Role & responsibilities of ENS Foundation Director

DAO-Wide General Discussion
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I’ve been asked to summarise the role and responsibilities of directors of the ENS Foundation, so people can evaluate how to move forward on proposals to replace Brantly’s position at the Foundation.

The ENS Foundation is a Cayman Islands foundation that exists to serve as a legal entity representing the DAO. More detail on why it exists and what it’s for can be found in the governance docs.

The Foundation currently has three directors; Myself, Kevin Gaspar, and Brantly Millegan. Directors are responsible for the day-to-day running of the Foundation. In practice, this is very little, at least so far; the Foundation has to make annual filings with the Cayman Islands, which are handled by its lawyers and accountants. It has assorted business expenses; as the Foundation does not have a bank account these are currently paid for by True Names Limited (the nonprofit I direct that funds and organises most ENS development), and requested for reimbursement by the DAO after the fact.

In principle the Foundation’s responsibilities could extend beyond this in time. If the DAO decided it needed, say, a subscription to Google Workplace to give DAO members email addresses etc, the DAO could instruct the Foundation directors to organise and instate this. Likewise, if the DAO wanted to acquire real estate, they would instruct the Directors to carry this out. Foundation directors are free to delegate any of these responsibilities, but it’s their job to make sure it gets done.

The DAO has the exclusive right to appoint and dismiss directors. Directors can also resign - but they can’t be appointed or removed by other directors.

As with all companies, the Foundation provides legal protection to its directors and those acting on its behalf in good faith - the Foundation itself would generally be the target of any legal action in relation to ENS or the directors. I am not a lawyer, but I understand that there are (limited) circumstances under which someone could seek to hold the directors individually responsible for the Foundation’s or the DAO’s actions. The Foundation indemnifies its directors against legal risks arising from their duties as directors, but ultimately the value of this comes down to the ability for the Foundation to fund this - which would come down to the DAO’s willingness to do so. I am also investigating obtaining Directors and Officers Insurance for the Foundation to further protect directors from personal liability. Personally I view this risk as small, but difficult to quantify.

Presently there is no fixed compensation for the role of Director. I’d suggest that the DAO should set some reasonable level of compensation in any proposal that’s put forward to replace or appoint a new director.

The Foundation is only required to have one Director under Cayman Islands law. However, I do not think it’s advisable to have only a single director. Three directors provide for redundancy in the event that one cannot serve, and make tiebreaking on votes easier.

Finally, due to an oddity in NZ tax law, if I am the only director there is the possibility that the NZ tax department would deem the ENS Foundation to be a wholly owned foreign company, and hold me personally liable for the entirety of the income of the ENS protocol. This is not a situation I am keen to explore, and if such was likely, I’d be forced to resign my directorship. This could lead to a situation where the Foundation has no directors; I am not sure what would happen in such a case, and I think it’s also best avoided.

My recommendation here would be to decide on a reasonable level of remuneration for directors, hold a process to accept nominations for the post of director, and hold a DAO-wide Snapshot vote to appoint one.

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Thank you, Nick. While all this has been difficult to you and others on a deeply personal level I applaud you for being a support to the ENS community at this time. I will be opening up a new thread to formally nominate myself as a director.

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I wish there’s a twitter space for this too. I have a bunch of small questions and follow-up questions that I’d like to ask, but I’ll try to word the most important ones here.

That last line is a bit funny, but what it conveys to me is that a director is simply an accountable tether for work that needs to be done? Meaning if the foundation wanted a Google Workspace subscription, the director simply asks a steward to do it and that’s that.

“Why don’t you do it yourself? Well I’m the director!” is a tolerable interaction isn’t it? Which begs the question, do directors have powers over other members of the DAO?

And legally speaking, can anyone be a director of the ENS foundation? Basically, what if they already have other commitments? In my country for example, you can’t be a director of 2 separate LLCs at the same time.

Also is there a citizenship requirement for directors? As in, do they need to be U.S citizens?

Anyways not dwelling on details too much, I think I have an idea that would turn this entire scandal into good PR for ENS.

Because being a director seems like a walk in the park and more of a public status than a job with a lot of responsability, then a lot of people might be okay with carrying the “burden”. With that said, it could be an easy task to convince someone to do it, as it does not come with a lot of extra work.

My suggestion, is we give this position to someone who already has a following and great recognition in the crypto space. Someone who is already revered in the space. Someone that has a track record of good PR and communications on twitter (ha).

Examples :

  • Samczsun (security researcher)
    No (public) .eth address (70k followers)

  • Hayden Adams (founder of Uniswap)
    Hayden.eth (200k followers)

  • Vitalik Buterin
    vitalik.eth (3M followers)

And so on… I think you get my point by now. These three are ones that I can think of just off the top of my head, but besides them I’m sure there are multiple other names that are either part of other protocols or are “free agents” as one would call it, but that would nevertheless be a great way to unfold this story.

“White hat hacker replaces xxxxx-ic ex-director (sorry) Brantly of ENS protocol” is a neat headline isn’t it? The only thing left would be to first ask them, as we basically need to do a “temp check” on which ones would actually accept to do this, so we can then vote on which one would carry it out afterwards.

You have good outreach and connections in the space, don’t you @nick.eth? Could we trust you to do this? Or are you going to delegate it to someone Mr. director? :smile:

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In order to, say, sign up for a corporate account of some kind, the person signing has to have authority to act on behalf of the organisation. Since Google etc don’t recognise DAOs, the legal entity provides a way for that to happen. Yes, the Director could potentially appoint the steward who originally asked for it as an authorised representative!

Directors don’t have power over DAO members - if anything, it’s the reverse.

If your country has laws that prohibit that, obviously they would take precedence.

There’s no citizenship requirement for directors.

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Thanks a lot for the clarifications!

I assume you don’t agree with my idea by not giving your opinion on it? Or do you just not want to get involved with it?
I’d like to at least hear your thoughts.

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I would gladly vote for any of those people as Directors, but I don’t think we should be looking to appoint a figurehead or choosing a director based on its publicity impact.

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I understand what you mean but the publicity impact is inevitable, Brantly’s removal is definitely going to make news regardless unfortunately.

I get the issue that they might not be as committed to ENS as someone well-known from the community would be, but if directors have no power over DAO members and their tasks are mostly symbolic, I think it’s a compromise I’d personally take.

If other members are willing to try out the idea, please suggest more people that would be good fits for this so we might contact them. Otherwise I might eventually nominate myself.

@nick.eth is there a deadline for nominations? And thanks again for doing all of this, you’ve always been very diligent and transparent in providing information about ENS.

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I think there might be some confusion amongst some newer members of the community about the organizational structure of all entities that are in a position of leadership from the top down. I would like to request a visual diagram that can either displayed in this thread in conjunction with Roles & Responsibilities of ENS Foundation Director or where most appropriate. The organizational structure diagram to outline the roles of each director, who they are responsible for reporting to, as well as elected stewards of the working groups and who they make reports to but also to include who has access to treasury funds. I understand that this is described by text in THE FOUNDATION CONPANIES ACT, 2017 MEMORANDUM OF ASSOCIATION OF THE ENS FOUNDATION as well as the ENS DOCUMENTATION.

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What you must realize is that when it comes to directors of a foundation, they have a fiduciary duty to the organization. In the U.S., it is said that this fiduciary duty is the highest known to law. This would be similar under Cayman Islands common law, which is derived from English common law, unless there is a specific statute on point. Directors must make decisions solely in the best interest of the organization, including doing due diligence before making such decision, avoiding conflicts of interest, and to safeguard organizational funds. The penalty is personal liability not just for one’s own bad acts, but that of others, because among the duties is the duty to monitor other fiduciaries and experts. Although nick.eth mentioned D&O insurance (perhaps fiduciary insurance), it may pay for the defense to a lawsuit but may not necessarily indemnify a director for loss to the organization or may be prohibited to indemnify by law. This is usually the case in cases of embezzlement or wasting of assets. Thus, one who wants to serve as a director should be aware of what is expected and the importance the law will place on them to serve faithfully.

I have extensive experience in complex fiduciary litigation of D&Os of not-for-profits and trustees of trust funds on behalf of the insurer.

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In Australia, under the Corporations Act 2001 - s191(a) if the proposed Director has a material personal interest relating to direction/delegation, this should be communicated to directors.

I suppose in the instance of appointment, some legal clarification should be available?

Just thinking aloud guys. It’s a big step. Maybe ENS Foundation will need a tiered structure board. Say an Operation Board and a Direction Board? @nick.eth Would this help with indemnity?

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I don’t think a bifurcation of duties is necessary or warranted. Director liability is governed by Cayman Islands law.

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I think this information complements your statement on embezzlement.

Sarabane Oxley Act (USA - I’m Australian but I am familiar with this act.) after Enron I think (2002) made Directors personally accountable and liable for the accuracy of financial documents.

Additionally, The ENS Foundation memorandum, Article 6, states that the Directors, at all times and under no circumstances, hold sway over token remuneration for themselves.

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I’m trying to avoid references to US law or giving legal advice. Sarbanes Oxley is more of a Security and Exchange Commision issue. (as a side note, I believe the convictions in Enron were ultimately overturned). The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that governs fiduciary duties in the private sector with respect to retirement and welfare plans. Because the law is so well developed, it is persuasive authority under federal and state law in all other contexts. Nevertheless, it would not be applicable here.

As to your second point, it would be considered to be a conflict of interest, as self-dealing. There are exemptions, if certain conditions are met but I need not get into them here.

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Articles of Association provide enough information in very simple language. If one cannot read that, no amounts of diagrams can help.

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Thanks for pointing this out. A lot of people are only concerned with whether the incoming director will pump their bags

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Here’s some good reading for nominees. The excerpt is from a publication from a law firm; it is for informational purposes only and is not a legal memo or opinion. I note that not everything is applicable to the ENS Foundation but you will get the gist. I’m happy to clarify any points, as long as you understand that I am not giving legal advice. People serve as directors all the time without incident, so you should not be dissuaded, and the expectations are not onerous. I, myself, served on the Board of Directors of a not-for-profit. Also note, most of the decision making has already been given to the DAO. I encourage you to do your own research.

Common law duties and liabilities
Under the common law, directors owe fiduciary duties and a duty to exercise skill and care.

Fiduciary duties
A director must act in good faith in the director’s dealings with or on behalf of the company and exercise the powers and fulfil the duties of the director’s office honestly. A director’s fiduciary duties include the following aspects:
• a duty to act in good faith in what the director considers are the best interests of the company;
• a duty to exercise powers in the company’s interests and only for the purpose or purposes for which they are given;
• a duty to avoid any conflict of interest (whether actual or potential) between the director’s duty to the
company and the director’s personal interests or a duty owed to a third party;
• a duty not to improperly fetter the exercise of the director’s future discretion; and
• a duty not to misuse the company’s property (including any confidential information and trade secrets).

Duty to exercise skill and care
When a director is acting in the company’s interests, the director is expected to exercise appropriate skill and care. The relevant threshold is that of:
A reasonable diligent person having both – (a) the general knowledge, skill and experience that may
reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and (b) the general knowledge, skill and experience that that director has.

This duty has two aspects:
• a duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable the director to properly discharge his duties; and
• a duty to attend diligently to the affairs of the company.
Whilst directors are entitled (subject to a company’s articles of association) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of that power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.
If a director breaches his fiduciary duties or duties of skill and care, he may be personally liable to the company for damages.

Other instances of personal liability
A director may be personally liable under the common law for offences of negligent misstatement and deceit.

Negligent misstatement
Where a director has been negligent in making a statement, the director may be liable under a claim for damages brought by a plaintiff who has suffered loss through acting in reliance on that statement. In connection with funds, each director should read the offering document as it progresses to final proof. Each director should consider every material statement of fact or of opinion contained in such offering document and be satisfied, prior to publication of the document, that:
• the director is not aware of anything which would cause the director to doubt the accuracy of any
statement in the document; and
• each statement has been the subject of sufficient verification by appropriate and competent people to
afford the director reasonable grounds to believe that it is true and not misleading.

Deceit
If a director has made a false statement, either with knowledge of its falsity or being reckless as to whether it is true or false, the director could be liable for damages to a person (including, but not limited to a shareholder or investor) thereby deceived. The measure of damages in an action for deceit is the actual damage suffered by the plaintiff, including consequential loss and it is not limited to damages which are reasonably foreseeable as a result of the deceit.

Statutory obligations and liabilities
The general principles governing a director’s conduct set out above are enhanced by a range of specific duties imposed by statute.

The Companies Act
The Companies Act places certain duties upon the directors of Cayman Islands exempted companies, some of which are sanctioned by criminal penalties. Many of these duties are specifically imposed upon the directors.
The Companies Act does not make any distinction between executive and non-executive directors.
Where a company is in breach of certain statutory obligations, any officer or director of the company who knowingly and wilfully authorised or permitted the breach will also be liable to a penalty. The key statutory provisions that are sanctioned in this way include:
• Distributions out of share premium account: No distribution or dividend may be paid to members out of the share premium account unless immediately thereafter the company is able to pay its debts as they fall due in the ordinary course of business. A company and any director who knowingly and wilfully authorises or permits a breach is guilty of an offence and liable on summary conviction to a fine of US$18,000 and to imprisonment for five years.
• Redemption and purchase of shares: A payment out of capital by a company for the redemption or
purchase of its own shares is not lawful unless immediately thereafter, the company shall be able to pay its debts as they fall due in the ordinary course of business. A company and any director who knowingly and wilfully authorises or permits a breach is guilty of an offence and liable on summary conviction to a fine of US$18,000 and to imprisonment for five years.

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Thanks a lot!

Like you said while not all of this could apply to the DAO’s exact situation, most of it probably still does.

The tl;dr basically means that if any director acts in any way that isn’t in good faith, or that doesn’t have the DAO’s best interest in mind, or maybe even expresses fake information, or offends someone, they may be PERSONALLY liable, and they could be prosecuted for it.

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Pretty much yeah. Being at a lead role comes with responsibility and liability among all the good stuff like free speech.

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I’m afraid you are reading something into the above excerpt that is not there.

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I’m assuming that the part about personal attacks is implied from “being liable for damages”. Either way I could remove it if you’re confident it’s wrong & misinformation.