The Nominet EGM Proposals

What's wrong with them.

Clive Feather

Last updated 2006-03-15

This page expresses my personal opinions. It is my own responsibility and not that of any other person or organisation. I have attempted to make quotes as accurate as possible, and apologise in advance for any errors.

What is this about?
Why should I care?
What's wrong with the new Memorandum?
What's wrong with the new Articles?
What's wrong with the new voting system?
What does Nominet say?
What can I do?

[I choose to avoid "he or she" tangles. Any use of "he", "she", and cognates on this page - other than in reference to a specific person - does not imply gender.]

What is this about?

Nominet is holding an EGM on March 16th. At this EGM, members will be asked to approve changes to the Memorandum and the Articles. These changes have the unanimous approval of the Nominet Board

While I am broadly in sympathy with many (though not all) of the Board's aims and objectives, I am extremely unhappy with the actual proposals before the membership and the way it has been done. The Board has offered the changes as a "take it or leave it" proposition with no consultation on the details. In their "Summary of major changes proposed" they have not mentioned some changes which are as important as those mentioned. I do not accept that all the changes had to be done at the same time or that it was not possible to provide options.

Finally, when you look at the details of the changes there are badly worded clauses and text that appears to allow things that are contrary to the Board's own claims, let alone the "spirit of Nominet". If this is accidental, the Board should be told to go back and get it right. If this is deliberate, the board are deliberately misleading us. In either case, Nominet's members deserve better.

Why should I care?

Firstly, why should you care about these issues at all?

If you or your organisation are a member of Nominet, then this is your company we are talking about. You take the time to paint your house or have your car serviced. You do this, not to waste time, but to ensure your property remains in good condition and fit for its purpose. Companies are just the same. You should ensure that the company structure is kept fit for purpose. If someone else proposes making changes, you should consider whether these changes are right or not.

Secondly, why do these particular changes matter?

The Memorandum and the Articles of a company are the "private laws" that control how it runs. As such, they define the basic structure of the company and form a contract between the company, its members, and its directors. A lawyer once taught me two very important points about contracts:

Put into context, the Memorandum and Articles should be clear and unambiguous, and should not rely on anyone's good will to be interpreted in the way you expect. In particular, any statement of the form "a Board would never do that" should be countered with "well, you should have no problem putting that in the wording, then".

I have no doubt that some of my points will be dismissed by my opponents as "nit-picking". Well, its often said that the devil is in the details, so somebody needs to check out those details carefully. As any parent knows, if the nits aren't picked out, they bite you later. Or, as Tom Waits said and Sir Humphrey Appleby would no doubt have agreed: "the large print giveth, and the small print taketh away".

Why can't you just trust the Board?

My military career was brief and inglorious, but one thing I did learn is that you judge a potential enemy by his capabilities, not his intentions. I am not making claims about any future intentions of the present directors, but directors come and go while the Memorandum and Articles stay. As a result, you should look at them in the light of a future Board who is out to get you. Do they protect you enough? If not, they need changing.

I believe the present Memorandum and Articles don't provide the protection and clarity that the membership deserves.

What's wrong with the new Memorandum?

You can read both the present Memorandum and the proposed new one on the Nominet web site, or you can see a side-by-side comparison provided by Hazel Pegg.

Significant Note: this is at least the third version of the new Memorandum. The previous version is still on Nominet's web site, but the original one is not. Nominet have stated that the replacement is because of "numbering and typographical errors". In fact, the first version was inconsistent with the EGM resolution, making changes that that resolution would not authorise. While these were not earth-shattering, why were they there at all. Have the Nominet Board and Executive really failed to check what they were doing? Don't we deserve better? And, since these changes have only been notified on nom-announce, not by post, will all the members be aware of them?

Clause 3: clause 3 is the "objects" clause of the Memorandum. To the extent that a company can be said to have an "ethos" or "soul", it resides in this clause.

The old clause 3 has 7 objects. The first three relate to the operation of the .uk country-code domain, while the other four relate to running a domain name registry. This clause is then supported by clause 5, which provides 5 more powers, one of which is obsolete.

The new clause 3 has 46 separate objects. Clause 5 has been deleted, and the relevant provisions appear to be included within clause 3 - this is part of the reason for the growth. It is unclear to me whether all this detail is needed, or whether the "mopping up" clause 3.46 would actually cover most of them. Certainly their absence doesn't seem to have prevented Nominet operating so far, including even buying its own land and buildings.

However, nowhere in the new Memorandum will you find the words domain or registry. And this is where the "ethos" comes in. These changes are saying that the new Nominet no longer cares about .uk or even being a domain name registry at all. Perhaps Nominet needs to become more dynamic, but does that mean it needs to hide its main purpose? If, as Nominet state:

The purpose of the company still recognises maintaining the .uk register as Nominet's core business

why doesn't it say so? Many of us feel this is a step too far - a sign that the board no longer seem to care about this business. There would have been no difficulty in adding the new objects to the existing ones, so why did the original ones have to be removed?

Clauses 6 and 10: the other significant change to the Memorandum is the removal of clause 6 and the addition of clause 10. The reason that I mention these together is that most of the new clause 10 is the same as the old clause 6.

Why on earth are they bothering with this change? Well, this is a perfect example of why the small print matters. Clause 6 is one of five clauses in the Memorandum that enjoy special protection. Normally changes to the Memorandum of a company require a 75% majority vote, but in the Nominet Memorandum changes to clauses 3, 5, 6, and 9 require a 90% majority while changes to clause 4 (which provides this protection) are forbidden. Therefore we are led to the conclusion that the reason to renumber clause 6 is to remove this protection. Now I think this is a significant change that ought to be justified by the board. You may agree. Yet it isn't mentioned anywhere in the EGM paperwork. Why not? More to the point, since the main purpose of this clause is to prevent the payment of dividends or other distribution of profits to members. If Nominet truly wishes to remain a non-profit organisation, why does it want to weaken this protection? Should we not be told?

This concern becomes greater when we examine the substantive differences between the old clause 6 and the new clause 10. One addition (10.6) is sensible, but the other is rather more worrying:

This shall not prevent the payment of:
10.7 loyalty payments, discounts or promotions (or equivalent arrangements) to customers and/or members of the Company.

These sort of payments could easily be used as a way to distribute funds to the members, contrary to the purpose of this clause. More worryingly, it need not be done in a manner equitable to all members. These are points that have upset a lot of people. I will have more to say on this when discussing the Articles.

What's wrong with the new Articles?

You can read both the present Articles and the proposed new ones on the Nominet web site, or you can see a side-by-side comparison provided by Hazel Pegg. Since the new Articles completely replace the old, it is not so easy to compare them directly.

Table A: when reading the new Articles, it it is important to realize that they aren't all there. As well as the 40 specific clauses, the new Articles import part of Table A. Table A is the "default" articles for ordinary limited companies, for use when they don't wish to do anything special. A majority of them assume the presence of shareholders and that the directors appointed by some outside process and deal with matters like like shareholder rights. As a result, of the 118 articles in Table A, Nominet starts by deleting 77, leaving only 41; they also find it necessary to modify several more later on. The remaining Table A articles are not included in the documents distributed by Nominet, but can be found in Hazel's comparison.

As a matter of neatness and convenience for readers, I feel this is a bad approach. It would have been better to simply write Articles identical to those in Table A (this is perfectly legal and is the approach taken by many companies). That way the entire set of rules applying to the company (the retained Table A articles have the same status as the Nominet-specific ones) is in one place and explicit.

Another curiosity is that Table A is, in fact, the wrong table to use. The standard articles for Companies Limited by Guarantee is Table C, and this would probably have formed a better basis for the Nominet Articles. One has to wonder why Nominet chose to accept the inferior approach.

Expulsion: the existing Articles allow a member to be expelled from Nominet, but only after a 90% majority vote at a General Meeting (this term refers to either the AGM or an EGM). The Board state that "In practice, we have not been able to use this" but don't explain why. Instead, new Article 3.2.3 allows the Board to decide to expel a member without any input from the membership. Article 3.3 provides a limited right of appeal - the issue is taken to arbitration. However, there is a sting in the tail: under Article 3.4, the ex-member cannot reveal the existence of the appeal while it is in progress, and cannot tell anyone - even afterwards - of their grounds for appeal or anything else. Again, no explanation is given of the need for this secrecy.

I believe that this moves the power too far from the membership to the Board. A malicious Board could make use of this power to affect the balance of voting at a crucial moment. Even if the member appealed and the Board didn't resist it, Article 3.4 then prevents them from bringing up the matter to the membership - we never get to hear their side, other than that part published in the arbitrator's report. I would suggest that, if it is really true that the present arrangements are unworkable, a better approach would be:

Pricing: the existing Articles include 19A (sometimes called the "Hutty clause", which is unfair because 75% of the membership explicitly voted in favour of adding it):

Except as required by law, before making any change to the level of membership subscriptions or registration fees, the Council of Management must consult with the Steering Committee by conducting a postal ballot. The ballot must seek votes for and against each proposed change; and the Council of Management shall only implement the proposed change if at least seventy-five percent of the votes cast in the ballot are in favour of the proposed change.

The Board claim that this clause makes it impossible for the company to respond to market changes, and that it can take 6 months to put a price change through. The company needs "to be more commercial and responsive". In fact, since registrations last for two years at a time, it is not clear that price changes need to be made particularly urgently. But, in any case, the 6 month claim is patently false. The Article does not require consultation and then a postal ballot, it requires consultation by a postal ballot. All that is needed is a reasonable time for the ballot to take place. Given that an entire revamp of the governance of the company is taking place in only 5 weeks (Bob Gilbert's letter is dated 9th February and the EGM is 16th March), a mere price change can surely be done in 3. And if even this is too long, the answer is to implement electronic voting - after all, very few Nominet members are going to lack access to the Internet! [Note: I am counting, in every case, from the point at which the Board reaches a conclusion. The time they take to do that is irrelevant to this issue.]

So perhaps the Board just don't want to let the membership keep this control. Why not? Are they afraid that the membership will misuse it? Perhaps the membership are afraid that the board will misuse it. In particular, many members are concerned at the possibility of differential pricing - giving discounts to certain types of member - or of prices being increased to fund "loyalty payments" to some members. In my opinion the case has not been made for removing this power; in particular, the Board ought to be explicitly addressing the arguments that led to this Article being introduced in the first place.

Proxies: the new Article 14 contains a number of detailed provisions about proxies, including allowing proxies to be notified electronically. In general, these rules seem to be well-constructed and sensible. I am a little concerned about the last part of 14.3, which allows the board to accept proxies delivered late - there should be a rule preventing acceptance of one proxy later than another is rejected - but this is minor. However, even these apparently non-controversial provisions contain a sting in the tail, in 14.4 to be specific:

A proxy may not speak at any meeting except with the permission of the chairman of the meeting.

Why not?

If I have appointed someone as my proxy, I trust them to act responsibly on my behalf. That includes expressing my views. Why should the chairman of the meeting (who may be opposed to me) have the right to gag my representative? Even worse, this clause doesn't exclude proxies who are also members in their own right (through something like "where they do not otherwise have the right to speak") - so if I accept someone's proxy, I am gagged!

Directors: a major change in the new articles is an expansion of the board from 6 to 9 with related changes:

Old New
Executive directors 2 up to 3
Elected directors 4
maximum 2 year term
up to 3
3 year term
Appointed directors none up to 3

There is enough to say about this part that I have divided it into two sections - "principles" and "details".


The first question the members must ask themselves is whether this structure is the correct one. To some extent this has to be a subjective decision and doesn't have an explicit right or wrong to it. However, given the sweeping nature of the changes, Nominet should have provided some kind of formal consultation or decision-making process. Even if Nominet didn't want to wait out the time required for a separate consultation (and I don't see why not), formal resolutions could have been tabled allowing a choice between alternatives. There are three areas where I think things should have been done differently.

  1. I am not opposed to appointed directors (indeed, I was the person who introduced the concept into the LINX Articles), but I believe the balance is wrong. A better split would have been 2 appointed and 4 elected directors.

  2. Many members appear concerned about the move from a majority of elected directors to a minority. These concerns could have been reduced by giving the elected members special status when acting together. For example, in the IWF constitution, changes to the budget and significant policy changes require the approval of at least one of the (minority) directors appointed by the funding council - the people paying the bills. If all of them oppose such a change, they have a collective veto.

  3. The fewer directors elected at each election, the less diversity of membership view is represented. The reasons are related to how STV works and aren't always easy to get across. Putting it very crudely, if one thinks in terms of "power blocks" (and I am not suggesting that the membership are organised like that) then the present system allows the two largest blocks to pick directors while the change to one person elected per year means only the largest block gets represented.

    There may be other ways to resolve this - though I suspect they would be even less comprehensible to the average person than STV - but until such a method is found and brought into use, at least 2 directors should be elected each year.


Quite apart from these matters of principle, there are a number of detailed issues in the Articles relating to directors. These issues would provide mechanisms for a malicious board, or part board, to break the spirit of the new Articles while remaining within the letter of them. If they are deliberate, they call the Board's motives into question. If they are accidental, then - to be charitable - they show the need for these new Articles to be rejected and reviewed properly.

Article 15.2.1 requires appointed non-executives to be ratified at the next annual general meeting. This applies even if the appointment is the day after the AGM and already planned. It also applies even if there is an EGM between the appointment and the next AGM. Ratification should, instead, be required within a fixed period (say 2 months). There is no need to call an EGM to do this - electronic voting would be sufficient.

Article 21.1 reads, in part:

The term of Appointed NEDs shall usually be 3 years, or such other term as the directors determine. At every annual general meeting of the company, one-third of the Appointed NEDs then in office must retire. If the number of Appointed NEDs is not divisible by three, then the number nearest to one-third must retire.

Since there can be at most three appointed NEDs (or are the board already planning for more), why doesn't this say "at least one"? As written, if there is only one appointed NED, he need not retire at all and the board can extend his term of office indefinitely. Of course, any other appointed NEDs could resign shortly before the AGM and then be re-appointed a week or so later.

Even if an appointed NED does retire at the AGM, there is no requirement to re-ratify him - 21.4 states that he is deemed to be re-appointed unless there is a specific motion not to appoint.

Article 15.2.2 requires "up to 3" directors to be elected. It doesn't require there to be 3. Article 22.2 states that the elected directors are, well, elected, using a process decided by the board (but which must use the established weighted voting system, which is good). However, it doesn't actually require elections to be held in any particular timescale, or at all. A system which elected one director every 3 years would be perfectly legitimate (indeed, arguably so would one that didn't elect any directors at all).

The Articles use "appointed" in several places that clearly include elected directors. This implies that 21.4:

No person other than an Appointed NED retiring by rotation pursuant to this article 21 may be appointed or re-appointed as a director at any general meeting unless he is recommended by the directors.

applies equally to elected directors - opponents of the board can't be elected! Deliberate or incompetence?

Alternate Directors: new Articles 16 and 17 introduce alternate directors. What this means is that a director may name anyone he likes to take over his role as a director for an unrestricted length of time (so long as the appointer retains his position). Nobody other than the appointer has any veto over this appointment (it is possible - but unclear - that a resolution at a General Meeting can order a director to revoke the appointment). The appointer isn't even responsible for the alternate's actions (see article 69 of Table A).

Alternate directors make sense in a normal company where at least some directors generally represent the interests of a block of shareholders. They allow a director to take a sabbatical from his position and appoint someone responsible to substitute in the meantime. However, they are completely inappropriate in an organisation like Nominet where the directors represent the membership at large, certainly for the non-executive directors (I accept that there may be an argument for allowing them for the executive directors, but we seem to have managed without so far). As an example, if an elected director wishes to leave part way through her term, these articles allow her to nominate her replacement rather than leaving it to the electorate.

I believe the articles relating to alternate directors should be deleted.

Participation in profits: Article 26.1 talks about paying directors "participation in profits". I thought we were a non-profit organisation.

Rules: Article 20 allows the Board to make rules for operating the company. This is very sensible. The rules are, of course, subject to the Memorandum and Articles. Quite right. But they are not subsidiary to the will of the membership as expressed by an ordinary resolution at a General Meeting. So the members can tell the Board that a given rule should be removed, and the Board can just ignore them.

Foreign members: is your registered address outside the UK? Well, if so, you may want to read Article 38.1. This says that, if you give the company an email address to receive notices, they may send notices to you at that address but the board can decide to stop doing so without any warning at all! If Nominet is going to allow electronic communications, shouldn't email be okay no matter who the member is?

Email addresses: according to Article 38.2, if you ever tell Nominet an email address, even for one specific purpose (e.g. "I'm away on business for a week, please use this other address for your reply") they can use that address for all official notices from now on. Of course, this isn't symmetric: you have to send emails to their official address for them to be official. Why isn't sauce for the goose suitable for this gander?

Sending notices: the old Article 48 gave rules about when a message was deemed to be received - for example, proof of posting is, for Nominet purposes, proof it was received 48 hours later. The new Article 39 has similar rules in it, but all of a sudden they've lost their symmetry: Nominet doesn't have to worry about stuff being lost in the post, but we do. Nominet merely needs to send email "in accordance with guidance issued by the Institute of Chartered Secretaries and Administrators" and don't need to check it's arrived, but we do. More sauced goose?

What's wrong with the new voting system?

In brief: very little.

The new voting system makes one significant change and one cosmetic one, as well as tidying up some details. The significant change is that the cap on votes becomes 10% of votes cast rather than of votes held. Thus if only half the votes available are cast in any one ballot, a capped vote would be effectively 20% of the vote at present, but becomes 10% under the new system.

There are a number of places where I would have done things differently, but that doesn't mean I think Nominet have got it badly wrong. For example, in clause 5.3.3 concerning connected voters, I would have reduced the vote to the number they would have had if a single member, rather than capping the group's vote to T, so as to eliminate all - rather than just most - of the benefit of acting in this way.

Nominet have not made major changes to the voting system. For example, people have suggested reducing the influence of large ("pile 'em high and sell 'em cheap") members by making the cap 5%, or by having a less than linear weighting (so doubling the number of domains a member controls might only increase the W component of their vote by 20%). While it is not clear that any of these approaches has major benefits over the present system, it is disappointing that no effort to investigate the possibility is apparent.

Finally, the cosmetic change is going to surprise people, but makes no difference to actual voters' power. Under the old system, each member gets one vote and the total number of votes is 4 times that, while under the new system, each domain name is worth one vote and the total number of votes is 33% greater than that figure. So if there were 3 million domain names and 2,500 members:

Old system 1,000 1 10,000
New system 400,000 400 4,000,000

What does Nominet say?

You can read Nominet's official position on their web site.

Nominet claim that they need these changes to be able to bid for the UK ENUM registry and similar matters. I now accept that this is the case. The existing clauses 3.4 and 5.4 might provide sufficient power, but it would be risky for Nominet to rely on them. Nevertheless, that only justifies widening the objects, not all the other changes. These should be presented and argued on their own merits. It certainly does not justify removing protections from clause 6 without telling the members explicitly.

Alex Bligh, referring to the changes, says "You board believes they are fundamentally interconnected".

Well, I've tried, but I can't find the fundamental interconnection between adding new directors, removing special protections on the ban on dividends, gagging proxies, or removing the ability of dissidents to stand for election.

Gordon Dick writes: "Currently any pricing changes would have a long lead time and cost a lot to ballot all the members on and thus cannot be affected by natural market conditions."

This is not so, unless three or four weeks is a long lead time (for changing prices on a 2-year service). As for cost, Nominet could have moved to fully electronic balloting on some matters - does sending out 3000 emails cost a lot? Not so based on the contents of my spam-traps.

What can I do?

What if I've already voted or appointed a proxy?

You can always change your mind. A new proxy or voting form overrides the old one (though make sure you state on it that you're doing so). And if you turn up at the meeting that overrides any proxy you may have issued.

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