Original URL: http://www.theregister.co.uk/2009/04/21/nominet_garratt/
Nominet governance review questions not-for-profit status
Reform needed to avoid regulation, Prof finds
A major review of Nominet's governance has asked members to consider whether it should give up its not-for-profit status.
The suggestion will be taken by some Nominet members as confirmation of their long-held suspicions that the firm was being steered towards a share offering.
The review also suggests members of the domain registry should consider lower voting hurdles to make constitutional changes, that the board should offer more representation for non-members, and that there should be better oversight of executive pay.
Professor Bob Garratt, a corporate governance expert, said on Monday that without major voluntary reform to the UK domain registry, the Department for Business, Enterprise and Regulatory Reform (BERR) would feel "obliged to intervene".
Garratt was called in  last November, as elected board members called for senior resignations. The spat grew out of some members' suspicions of a power grab by executives, as well as differences over what to do with Nominet's cash surplus. In 2007, the last year for which accounts are available, it had more than £15m in the bank.
Now Garratt has recommended that the non-profit's members and executives hold a "constitutional conference" to avoid regulation from Whitehall.
His detailed suggestions include splitting the current dual chairman and managing director role. Jim Davies and Angus Hanton, both elected non-executive directors, resigned in part because of their concerns over the combining of the roles under current chairman Bob Gilbert.
"I note that the present chairman... has tried hard only to play the chairman role," Garratt wrote in his review. "Yet this is not what Nominet's constitution demands. It seems very unwise that Nominet continues what is seen as bad practice here."
BERR's main concern over Nominet is that it may not fulfil its remit to act, not only in the interests of its members in the domain community, but also in the interests of the wider UK internet. To fend off officials' concerns, Garratt said the Nominet board should have the power to appoint two non-executive board members.
The same proposal was rejected by the Nominet membership at last year's AGM  by a narrow margin. Opponents were worried it would put too much power in the hands of Gilbert and current CEO Lesley Cowley.
To go through, the change would require the approval of 75 per cent of voting members. Garratt wrote that member engagement work should be done to ensure approval for the power. It is one of several that would be granted if his broader recommendation "to protect Nominet in the immediate future" were accepted, and would result in the board being granted the "full normal range of regular powers" of a board of directors under the Companies Act.
"It does not remove the right of members to select and remove their board but it does give the board the powers to allow them to fulfil their proper role when they are in office," he wrote, describing the current board as "hobbled" by Nominet's constitution.
In the longer term, he suggests a series of policy issues for the membership to tackle, including the vexed question of Nominet's not-for profit status. "Do we want to continue as a not-for-profit organisation?," Garratt suggests members ask themselves.
In response to the review, Nominet said it wanted to remain free of government regulation. "We need to make the appropriate changes to ensure the self-regulation model can remain," it said.
"We recognise that this will not be an easy discussion because there is a lot at stake."
A formal consultation will begin in May, with meetings in London, Manchester, Glasgow and Cardiff. That will be followed by an extraordinary general meeting in autumn "on a set of resolutions based on member feedback" to Garratt's recommendations.