Nominet, the not-for-profit in charge of the .uk domain registry, will drop a High Court action against one of its own directors after a boardroom battle culminated in his resignation last week.
The firm had been due to apply for an injunction against Jim Davies at a hearing last week but decided to withdraw, chairman Bob Gilbert said. Nominet wanted the courts to force Davies to stop working as a solicitor for domain industry companies, which it said was in conflict with his duties as a non-executive director.
"All we were doing was trying to make him honour his duties as a director. Now he's not a director that falls away," Gilbert said.
Davies denied any conflict. He quit the board last Monday, circulating his resignation letter to Gilbert among Nominet members. The missive contained a series of allegations against senior Nominet executives, which have been hotly denied.
Davies wrote that his primary objection to the management of Nominet arose from a cash bonus scheme for senior executives, approved by the board in October 2006. The Long-Term Incentive Plan (LTIP) will reward "eight or nine" executives, according to Gilbert, with a share from a bonus pool of £370,602. In his resignation letter Davies said he believed the figure was "obscene" in the current economic climate.
Davies argued the board had an obligation to put the scheme to a member vote in line with its obligations under the Combined Code of Corporate Governance. The government code sets out rules for the accountability of publicly traded companies, which although it has members rather than shareholders and is not listed, Nominet seeks to obey.
Davies sought independent legal advice which said Nominet should have put the LTIP to a vote at its AGM. Nominet said its lawyers contradicted this advice.
In a telephone interview on Thursday, Gilbert defended the scheme and the way it is due to be disclosed, arguing that publicly traded companies put executive share options schemes to a vote because they dilute existing stock. "It will be fully disclosed to our members in our accounts this year," he said. "And therefore this allegation it has been done in secret is all just blatant nonsense.
"We had very clear advice it was not subject to the Combined Code. As Jim has been advised by our lawyers, Nominet's policy is that it will adhere to the principles of the Combined Code where it is appropriate. We don't ask members to fix anybody's salary."
Executive renumeration at Nominet is set by a dedicated committeee composed of non-executive directors. Davies argued that under the Combined Code the LTIP should have been put to members.
Davies made a secondary allegation in his resignation, levelled specifically at Nominet CEO Lesley Cowley, concerning "an email that [she] sent immediately after the AGM, which revealed that she had advance knowledge of the AGM results."
Members can submit their ballots to Nominet elections via the web or on paper before the AGM, which took place last year on April 30. It is also possible to vote in person at the AGM before the results are announced the following day.
The elections are conducted as a secret ballot, administered by the specialist firm Popularis Ltd. "Why should Lesley or anyone else get the results a day ahead of their being signed off by the scrutineer, especially given the partisan position taken by her and Nominet in this AGM," Davies said.
In the run up to the AGM last May Cowley and Gilbert campaigned for the power to appoint non-executive directors without member approval, in a special resolution vote run alongside the board elections. They also urged members not to vote for Jim Davies. They argued he was standing as a destabilising threat representing the interests of "domainers", who speculatively buy and sell generic (ie non-trademark) web addresses for profit and want the price of .uk domains reduced. Davies denies this.
The Nominet executive failed in its bid to change the company's constitution, and Davies was elected. In our telephone interview Gilbert denied Cowley had specific prior knowledge of the results. "I think we could have all guessed the results," he said.
"That is what I think she did."
In an email sent after our telephone interview with Gilbert, Nominet's public relations company Racepoint Group sought to "clarify" his comments on Cowley's knowledge of the election result. "Two members of the senior management team are given an indication of the likely outcome of member votes by the scrutineers after the polls have closed," it wrote.
"These team members then inform the chief executive [of the voting] so that preparations can be made for the release of the results and of course the likely impact of the results (for example, if the vote is close and there may need to be a recount, the announcement of the results may have to be delayed)."
"It is understood by all that these results are not final and are confidential and that we must wait for final sign-off from the scrutineers (having checked and audited the results) before any announcements are made. This confidentiality was maintained and any allegations that state otherwise are incorrect."
Davies' resignation follows that of fellow non-executive director Angus Hanton in November. He left at the height of uncertainty over the future of Nominet as a private company independent from the government, because of fear of takeover by domainers.
The governance review launched by executives after the Department for Business, Enterpise and Regulatory Reform asked Nominet to justify its autonomy is ongoing and scheduled for completion in March. Management consultant Professor Bob Garratt is leading the review.
"There's no personal animosity between me and Jim Davies or any other member of the board as far as I'm concerned," Gilbert said. There are plans to find a replacement, who will be appointed rather than elected, "in due course". ®