A year or so ago, Nominet‘s board commissioned Sir Michael Lyons to perform an independent external review of Nominet’s operating model and governance arrangements. Sir Michael reported to the board in October, and the board have now released both Sir Michael’s report, and their response.

I spoke to Sir Michael briefly at the last AGM, and at his request had a longer telephone conversation. I have to say I was impressed – he seemed to have got to the heart of the issues pretty quickly. And he appears to have produced a very sensible report.

Sir Michael’s recommendations are to be found at the end of his report. In summary they are level-headed and reasonable. None are particularly radical, and I think he is probably correct that radical surgery is not needed. Nominet appear to have accepted most of them, although I do find it a little strange that they don’t accept the need for finance director on the board of a company Nominet’s size.

Given I agree with almost everything Sir Michael has written, I’m not going to pick the report apart in full here. But I will mention two details.

KPIs

Firstly, Sir Michael suggests (page 19):

Introduce clear KPIs for cost control and return on Research & Development

I think introducing KPIs is a valuable strategy, particularly regarding cost control. However, I question the extent of the usefulness of introducing KPIs for ‘return on Research and Development’. Long term R&D produces returns only over the long term; by then it’s too late to control the cost of that R&D. I think maintaining a close eye on what is researched is probably even more important than what it costs. Moreover, in any R&D environment it should be an expected result that whilst some projects will produce transformative commercial successes, some (perhaps most) projects do not come to commercial fruition; accepting that this is an inevitability and not a failure is vital, not least as otherwise staff have the perverse incentive to carry on with such projects.

In his recommendations section, this has been tempered to:

Recommendation 18: Nominet should make public the KPIs by which it holds the executive to account reflecting at the minimum registry costs and progress with diversification

which I believe is a better view of things.

The Nominet Trust and Nominet’s public purpose

Sir Michael makes a number of wise remarks about the Nominet Trust and Nominet’s public purpose. Here are a couple of quotes:

From page 9:

It is not enough to argue that Nominet fulfils its wider public purposes by making a profit or that the bigger that profit, the bigger the social benefit. Nor, for that matter, that it meets its social responsibilities by donating some, or all, of its profit to charitable purposes.

From page 12:

However, there is one point that I would like to underline and that is the importance of taking a wide view of social benefit and so avoid focusing solely on welfare benefits. There may be a danger that this has marked the early days of the Nominet Trust, where the board appears to have put an emphasis on separation and independence for the new Trust (both important issues for charitable status to be secured) but, perhaps, inadequate consideration of purpose.
 
Much of what the Trust has undertaken appears to be valued by the beneficiaries and other commentators but does not appear to be widely understood, or valued, by the membership. In part, this may be remedied by clearer communications in the future, and that is certainly on the agenda, but I believe it may also offer some lessons for the definition of the company’s wider purposes. Lessons, in terms of both the importance of clearly-defined purposes but also of ensuring that they are based on a wide view of social benefit. Most crucially, the interest of the original founders in establishing Nominet as a company capable of contributing to the further development of the internet was, itself, a clear purpose of social benefit. Whilst I believe that objective now needs to be revisited and, perhaps, broken down with a set of purposes reflecting the company’s current understanding of the internet and the wider digital economy, I strongly encourage the board to give weight to objectives which offer economic as well as social benefits. Not least, because these are likely to be more appealing to the membership.

I think Sir Michael has these points exactly correct, though as they did not find their way into a recommendation, they board did not respond to them. Donating money to the Nominet Trust is laudable, but does not mean that by doing so Nominet has automatically achieved its public purpose solely by doing this; public purpose should run through its operations. Similarly, Nominet sometimes appears to want to wash its hands of the money once donated (perhaps in order to ensure the Nominet Trust appears to be independent); whilst I agree that Nominet should not involve itself in day to day decisions of the Nominet Trust it should ensure that the Nominet Trust is applying its funds in a manner consistent with Nominet’s own public purpose. Funding more (charitable) projects directly related to internet infrastructure, for instance, would not go amiss.