When Does A Conflict Of Interest Exist?

The auDA Board comprises 11 Directors. Four of these are from the “Supply” side (e.g. registrar / registry / reseller); four are from the “Demand” side (users of domain names); and there are three independent Directors appointed by the Board under clause 18.2 of the auDA Constitution.

Here is a snapshot from the auDA website:

It is my opinion that two of the Supply Class Directors potentially have a conflict of interest when it comes to the decision making process on whether direct registration of domain names in Australia should be permitted (and more importantly, in what manner).

Alternatively, a fair minded person or persons could perceive that they have a conflict of interest.

Why do I say that? It is simply because of their day jobs.

Let me stress up front that I am not suggesting that either of these two Directors is dishonest or unethical. Nor am I implying that they are in contravention of the Corporations Act; or that they are not acting in the best interests of auDA. On the contrary, they are both decent people.

However, in my opinion, lines have been blurred, and the auDA Board (as a whole) and management need to address this. These two Directors should (once again in my opinion) be excluded from any decision making process about direct registrations. Whether it be a working group or a Board Meeting (or even informal discussions), they should recuse themselves.

Who? Why?

First is Kartic Srinivasan – General Manager – Operations @ Melbourne IT.

I’ve had the pleasure of meeting Kartic a number of times, and he is a lovely guy. However, the simple fact is that he is a Supply Class Director, and the Melbourne IT network of registrars stand to gain if and when direct registrations are implemented.

To illustrate why I believe there to be a potential or perceived conflict of interest, here are two examples:

• The mass email by Melbourne IT to their customer base (5 days before the Names Panel closed) advocating that people simply vote in favour of the proposal. This was a game changer in my opinion.

• His fellow executive at Melbourne IT (Brett Fenton) also made a submission to the Names Panel on behalf of MelbIT, where he advocated a position that  was contrary to what the Names Panel (majority) recommended to the auDA Board. Bolding is mine

“On the matter of implementation our position remains consistent with that expressed in the April response:

The rights of existing holders should be respected. If people or businesses have taken the time to register their marks in Australia, the rights that are associated with those registrations should be protected. Once these users have been accounted for, the space should be open to all users on a first come, first served basis in a landrush process.”

By existing holders, he was referring to trademark holders and not existing registrants. This position was NOT accepted by the Names Panel.

Second is George Pongas – General Manager, Naming Services Division at AusRegistry (and Director Product Management at Neustar, Inc).

I’ve known George for many years, and would say that we’ve been friends for most of that time. However, the Names Panel unfortunately fractured our friendship. I at one stage challenged him about his potential conflict of interest, and it went downhill from there! He also didn’t like some of the articles I wrote on Domainer (like “Follow The Money”). More recently, George threatened me with a defamation action over a comment made on this blog.

But putting that aside, the fact is that George works for AusRegistry, and given that they are potentially in the box seat to be the registry for .au (if and when implemented), his employer potentially stands to gain big time. Again, it’s as simple as that. There is a potential or perceived conflict of interest.

When the current registry agreement was under discussion by the auDA Board, George had to recuse himself. What is the real difference here?

It is my belief (and personal experience) that George is one of the driving forces behind wanting direct registrations. Nothing wrong with that, but it underlines the potential or perceived conflict that exists when he discusses and/or assesses direct registrations with his auDA hat on.

If you’re in a position like this, and you’re also an auDA Director, I believe you then have to excuse yourself from the decision making processes. In this day and age, you surely can’t have it both ways.

Other Directors

It’s fair to say that apart from the three independent Directors, everyone else has some sort of “skin in the game”. That’s to be expected – they wouldn’t be able to adequately perform their role as Directors without some sort of experience in the supply and demand side of the .au namespace – and in business generally.

In my opinion, none of them come close to a potential or perceived conflict of interest like the two Directors I have highlighted.

Analogy

To explain why I feel this way, let me put a hypothetical scenario.

Imagine a local or regional Council is being asked to vote on a new land subdivision / housing estate. It’s a bit controversial due to certain factors, and some intense lobbying of Council and Councillors is going on. (Happens all the time!).

Now comes the interesting bit. One of the Councillors is a senior executive at a large real estate agency, and they have been approached to market the project. Another Councillor is a senior executive at a large Project Management company specialising in managing such developments, and they are going to be tendering for the work.

Should those two Councillors be allowed to vote on the project? Should they even be allowed to discuss the project at Council level – or even informally with fellow Councillors?

I would suggest that they would be rightfully excluded.

Conflict Of Interest Policy

I’m not sure if auDA has some sort of internal policy for Directors when it comes to “Conflict of Interest? All I could find was this clause in the Constitution:

A Director who holds an office or possesses a property whereby duties or interests might be created whether directly or indirectly in conflict with that Director’s duties or interest as Director must, declare at a meeting of the Directors the fact and the nature and extent of the conflict.

And then there is this document for Directors (not sure if it is current?)

Let’s look at ICCAN by way of comparison. They are basically the global administrator of domain names; including ccTLD’s.  This Agreement, signed on 25 October 2001, sets out the relationship between auDA as the .au delegate, and ICANN as the international domain name governing body. Australia has a number of representatives on their Board / Committees.

I like ICCAN’s policy when it comes to conflict of interest, and given that auDA has mirrored a lot of what ICANN do, I simply wish that something similar could be adopted here (where possible).

Here are a few excerpts:

2.1 (b) Potential Perceived Conflicts can be seriously damaging to the multi-stakeholder community’s confidence in ICANN.

2.4 (a) After disclosing the existence of a Potential Conflict, Interested Persons shall refrain from using their personal influence (either at or outside a Board meeting) to influence ICANN’s handling of the transaction, contract, arrangement, policy, program or other matter.

7.1 (xii) A “Duality of Interest” arises when, with respect to a transaction, contract, arrangement, policy, program or other matter, a Covered Person or a member of a Covered Person’s Family has a fiduciary relationship with another party to a proposed transaction, contract or arrangement which gives rise to a circumstance in which the fiduciary duties of the Covered Person to ICANN and the fiduciary duties of the Covered Person, or the fiduciary duties of the Family member of the Covered Person, to the other party may be in conflict. A Duality of Interest does not constitute a Conflict of Interest if ICANN and all other parties to the transaction, contract or arrangement being in possession of all material facts, waive the conflict in writing.

7.1 (xiv) A “Financial Interest” exists whenever a Covered Person has or is engaged in discussions to have, directly or indirectly, through business, investment, or Family: (a) an ownership or investment interest in any entity with which ICANN has a transaction, contract, arrangement, policy, program or other matter; (b) a Compensation arrangement with any entity or individual with which ICANN has a transaction, contract, arrangement, policy, program or other matter; and (c) a potential ownership or investment interest in, or Compensation arrangement with, any entity or individual with which ICANN is negotiating a transaction, contract, arrangement, policy, program or other matter.

7.1 (xxii) A “Potential Conflict” means either a Potential Direct Conflict or a Potential Perceived Conflict.

7.1 (xxiii) A “Potential Direct Conflict” means any one or more of the following: (a) a direct or indirect Financial Interest in a transaction, contract or arrangement being considered by ICANN, by a Covered Person or a member of a Covered Person’s Family; (b) a Duality of Interest by a Covered Person or a member of a Covered Person’s Family with respect to another party to a transaction, contract or arrangement being considered by ICANN that has not been waived in writing by all parties to the transaction, contract or arrangement;

7.1 (xxiv) A “Potential Perceived Conflict” exists when a reasonable person, knowing the relevant facts, could conclude that the Covered Person’s private interests could adversely impact the Covered Person’s ability to act fairly and independently and in a manner that furthers, or is not opposed to, the best interests of ICANN.

Conclusion

I am formally going to be writing to the auDA Board to express the concerns reflected in this post. It will be interesting to see their official response.

What do you all think?

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