the history of Nominet and its organic growth from an early initiative by some of the UK’s internet pioneers. The domain name system is, of course, a crucial element in the internet economy. In this context, I noted that many countries regarded their country code as a national asset, the management of which required the direct involvement of Government.

In the UK, the development of Nominet has been seen, to date, as a good example of the self regulatory approach that the Government favours. It is important that self-regulation in the industry is effective and clearly reflects and, where appropriate, protects the diverse range of end-user interests.

We therefore discussed how self-regulation was meeting these goals. We acknowledged Nominet’s dispute resolution procedure as a way of helping to protect rights. We noted your personal commitment to the continued development and enforcement of industry standards and best practice through the industry. We also acknowledged the role of the PAB as a forum for the Membership and other stakeholders to input to the identification of best practice and the development of company policy. We saw the policy development process and the mechanisms for developing consensus as crucial and wondered whether the company could usefully review how this works to ensure that interests from outside the domain name sector are properly addressed. We noted Nominet’s corporate contribution in the field of public policy and we saw the efforts of Nominet to focus a strong UK input into the Internet Governance Forum and the role of the Nominet Foundation as examples of showing a positive lead.

At the conclusion of our meeting, I was left with unresolved concerns about how Nominet’s constitution and structure addressed its responsibility to stakeholders other than its Membership and I suggested that the best way to address those concerns might be for me to write to focus these concerns into some specific questions. This would give you the opportunity to expand on the points made at our meeting so that we may better understand the issues. With that greater understanding, we will be able to advise Ministers if there is a problem and what solutions are available.

The questions are as follows:

• How far do Nominet’s constitution and board structure follow accepted best practice in terms of corporate governance as set out in the combined code?
• How effectively does the company ensure that the directors of the company reflect the wider stakeholder interest?
• In particular, how does Nominet ensure the continued development and evolution of industry self regulation in order to protect wider stakeholder interests?
• What arguments would you employ to convince my Ministers that the present relationship between Government and the company is appropriate in ensuring that public policy objectives in relation to the management of the domain name system and the standing of the UK in the internet community are understood and taken into account?
• Are there any actions that either the company or the Government – individually or together – might take in the short term to address any of the concerns identified in relation to the above questions?

It would be useful if, in answering these questions, you could draw on independent expert advice to ensure effective benchmarking against good corporate governance standards adopted by other companies operating key national infrastructure and international best practice.

Yours sincerely,

David Hendon

Director Business Relations

BERR letter to Nominet, Oct 2008