In the age of the Enron and WorldCom scandals, it would be almost unthinkable to try to impede board disclosure and transparency. Almost. Last week, a court case involving the Internet Corporation for Assigned Names and Numbers (ICANN) — the Internet administrative agency — and Karl Auerbach, one of its most vocal directors, revealed that ICANN attempted to do just that when it established an unreasonable policy that placed conditions on board-of-director access to its own corporate records.
While Mr. Auerbach may not find any smoking guns within that documentation now that he has been granted unconditional access, it turns out the real ICANN smoking gun is out in the open for all to see.
Mr. Auerbach was elected to the ICANN board in 2000 as the public's representative for Canada and the United States. He ran on a platform that criticized ICANN and vowed reform. Soon after his election, he requested access to the corporation's records, as was his right under California law. ICANN took months to respond, eventually setting conditions on access that Mr. Auerbach believed were contrary to the law. When neither side would back down, Mr. Auerbach sued for the right to access the documentation without any strings attached.
Mr. Auerbach's position was that California law granted him the right to review ICANN's corporate records. He emphasized that the raison d'etre of a board of directors is to function as an independent oversight committee over management and it was therefore inappropriate for those inside to set conditions on the gatekeeper.
Mr. Auerbach proposed an approach whereby ICANN would have up to seven days to challenge his desire to disclose a confidential document. In response, ICANN chief executive officer Stuart Lynn said it was "inappropriate to force ICANN to vindicate its rights" rather than obliging Mr. Auerbach to seek permission for the disclosures.
Following a brief hearing, the judge sided with Mr. Auerbach, adopting his plan with one small modification that set the time limit to contest a decision at 10 days rather than seven. She went on to order ICANN to provide Mr. Auerbach with copies of all confidential documentation by Aug. 9.
While this aspect of the decision is obviously important, viewing this case as merely about arcane corporate law is to miss its greater significance. Far more important is what is revealed about the mindset of ICANN's board and senior management.
First, the decision challenges the notion that ICANN's critics should be viewed with suspicion. ICANN peppered its argument with inferences that Mr. Auerbach was somehow dangerous. In fact, in its final memo to the court, it argued that its conditions were particularly reasonable in relation to Mr. Auerbach since he had publicly attacked ICANN.
The judge ruled that ICANN got the matter backward, noting that Mr. Auerbach was elected to ICANN precisely because of his criticisms. The law is particularly designed to protect directors such Mr. Auerbach, since its very purpose is to assist critical or minority directors who might otherwise be denied access to documents by management who are reluctant to provide fodder for further criticism.
Second, the decision affirms the duty for ICANN to act on behalf of the international public interest, a perspective that sometimes appears lost on ICANN's management. During the hearing, ICANN argued that public companies such as Microsoft and IBM do not post accounting data on the Internet and that it was unfair to ask ICANN to do so. Once again, the judge responded critically, noting that ICANN was a public benefit corporation with a duty to the international community — making it a much different entity than from those corporate giants.
Third, the decision highlights the extent to which the current ICANN board has been content to let management run the show without taking the active approach expected of an oversight body. Referring to the fact that Mr. Auerbach was the first ICANN director to request a review of its documentation, the judge lamented that that was a "sad statement."
As ICANN races toward a reform process that will eliminate directors such as Karl Auerbach, this legal saga suggests the reform is misplaced. It is not ICANN's processes that are the problem — it is a management that seeks to curtail criticism and transparency along with a board that quietly allows it to do so. That is ICANN's real smoking gun and no disclosure agreement is needed to see it.