[Chapter-delegates] Message from Internet Society Audit Committee Chair

[Richard Hill]

I will comment here on several messages that are part of this thread.


On 5 November, 18h50, Andrew wrote:
-----------------------------------

>Chapters are, legally speaking, separate organizations from the Internet Society (i.e. the corporation incorporated
> in the District of Columbia in the US).  The US Internal Revenue Service requires that Trustees disclose,
> in the annual 990s we file with them, any case where they have an interest in another organization
> that receives money from the Internet Society.  In principle, any Chapter can be in receipt of money
> from ISOC because of the admin fund, because of the money that flows through the Internet Society for Beyond
> the Net, and because of the Chapterthon.  If an officer of a Chapter were to be in a Chapter that receives
> any of that money, then we would have to report it to the IRS and undergo a bunch of additional investigation
> and audits and so on (because, as an officer of such a Chapter they have a fiduciary relationship
? to the Chapter and so are deemed to have an interest).  It would be a risk to the organization 
>and our 501(c)(3) status.  That is why it is important that nobody in a Chapter leader position be a
> Trustee at the same time.

US tax laws are notoriously complicated and difficult to understand. Here is how the IRS itself explains the matter:

  https://www.irs.gov/charities-non-profits/form-1023-purpose-of-conflict-of-interest-policy 

It seems to me that the key bit is: "A conflict of interest occurs where individuals’ obligation to further the organization’s charitable purposes is at odds with their own financial interests."

I stress "THEIR OWN FINANCIAL INTERESTS".

Most Chapters are non-profit associations, whose officers are not paid and don't benefit financially from any funds that ISOC might provide to the Chapters.

So it seems to me that, in general, Chapter officers would not be in conflict of interest according to what the IRS says above.

However, as I already said, US tax law is complicated. More detail applying for tax-exempt status are at:

 https://www.irs.gov/instructions/i1023 

I presume that ISOC has obtained expert legal advice on why having Chapter officers on the Board would violate US tax law. If that is the case, could the legal advice be posted to this list?

>That is not to say, of course, that people who have been leaders in a Chapter should be excluded from selection
> as a Trustee.  We often have people who become Trustees while they are Chapter leaders.  They simply have 
>to give one up or the other.

I do not understand that. Some individuals have as much influence on a Chapter as members as they did when they were officers. 

So I don't see how excluding Chapter officers actually changes anything.

On 5 November, 21h26, Andrew wrote
---------------------------

>The old CoI policy is still available at https://www.internetsociety.org/wp-content/uploads/2017/06/conflictofinterest-trustees.pdf .

>My understanding is that, at least when I started as CEO, there was general agreement that serving as both a
> Chapter officer and a Trustee at the same time created a violation due to an Affiliated Entity under section
> II.A and possibly II.B of that policy, 

Here is what those sections said:

"An Affiliated Entity is any corporation of business of which the Interested Party is a director, officer, partner,
owner, or otherwise has business interest.

"A. Financial Interests - A conflict may exist where an Interested Party or a Relative or Affiliated
Entity directly or indirectly benefits or profits as a result of an action, policy, or transaction made
by ISOC (referred to as a “financial interest”). A financial interest is not necessarily a conflict of
interest. A conflict of interest exists only when the Board, the Chair of the Board, or the
Interested Party decides the Interested Party has a conflict of interest, or the appearance of a
conflict of interest.

"B. Other Interests - A conflict also may exist where an Interested Party or a Relative or
Affiliated Entity obtains a non-financial benefit or advantage that he or she would not have
obtained absent his or her relationship with ISOC. A conflict of interest exists only when the
Board, the Chair of the Board, or the Interested Party decides the Interested Party has a conflict
of interest or the appearance of a conflict of interest."


So, as I understand the above, if a Chapter officer is a Trustee (Interested Party), then the Chapter is an Affiliated Entity. Since Chapters receive financial aid and/or non-financial benefits from ISOC, there is financial interest. 

But that is not necessarily a conflict of interest. It is a conflict of interest only if the Board, Chair of the Board, or Chapter Officer decides that there is a conflict of interest.

That is, there was no absolute prohibition on Chapter Officers being Trustees.

>and that it would require that such a Trustee would be necessarily conflicted

No, not "necessarily", see above.

> on all matters related to the ISOC budget and possibly anything to do with Chapters, and so the only plausible remedy under section IV of that policy would be option (d) (i.e. resignation or removal).

No, section IV provides that the Trustee could "Physically excuse himself or herself from participation in any discussions regarding the transaction or activity, except as requested by the Chair."

On 6 November, Heather wrote:
-----------------------------

>The Conflict of Interest policy (CoI policy) is a Board policy that governs the members of the Board of Trustees,
> not the chapters or other communities.

Sorry, the new CoI policy explicitly prevents Chapter officers from being Trustees, so it does affect the chapters. Therefore, in my view, the Chapters should have been consulted.  Furthermore, as I've said before, I think that the constituent bodies (Chapters, Organizational Members, IETF) should systematically be consulted for everything.

>There are a number of reasons to have a CoI policy - both simply because it’s an important aspect
> of board governance, but also because the IRS asks about the existence of, and process of, a CoI policy

True, but what was the driver for the recent changes? The IRS? Or somebody's idea of good governance? As noted above, it is not clear to me that the IRS requires the changes that were made, but I'm happy to stand corrected by a an expert on US tax law.

> as I understand it, clarifications to the 2011 policy were needed

What was the driver for those clarifications? Specific situations? A general feeling that they were needed?

>In the case of current discussion, there was some disagreement amongst Trustees as to how to interpret
> the current policy - 

By "current policy", do you mean the old policy, or the new one that has just come into force?

>That is not ideal. We can clarify based on learnings from those discussions. 
>We wanted to draw the community's attention to this while we work out what clarifications
> to the policy might be needed.

Does this mean that the new policy is open for comment and revision? If so, what is the process that will be used to allow comment and revision?

>As I understand it, the CoI policy is intended to ensure that Trustees can participate in any number
> of organizations or related activities - we want to be able to draw Trustees from a wide pool (of course,
> as elected by members of the community). However, if a Trustee is part of the direct policymaking or
> governance of multiple organizations, then that can create a conflict of interest

How can being a Chapter officer create a conflict of interest, given that (1) Chapters are bound to adhere to ISOC policies and (2) most Chapters are membership organizations in which decisions are made by the members, not the officers? (As I noted above, an individual member might be more influential than an officer).

> As I understand it, advising other organizations is not a conflict of interest, but determining policy
> for an organization in the same areas of engagement as ISOC creates the potential for problems
> (regardless of whether they are formally on a leadership team for that organization).

To be clear, I have no objection to Heather being a Trustee. On the contrary, I think that we should have people who have backgrounds and roles similar to hers. Her profile is at:

 https://www.internetsociety.org/author/west/ 

As you will see "At Mozilla, maker of the Firefox browser, Heather leads policy work for the Americas, with a global focus on data governance."

So Heather is precisely a person who determines policy for an organization (Mozilla) in the same area of engagement as ISOC, regardless of whether she is formally on a leadership team for Mozilla.

So there is something wrong with the policy, because it appears to be intended to exclude people like Heather from the Board, whereas it should be intended to facilitate bringing people like Heather into the Board.

Note that other Board members have similar roles:

Richard Barnes is Chief Security Architect for Collaboration at Cisco.

Gonzalo Camarillo is the head of Data/IT standardization at Ericsson.

Ted Hardie is Vice President in the Global Technical Standards team within Cisco's Emerging Technology and Incubation group (according to LinkedIn, which is not consistent with the profile published by ISOC, according to which he works for Google).

John Levine is President of CAUCE North America (http://www.cauce.org), the leading grass roots anti-online-abuse organization.

Robert Pepper helps lead Facebook’s connectivity and technology policy activities focusing on new technology development, deployment and adoption including being involved in Internet Governance issues.

Laura Thomson is VP of Engineering at Fastly.

Again, I don't have any problem with any of the above people being on the ISOC Board. My problem is that Heather's explanation of the intent of the new policy would appear to apply to them.

> But it has been noted that the MAG Chair appears to make policy for the IGF.

I'm not an expert on the IGF but, as I understand matter, the IGF does not make policy, the MAG does not make policy, and the MAG Chair does not have any authority to decide anything. But I'm happy to stand corrected by people who know more about the IGF.

>Corporations generally do not have formal policy development bodies the way volunteer organizations do

True, in corporations policies are usually made by management, on the advice of lower-level employees.  So what? A senior advisor to a corporation probably has more influence on the corporation's policies than does an officer in most Chapters.

>it is important not to have a conflict between any Trustee’s position with ISOC and their formal role within
> another organization.

Again, what sort of "conflict" are we talking about? Financial? Policy?  And why restrict to "formal role"? As noted above, people who don't have a formal role can have significant influence on policies. And people without a formal role might be receiving money (e.g. as consulting fees).

It seems to me that the policy should not specify general categories, such as Chapter officers, but should instead focus on what individuals have to be careful about, for example not accepting salaries, fees, etc that are paid pursuant to grants from ISOC.

>Trustees do declare their potential conflicts on a regular basis, using a standard form;

Good.

> as Chair of the Audit Committee, I collect and monitor them. This is another thing that the IRS asks about
> from a process perspective. There have been discussions about whether to post these publicly, 
> there has not been agreement about whether this is always possible.

Surely it is possible. Whether it would be advisable is a different question. Personally, I would encourage the Board to decide to make all the forms public.

>There is a very narrow set of circumstances wherein the conflict is structural in nature; 

Sorry, but the new policy contains a very broad set of circumstances: being a Chapter officer.

>in this case, the policy instead requires the person to choose between their role on the Board or within
> the other organization, as recusal would not adequately protect ISOC. 

As noted above, I disagree that recusal would not be sufficient for Chapter officers.

>The goal is to make these circumstances as rare as possible while remaining responsible, as Trustees, to ISOC.

In my view, the new policy totally fails to meet its goal.

On 6 November, 15h00, Andrew wrote:
-----------------------------------

>Organizational Members are not Chapters, though.  Chapters are independent organizations that have
> a direct affiliation with the Internet Society, which is why Chapters are eligible for financial support
> and certain programs, can use a derivative logo, and so on. Organizational Members can't do any of that.

True. But I don't see how any of that requires that Trustees cannot be Chapter officers.

On 7 November, Andrew wrote:
----------------------------

>One might want to make an argument that ISOC shouldn't have been organized under US law, but it's too late
> to do very much about that: we already are.

As I understand it, there will be (hopefully soon) a forum to discuss potential changes to ISOC's governance. Would a move outside the US be an acceptable topic to discuss? Or is that off-limits?

>But I am aware that there are some who feel that either the Trustees or the staff or both are too exclusive
> of the community.  I will continue to do what I can to counter that drift while still pursuing the Mission
> as directed by the Board.

I'm sure that the staff is doing what the Board tells it to do. However, I think that the staff can make suggestions to the Board.

In this particular case, I think that the staff could have advised the Board to consult the community, in particular the Chapters, before changing the policy.

It would have been a good example of bottom-up, as opposed to top-down, governance.

Best,
Richard


  
> -----Original Message-----
> From: Chapter-delegates [mailto:chapter-delegates-bounces at elists.isoc.org] On
> Behalf Of Andrew Sullivan via Chapter-delegates
> Sent: Saturday, 7 November, 2020 15:34
> To: chapter-delegates at elists.isoc.org
> Subject: Re: [Chapter-delegates] Message from Internet Society Audit Committee
> Chair
> 
> Hi,
> 
> Several of the items in your mail are about bigger governance changes
> than I could do anything about, so I'm just eliding those from my
> response.  This isn't because I don't think they're worthy of
> discussion, but because I'm the wrong person to talk to them about!
> The Board has to adopt Bylaws changes.
> 
> On Fri, Nov 06, 2020 at 06:02:44PM +0000, Christian de Larrinaga wrote:
> >
> >For instance Chapters elect ISOC Trustees.
> 
> Well, 1/3 of them, yes.
> 
> >Firstly if  ISOC determines how a chapter is governed then that potentially
> can
> >influence how ISOC is governed via influencing (corruptly) the chapter
> electoral role.
> 
> To be clear, though, the Internet Society does not in fact determine
> how Chapters are governed, right?  There definitely are minimum
> requirements for governance, of course, but those were (1) worked out
> with the Chapters and the ChAC and (2) are really the minumum we can
> get away with under US law.  One might want to make an argument that
> ISOC shouldn't have been organized under US law, but it's too late to
> do very much about that: we already are.
> 
> >Secondly ISOC pays money to Chapters. A perceived conflict could occur if
> >it could be  inferred ISOC or some part in ISOC was using that to
> >influence Chapter candidate selection / voting for the board. (for example)
> […]
> >There are other potential things to look out for. For instance if an
> >ISOC staff member or board member or contractor or other benefactor
> >takes on a senior chapter roll and uses the chapter processes to
> >influence ISOC in a way that falls outside community consensus.
> 
> Yes, which is _precisely_ why the Board has this as a hard conflict.
> You can serve in one capacity or another, but you can't serve in both.
> We don't allow chapter leadership to be ISOC staff or Trustees to
> avoid this kind of problem.  Upthread some seemed to be suggesting we
> should relax this stance, but I think you have argued pretty
> persuasively that we need to be on our guard here.
> 
> >Mostly grants to chapters are for services to the community.
> 
> Some are administrative funds, but yes.  And there are substantial
> funds set aside every year reserved exclusively to Chapters so that
> they can achieve those things.  Historically, we seem to have had
> difficulty getting enough Chapters to apply for those funds, but we
> continue to reserve them in any case.
> 
> >Organizational members in my experience depend on an inside ISOC
> >champion but ISOC has never managed to extend that support in those
> >organizations to include their brand values with ISOC's core values nor
> >encourage direct engagement by them directly with chapters around the world
> in
> >areas they are  doing  business or charitable activities. Some very
> >simple things could be  done to join these dots and turn every $1 into
> >$10.
> 
> I think you are right about this, and it is one of the areas of high
> priority work in the coming year.  I feel our disconnect with
> Organizational Members acutely.
> 
> >I've introduced several orgs to ISOC and some have joined and
> >subsequently left because they "don't see the point". i.e, the "benefit".
> 
> Correct, that is the central point.
> 
> >It has too often been a case of "us" and "them" when it comes to ISOC
> >and its chapters and organisational communities.
> 
> Speaking for myself, I don't think there is even a possibility of "us"
> and "them" as regards the Internet Society and its Chapters or
> Organizational Members, because I believe both of those are part of
> the Internet Society.  But I am aware that there are some who feel
> that either the Trustees or the staff or both are too exclusive of the
> community.  I will continue to do what I can to counter that drift
> while still pursuing the Mission as directed by the Board.
> 
> >Incidentally we've  had a very tough year. Let's be kind in realisation
> >people here are here to further the open Internet. It's pretty amazing
> >really. Despite everything being thrown at it the Internet can still be for
> Everyone.
> 
> In this I think we are in complete agreement.
> 
> Best regards,
> A
> 
> --
> Andrew Sullivan
> President & CEO, Internet Society
> sullivan at isoc.org
> +1 416 731 1261
> _______________________________________________
> As an Internet Society Chapter Officer you are automatically subscribed
> to this list, which is regularly synchronized with the Internet Society
> Chapter Portal (AMS):
> https://admin.internetsociety.org/622619/User/Login
> View the Internet Society Code of Conduct:
> https://www.internetsociety.org/become-a-member/code-of-conduct/