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Governance of the .nz ccTLD 21/11/01

21 November 2001

InternetNZ Council

Governance of the .nz ccTLD

Background

1. An earlier paper, (ISOCNZ and the Office of the ccTLD Manager - Future Accountability Arrangements - 26 June 2001), outlined two options for corporate governance/oversight of .nz, and the benefits and disadvantages of each:

oversight by the full InternetNZ Council or

sub-committee of Council.

2. Discussion of these options on the members and srs-implementation lists appeared to favour the sub-committee option. This would also be consistent with the proposed split of the InternetNZ Office into ccTLD matters and other InternetNZ business. The following paper therefore expands on the corporate governance/oversight of .nz being carried out by of a sub-committee of Council (hereafter referred to for convenience as the ".nz Board".)

3. Some other models within NZ for governance arrangements are outlined in Appendix I.

ccTLD Manager

4. The ccTLD manager will be responsible for the operational aspects of the following:

  • Maintaining the policy for .nz domain name management
  • Authorising new registrars
  • Monitoring registrar activity - "market" surveillance, specific investigations of any registrar, de-authorising a registrar
  • Contracting for registry services and monitoring the registry's performance and register charges
  • Convening the Registry-Registrar Committee
  • Monitoring of and influencing international developments in relation to the management of the DNS, in so far as they may impact on the .nz domain name space.
  • Running the process for creating the second level domains and appointing moderators for moderated second level domains

5. The ccTLD manager will report to the .nz Board, which is a sub-committee of the InternetNZ Council.

.nz Board - Terms of reference

Objective

6. The objective for the Board is the effective stewardship of the .nz domain name space.

Purpose

7. The purpose of the Board is to discharge the Council's governance responsibilities for oversight of:

  • The general operation of the .nz domain name space and the contracts that underpin it
  • The authorisation of registrars
  • The development and implementation of .nz policies
  • International issues and developments as they affect .nz domain name space.

Activities

8. Activities of the .nz Board include:

  • Developing a strategic view of .nz
  • Establishing the priorities for and supervising the Office of the ccTLD Manager
  • Regularly reviewing the robustness of the registrar market and the level of competition between registrars
  • Establishing standards for performance monitoring of the ccTLD manager, and the registry
  • Setting a budget for ccTLD activities and establishing the registry fees
  • Approving policy changes relating to the .nz ccTLD
  • Publishing information on .nz
  • Approving the risk management strategy for .nz (includes disaster recovery planning etc)
  • Other responsibilities as delegated by the InternetNZ Council.

9. The relationship between the Board and the ccTLD manager needs to be clear and unambiguous. The ccTLD manager should have all the operational responsibilities and sufficient authority to carry them out on a daily basis.

Delegated Authorities

10. There are two options for establishing the authority of the .nz Board. The Council can either fully delegate decision making on .nz issues to the .nz Board, retaining only the power to appoint members and the Chair, and set their remuneration, or it can retain decision making on what it perceives to be critical issues. The key risk with the second approach is that the Council relitigates issues, slowing decision making, undermining the role of the .nz Board. It is possible also that individual Council members could have conflicts of interest which will reduce the transparency of the decision making and processes.

11. It is recommended that the .nz Board has full delegated authority (within budget) to take decisions on issues related to .nz, including but not limited to:

  • approve .nz policies
  • authorise and de-authorise a registrar
  • annually review the performance of the registry pursuant to its contract
  • request information from registrars and the registry pursuant to the contracts
  • approve technical changes to the register and DNS (following appropriate consultation)
  • initiate reviews of specific areas - registry operations, a specific registrar etc - and to appoint third parties to assist in investigation(s) of any aspect of domain name activity within .nz
  • seek external advice as required
  • appoint the ccTLD manager, conduct the annual review of the manager's performance and approve remuneration changes
  • approve participation at international meetings and select the participants at these
  • direct the ccTLD manager as appropriate
  • publish reports on .nz
  • issue press releases on .nz issues

12. The InternetNZ Council would retain decision making only on:

  • Long term strategy for .nz
  • Changes to the .nz position on international issues/at international fora
  • Major transactions (using the definition in s129, Companies Act)
  • Membership of the Board and members' fees
  • Terms of reference for the Board and any sub-committees it establishes

The Council may choose to delegate final decision-making on a number of these matters to the .nz Board.

Reporting Mechanisms to Council

13. The proposed split between the Board and Council decisions is set out above.

14. A summary report will be provided to the InternetNZ Council every quarter, reporting on the major events and issues. This should include both financial and non-financial data. The .nz Board should provide an annual report to the Council which provides an overview of registry/registrar/registrant activity in .nz.

15. The minutes of all board meetings will also be distributed to the Council with the Council's meeting papers. If a Council member has any issues arising out of these minutes, then these should be discussed by Council first and a formal communication sent, where appropriate, to the .nz Board. Individual Council members should not raise issues directly with a member of the .nz Board. This ensures that individuals with "hobby horse" issues need to persuade the Council to take an issue up with the .nz Board rather than acting independently.

16. For issues which require the decision of the Council, the reporting mechanism will be a recommendation to Council supported by adequate documentation for the Council to take a decision. An example would be the annual budget for the Office of the ccTLD manager. It should be the exception for the Council to not accept a recommendation of the .nz Board. If this occurs, then it is an indication that the .nz Board is ineffective, or the Council is not managing itself appropriately.

17. The Council will need to ensure however that the time and effort involved in the Board's discussions are not wasted by a rehashing of these by Council members (who may have conflicts of interest or not be in possession of full information around an issue).

 Board Composition

 18. There are two main options for the composition of the Board and the appointment of members:

  • A board that has explicit stakeholder representation
  • A board that has no explicit stakeholder representation.

19. These options are discussed below. But first it may be useful to consider what international obligations InternetNZ has in respect of this.

International Obligations

20. Under RFC 1591, InternetNZ is the trustee of the top-level domain for both New Zealand and the global internet community.

21. Under the Best Practice Guidelines for ccTLD Managers [1],"the primary duty of the ccTLD Manager is one of Public Service and to manage and operate the ccTLD Registry in the interest of and in consultation with the Local Internet Community, mindful of the interests of the Global Internet Community.

"A ccTLD Manager is a trustee for the delegated domain, and has a duty to serve the community it represents as well as the global Internet community. Concerns about "rights" and "ownership" of top-level domains are inappropriate. It is appropriate to be concerned about "responsibilities" and "service" to the community. The ccTLD manager should be judged on his or her performance, and the extent to which it satisfies the needs of the Local and Global Internet communities.

22. Clearly there is an obligation for competent management of the ccTLD. Also there must be opportunities for consultation and input from the local internet community on management issues, and having stakeholders as members of the .nz Board is one way of achieving this. But stakeholder representation is not a mandatory requirement of these key documents.

Stakeholder Representation

23. The key stakeholders to be considered are registrars and registrants. This representation could involve either one or two representatives each of registrars and registrants, with the remaining board member(s) being either appointed by Council or elected by members. There are various combinations that could be considered, which will influence the number of Board members required.

24. The registrar representatives could be nominated by or elected from amongst all authorised registrars. The nomination and selection process could be run by the ccTLD manager or independently by registrars.

25. The registrant representatives could be:

  • elected by .nz registrants, or
  • nominated by the Consumers Institute, or
  • appointed by the Minister of Consumer Affairs
  • or a combination of the above.

26. The advantages of having stakeholder representation on the .nz Board are:

  • enhanced buy-in from stakeholders
  • possibility of a wider range of views being represented when decisions are taken.

27. The disadvantages of having stakeholder representation on the .nz Board are:

  • actual and perceived conflicts of interest (for registrar representatives)
  • greater possibility of factionalism within the Board
  • the risk of having "lame" members or people who do not understand governance responsibilities
  • some information on what is happening in .nz will not be able to seen by all Board members (-.e. registrars - commercial information)
  • some members will not be able to participate in (or be present at) some of the discussions on the management of the .nz market
  • the need to have additional members to balance the representative interests.

28. The risk is greater with registrars being representatives rather than registrants. Registrar representation on the .nz Board may lead to a lower level of competition in the market, and a perception by external parties of conflicts of interest and unsound governance of the ccTLD.

29. There is a lower risk/impact with registrant representatives on the .nz Board as the end price to registrants depends only in part on the pricing policy for the registry (competition and the bundling of services by providers being other contributing factors). Registrants also are likely to be more diverse in their interests and therefore in their ability to influence decisions which do not take into account the interests of all parties in the .nz domain name space.

An Appointed Board

30. Under this option, the Board would be appointed by the InternetNZ Council, and members would have a balance of governance, business and technical skills. Membership of the Council or InternetNZ would not be a pre-requisite for appointment to the .nz Board.

31. The advantages of this approach are:

  • a balanced board with abroad mix of skills and experience
  • less risk of actual or perceived conflicts of interest by individual board members
  • less risk of factionalism centered around communities of interest
  • fewer Board members are required
  • potential for improved governance oversight.

32. The disadvantages of this approach are:

  • potential for reduced buy-in by stakeholders
  • potential for narrower interests to be considered when decisions are taken.

Discussion

33. Credibility of the new shared registry arrangements for .nz will be facilitated by:

  • The successful implementation of the SRS software
  • The authorisation of a critical mass of registrars offering a range of registration arrangements
  • Effective communication with .nz registrants about the changes
  • The smooth transfer of domain names to registrars as they become authorised

34. On an ongoing basis, this credibility will be maintained by:

  • Robust and reliable register software and registry-registrar interface and effective DNS
  • Effective management of "rogue" registrars
  • The smooth transfer of domain names to other registrars when a registrar resigns or is de-authorised
  • Maintenance of a low fee level for registrations and transparency of costs
  • Transparency of the governance/oversight arrangements

35. Transparency includes minimising conflicts of interest and managing any potential/actual conflicts effectively. The test proposed by the Institute of Directors for deciding whether a conflict is present in any given situation is whether a reasonably informed objective observer would infer from the circumstances that the board member's judgement is likely to be influenced to the detriment of the ccTLD's (company's) best interests Even the appearance of a conflict is to be avoided. [2]

36. All members of the .nz Board will be required to act in good faith in the best interests of the .nz ccTLD and there should be no potential of conflict with a member's own personal interests. This therefore means that the proposal to include registrars as members of the .nz Board needs to be carefully considered.

37. The .nz Board will need access to comprehensive information on what is happening in .nz in order to have effective oversight. For example, one report that I would expect them to see on a regular basis is the number of registrars currently authorised, the number which are active, their relative market share, and changes in market share, issues around individual registrar behaviour, trends etc. This information however should not be available to a registrar. It would be difficult for the Board collectively to effectively discharge its responsibilities without a thorough understanding of what is happening in .nz. If registrars are to be members of the Board, it could limit both their effectiveness as members and the effectiveness of the whole Board by their presence.

38. What is probably more pertinent is to consider how registrars' views are to be effectively heard on management of .nz issues.

39. Registrars and registrants have a legitimate expectation that they will be consulted on issues that could affect them.

40. For registrars this includes the following:

  • Policies governing the .nz name space
  • Technical issues relating to the register and the DNS
  • Changes to monitoring/management requirements
  • Registry pricing changes
  • Other

41. For registrants, the main issues that affect them are policies governing the .nz name space and pricing changes.

Registrants' interests can be adequately represented by a combination of consultation with the members of InternetNZ and inviting wider participation on issues through press releases/articles, information on the website, invitations to participate in the consultation to specific organisations etc)

42. What therefore is the appropriate mechanism for registrars to be involved in and consulted on the above

The Registry-Registrar Standing Committee

43. One of the recommendations in the Hine Report was that "A standing committee be established to maintain communication between the registry and registrars. The standing committee should be chaired by a member of the InternetNZ Council and should include technical representatives from the registry and a minimum of two different registrars and/or agents" [3]

44. The ccTLD manager will convene this committee and it should operate as a forum for discussing issues related to the management of .nz, including pricing changes, changes to monitoring/management requirements, technical issues and policy changes. This does not exclude the need for consultation with all registrars on substantive operational issues. This committee could also have a technical subcommittee with registrar, registry and other technical experts.

Conclusion

 45. On balance, I would recommend that InternetNZ focus on the caliber of individual people, looking for those with the appropriate skills, experience and interest rather than seeking to establish representation of interests at the governance level. There are other more effective ways that the interests of stakeholders can be represented within .nz rather than at the governance level.

The Board Chair

46. The chair should be someone with prior, successful experience as a chair of a board or committee. The skills of the initial chair will be critical to the success in establishing professional governance arrangements for .nz. If the Board is to have representative members, then the Chair should be neutral.

Board Size

47. The Board has to be large enough to have a breadth of skills, experience, knowledge and enthusiasm and with sufficient number of members to carry the workload but balanced against the efficiency and effectiveness generally of a smaller group. The caliber of the first Board chair will be important in ensuring the successful establishment and implementation of the governance arrangements.

48. The size and composition of the Board are closely linked. If the Board is to be an appointed Board, with no representational members, then a smaller Board of five - six members should be adequate. However, a board with representational members may need to be larger, depending on the number of representative members. If there only two, then a five person board should be adequate. But if there are three or four, then I would recommend that the Board size is increased to seven - eight members

Tenure

49. All members are appointed for a term of three years with rotation of members except for the initial appointments of the five or seven members - one for one year, two (or three) for two years and two (or three) for three years.

Fees

50. Fees should be paid that are at a level to attract and retain board members of suitable caliber. While some may prefer there to be large element of public service in membership of the .nz Board, there is a need to ensure that the governance of .nz is in the hands of people who have the standards of ability and character to carry out the functions and will spend the time required to fully consider the issues.

Conclusion

51. Governance of .nz should be discharged through a .nz Board, which is a sub-committee of the InternetNZ Council, but which is structured along the lines of a sub-committee of a corporate board. The Board's objective is the effective stewardship of the .nz domain name space, discharging the Council's governance responsibilities for oversight of the following:

  • The general operation of the .nz domain name space and the contracts that underpin it
  • The authorisation of registrars
  • The development and implementation of` .nz policies
  • International issues and developments as they affect .nz domain name space.

52. To be effective in its stewardship and transparent in the discharge of its governance responsibilities, the Board should not have members with ongoing conflicts of interest. This means that a registrar should not be a member of the .nz Board. A more direct way of ensuring that registrars' views on the management of .nz are heard is through the registry-registrar committee which will handle discussion on day-to-day .nz management issues. Issues from this committee that require consideration and/or decision by the .nz Board would be referred to the Board by the ccTLD manager. The .nz Board needs to stay focused on governance issues and the prior experience and skills of the first .nz Chair will be critical in establishing successful governance arrangements.

53. A smaller focused board with members appointed by the InternetNZ Council for their competence and range of skills and abilities is the recommended model. InternetNZ membership (and Council membership) should not be a pre-requisite for appointment to the .nz Board. If InternetNZ is serious about delegating its stewardship role to the ccTLD manager and ensuring that this is effectively discharged, then you will want to look externally for Board members with the appropriate skills and competencies. A board of five - six members should be more than adequate.

Recommendations

54. It is recommended that the InternetNZ Council

(a). note that earlier consultation with members appeared to favour a sub-committee of the InternetNZ Council being responsible for the stewardship of .nz;

(b). agree that to the establishment of a .nz Board as a sub-committee of the InternetNZ Council with the following accountabilities:

  • Objective - effective stewardship of .nz
  • Purpose - to discharge the Council's governance responsibilities for oversight of:
    • the general operation of the .nz domain name space and the contracts that underpin it
    • the authorisation of registrars
    • the development and implementation of .nz policies
    • international issues and developments as they affect the .nz domain name space.
  • Activities of the .nz Board to include:
    • Developing a strategic view of .nz
    • Establishing the priorities for and supervising the Office of the ccTLD Manager
    • Regularly reviewing the robustness of the registrar market and the level of competition between registrars
    • Establishing standards for performance monitoring of the ccTLD manager, and the registry
    • Setting a budget for ccTLD activities and establishing the registry fees
    • Approving policy changes relating to the .nz ccTLD
    • Publishing information on .nz
    • Approving the risk management strategy for .nz (includes disaster recovery planning etc)
    • Other responsibilities as delegated by the InternetNZ Council.
  • The .nz Board is to have full delegated authority (within budget) to take decisions on issues related to .nz, including but not limited to:
    • approve .nz policies
    • authorise and de-authorise a registrar
    • annually review the performance of the registry pursuant to its contract
    • request information from registrars and the registry pursuant to the contracts
    • approve technical changes to the register and DNS (following appropriate consultation)
    • initiate reviews of specific areas - registry operations, a specific registrar etc - and to appoint third parties to assist in investigation(s) of any aspect of domain name activity within .nz
    • seek external advice as required
    • appoint the ccTLD manager, conduct the annual review of the manager's performance and approve remuneration changes
    • approve participation at international meetings and select the participants at these
    • direct the ccTLD manager as appropriate
    • publish reports on .nz
    • issue press releases on .nz issues

(c). agree that registrar representation on the .nz Board is not appropriate given the conflict of interest;

(d). note that registrar representation on day to day management of .nz issues can be effectively achieved through the registrar-registry committee, to be convened by the ccTLD manager;

(e). agree that members of the .nz Board will be appointed by the InternetNZ Council, taking into account the requirements and responsibilities of a governance role;

(f). agree that five members should be adequate to provide a small, focused and competent Board;

(g). note that the skills and experience of the first Chair of the .nz Board will be critical in successfully establishing the governance arrangements for .nz;

(h). agree that the members of the .nz Board should be paid at a level that will attract, motivate and retain people with the ability and character necessary to carry out the role;

(i). note that a further paper will be prepared on the appointment of the .nz Board following consideration of/and decisions on these recommendations.

Rose Percival
SRS Implementation
20 November 2001

Appendix I

Other Models

There are other governance models in New Zealand that are worth referring to:

1. Electricity

The Government has set out the key design principles for an Electricity Governance Board to ensure that the government's objectives for that sector are met.

"Constitution of the Governance Board

11. The Government expects the industry to establish a constitution for the Governance Board reflecting the following principles:

Key design principles for the Governance Board's constitution

  • The Governance Board should comprise between five and nine members (including the chair).
  • There must be an independent chairperson.
  • The prime obligation of Governance Board members should be to develop and enforce rules consistent with the Guiding Principles; they must not act in the interests of individual participants.
  • Governance Board members should demonstrate background and expertise to enable them as a group to give effect to the Guiding Principles. In particular, at least some members should be able to contribute expertise and experience in the following areas: consumer interests, distributed generation/renewables, energy efficiency/demand side management, generation, network management and transmission. All members should be aware of the interests of consumers.
  • A majority of the Governance Board should be independent persons. (Any director, employee or significant shareholder of [an industry participant] the supply side of the industry does not meet the test of independence.)
  • The independent members of the Governance Board should be appointed after consultation with the Minister of Energy."

2. Insurance and Savings Ombudsman Commission

The ISO (Insurance and Superannuation Ombudsman) Commission - the ISO Scheme was established in 1995 for participants providing insurance and savings services. Membership is voluntary, it is independent of Government and its decisions are binding only on its members. The ISO is an independent and impartial arbitrator, facilitating the resolution of disputes between consumers and the providers of insurance and savings services.

The ISO Commission appoints an Insurance and Superannuation Ombudsman. It consists of an independent chair, two industry representatives appointed by the ISO Board and two consumer representatives appointed by the Minister of Consumer Affairs. The ISO Commission funds the ISO Office.

3. The Banking Ombudsman Commission

The Banking Ombudsman Commission is similar to the ISOC in that it funds and appoints a Banking Ombudsman who provides amongst other things, a complaints management service for banking and other financial services. Participation is limited to participating banks (voluntary membership).

The Banking Ombudsman Commission comprises a chair, two representatives of participating banks (appointed by the Council of the NZ Bankers' Association), one person nominated by the Minister of Consumer Affairs and the Executive Director of the Consumers Institute (or another person who, in the opinion of the BOC, is representative of bank customers.

[1] v4.1 of 1 June 2001

[2] Conflicts of Interest - Best Practice for New Zealand Directors, BP 1996/3, Institute of Directors in New Zealand (Inc)

[3] Recommendation 2, Review of Registry Structure of the .nz ccTLD, Final Report, 20 October 2000*

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