Role & responsibilities of ENS Foundation Director

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?

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

1 Like

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.

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.

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

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

1 Like

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.

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.


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.

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

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

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.

Free speech is not discussed, expressly or implicitly.

I was being sarcastic :sweat_smile:
It is too broad of a term to cover under any legal framework, let alone in a concise self-contained corporate contract

The governance docs state:

Though not specified directly in the Articles, the DAO may also instruct the directors to take action on behalf of the Foundation

I’m curious why this isn’t specified directly in the Articles? Is this responsibility implied by the Council’s director appointment/removal powers, in that a director who doesn’t loyally execute the will of the DAO is likely to be dismissed?

Relatedly, are there any legal restrictions on what directors are able to do without DAO approval? To take Nick’s example, would a director be able to acquire real estate without consent of the DAO? Any reason why there wouldn’t be an additional clause in the Articles which explicitly limits director power?

From Nick’s description, it sounds like the director role is designed to be nothing more than a “meatspace rubber-stamp”, who mindlessly executes the will of the DAO. Could this mandate ever cause a conflict with their fiduciary duty? What happens if a director is instructed by the DAO to perform an action they consider to be against the best interests of ENS?

Like most open-source projects, we should be sensitive to the fact that countless people in the ENS community are unpaid volunteers, and their work is no more or less valuable than that done by the Foundation directors. That said, if ENS wants to succeed as a sustainable project, the DAO must figure out how to fairly compensate those who make formal commitments to the project. To my knowledge, no disbursements from the DAO treasury have ever been made (EP2 and 3 notwithstanding), so this is very much an unsolved issue. I propose we keep director compensation at 0 until general rules/methodologies are formed to manage disbursements from the DAO treasury.

1 Like

Pretty much. If the directors don’t follow the DAO’s instruction, the DAO can appoint new directors who do.

I am not a lawyer, but AIUI the fiduciary duty the directors have requires them to act in the interests of the foundation (and therefore the DAO). So they can take autonomous action, but only insofar as they believe it serves the Foundation’s interests. They can only use the resources they actually have at their disposal to do so, of course - they have no direct access to DAO funds.

It could, and in that case the Director would presumably have to either refuse to act on that basis, or resign. If I were put in such a position I’d make it clear that I don’t think I can fulfil the instruction and why, and if it was pushed through anyway, I would resign my position.

There’s no requirement in the articles to take the DAO’s instructions, so a director could simply refuse - but then the DAO could choose to replace them.

Unlike those volunteers, though, Foundation Directors are assuming some level of legal risk. While Kevin and I have been happy with the situation so far, I don’t think it’s reasonable to expect an external director to assume the position without any compensation.


I’m not sure why my comments were downvoted, however, I’m certain those specific acts hold relevant legislation for the forward looking, to be newly appointed, Director of The ENS Foundation, and I’m certain all stakeholders of True Names Ltd agree.

In this instance, the necessary establishment of an entity for the human services attached to the on-chain registry, are necessary under existing infrastructure, and so local legislation may need to form part of the True Names Ltd and The ENS Foundation agreement setup for contracting their to-be appointed director.

There’s a lot here actually and I’d probably need to conjure a significant statement to address ‘all’ the necesssary steps of caution and appropriateness.

I only downvoted since you were meandering into US Law and other irrelevant aspects at that time that didn’t matter to the legal status of either TNL in Singapore or ENS Foundation in Caymans.

In what cases would it be appropriate for a director to take autonomous action? And how wide is their discretion to do so? I don’t think anyone wants the DAO to micromanage every action performed by directors; so if DAO wants EF to perform THING-A, it’s understood that directors will use their best judgement to accomplish THING-A. But are directors allowed to “autonomously” perform a completely unrelated THING-B if they think it serves the best interest of ENS? Restricting DAO funds is definitely an important limitation on the power of EF, but just wondering whether more explicit limitations could or should be placed on directors (via Articles Section 78). Just looking for additional protections against a good intentioned, but overzealous EF going into massive debt to buy Super Bowl ads :wink:

Anyone who does anything assumes some level of legal risk. I don’t see how a director’s legal risk would be more than, say, a programmer who might get sued because their bug causes serious financial loss, but readily admit that I know almost nothing in these matters. I suppose everyone has a different risk tolerance, but I wouldn’t be surprised if qualified candidates are willing to accept the legal risks without compensation (especially in the presence of Directors and Officers insurance). Maybe we should ask the candidates to provide a “legal risk compensation” number that they’d feel comfortable with, and make that part of the nomination process?

First, a Director has a duty to monitor others. They can be personally liable for the malfeasance of others, if they fail to act to protect the organization and its assets (they can’t stand idly by). Second, while D&O/Fiduciary Liability insurance would provide a defense against lawsuits, it may not cover a loss suffered by the organization for a number a reasons. Lastly, I have served on a Board of Directors of a Not-for-profit without compensation, it’s not rare. In fact, it’s quite common. If the Director carries out his or her duties, there is little to no risk of liability. In almost every case, the Director serves without incident.

1 Like

I know this response is quite dated. I want to emphasize that sarcasm puts obstacles before the assumed and are precursor for this discussion.