2013/02/27 Minutes

Minutes of the Meeting of the CIRA Board of Directors held at the CIRA Offices, 350 Sparks Street, Ottawa on February 27, 2013 at 12:00 p.m. Ottawa time.

Directors attending: Paul Andersen, Kerry Brown, Andrew Escobar, Michael Geist, Bill Gibson, Rowena Liang, Louise Macdonald, Carole Mackaay, Kevin McArthur, Susan Mehinagic, Bill Sandiford, Bill St.Arnaud

Board Advisors: John Demco, Byron Holland, Adam Scott

Guests: David Fowler, Paul Havey, Jacques Latour

Corporate Secretary: Michael Stewart

Recording Secretary: Lynn Gravel

1. Approval of Agenda

It was the consensus of the Board of Directors that the agenda distributed with the material for the meeting be adopted as presented.

2. Approval of the Draft Minutes of the January 10, 2013 Board of Directors' Meeting

The minutes of the January 10, 2013 were adopted as presented.

3. Financial and Operational Updates

3.1 Report on all Statutory Obligations

This report was provided to the Board of Directors as information and tabled at the meeting.

3.2 Management Report

This report was provided to the Board of Directors as information and tabled at the meeting.

There was some discussion regarding the registration activities for the month of December 2012. Staff reported that December 2012 had the lowest of net new registrations in FY13 and in fact the lowest over the last three years. Although only a single data point at this time, this trend is consistent with the industry as a whole maturing. This change in the domain industry has resulted in global domain growth declining from over 20% a few short years ago to the current level of approximately 7%. Further compounding the slower growth is the impending launch of the new TLDs. The launch of the new TLDs has resulted in some segments of the market (domain investors) slowing down their investment in the incumbents and the distraction factor within many of the current channel partners who seem to be focused on the new TLDs as the expense of the incumbents.

In addition, staff noted that Canada's economy had undergone a significant slowdown in the last 12 months as demonstrated by the Gross Domestic Product (GDP) growth rate of only .01 percent in the third quarter, slowing from 0.4 percent in the second quarter. It was further indicated that December months usually showed slower growth and December 2012 showed normal decline in addition to the release of some registrations by two Registrars in particular. Another reason for the decline was the result of the promotion around Google last year, where domain registrations were free for one year and the renewal rate was very low for these registrations. All these factors contributed to lower than normal registrations.

There was also some discussion regarding the Internet Exchange Points. Staff reported that the goal was to establish robust and true IXPs in major urban centres in Canada, e.g. Vancouver, Winnipeg, Calgary, Ottawa, Toronto, Montreal and possibly Halifax.

3.3 Review of Q3 2013 Financial Results

The financial statements were provided to the Board of Directors as information and tabled at the meeting.

Staff gave a brief overview of the actual financial results as compared to the budget for the period ending December 31, 2012. It was noted the year-to-date financial results for the period represented a surplus of $763,000 of revenue over expenses compared to the $8,000 surplus budget. Much of the favourable variance reflects permanent savings which are expected to be reflected in year-end results.

The overall YTD unfavourable revenue variance to budget at the end of Q3 FY13 was $139,000. P. Havey noted that the gap in cumulative Net New Domain Registration Growth to the FY13 budget had increased to 16.1% at the end of the period, and accordingly the year-end expected registration revenue shortfall was revised from $500K to $700K (as an upper range, or up to $580K on a Total Revenue basis). Interest & other revenue remain on track while $158K of unbudgeted sponsorship funding was earned due to hosting ICANN 45 in Toronto. Certification and applications revenue were trailing at $26K, a result of lower than historical new Registrar applications.

As for the operating expenditures, management will utilize the YTD permanent savings and constrain expenditures to address the current FY13 revenue challenge. The YTD permanent savings are mostly through Salary & Benefits due to the timing of hires and departures, consulting and computer operations & networking.

4. Operational Plan and Budget 2013-2014

The Chair of the Audit, Finance and Investment Committee reported that the Committee had met twice with respect to the FY14 budget. The Chair reported that the proposed FY14 Operating Budget incorporates the direction from the FY14-16 Strategic Plan and reflects the overall slowdown in the overall global domain market. The Committee therefore recommended that the Board of Directors accept the budget as presented.

B. Holland noted that although the domain market was showing signs of weakness, increased competition (new gTLDs) and fundamental change, the organization was entering an exciting period. The emerging trends in the domain business are likely to affect the products and services Registries bring to the market and the manner in which they are priced, promoted and supported. The FY14-FY16 Strategic Plan was therefore timely and designed to reflect the change in market conditions and the opportunities that change can bring.

Staff presented an overview of the FY14 Revenue Budget. It was noted that FY14 total revenue budget is anticipated to be 0.7% less than the prior year's budget. The FY14 expenditure budget continues to support strategic and corporate plan priorities while constraining the core operating expenditure budget - a 1.5% decrease over FY13. The CIP budget allocation exceeds the minimum target and represents 5.7% of the total operating expenditures and 4.6% of the total operating expenditures are set aside for Growth initiatives. The total capital expenditure is consistent with prior years. It was further noted that separate budgetary envelopes were created to maintain core business operations; fund Internet Related activities under the Community Investment Program (CIP) at or above the targeted minimum of 5% of Registration Revenue; and evaluate and target growth initiatives. Staff noted that the FY14 Expenditure Budget was based on the FY14 Revenue Budget Reference plan and may require revision should there be any material changes in the preliminary assumptions.

Staff reported that the FY14 expenditure constraint and budget re-allocation would imply less reliance on third party consultants to assist with project implementations; greater reliance on internal staff to monitor networks; consideration had been given to extending capital replacement lifecycle from 3 to 5 years; combining CIRA events such as AGM with CIF; elimination of various CIP programs: (.ca Impact Awards and sponsorship of various internet related activities and organizations such as Women in Internet, IETF Summit, NANOG, ISP Summit); and placing more priority on IXP support in FY14, thus delaying the full implementation of State of Internet. As for resources, peak headcount for the core operations is anticipated to be comparable to FY13 levels while a headcount of 61 is anticipated by year end 2014. It was noted that incremental headcount may be required for CIRA to address growth initiatives.

Staff reported that the allocation of funds for the Growth initiatives would follow a process of more rigorous evaluation and review prior to proceeding with new revenue generating products & services. The evaluation and review process would result in a solid business case/plan and/or proof of concept for agreed upon FY14 opportunities. Staff were therefore proposing to filter and evaluate up to four (4) growth candidates and develop an appropriate implementation plan in FY14. It was noted that the Growth budget would be managed separately from the core operating budget and that the Board would be provided with periodic reporting on this budget.

Staff presented some preliminary performance measurements which are implied within the FY14 Budget and Reference Plan. Staff also provided an illustration of what a Balanced Scorecard to be developed in FY14 may entail, focusing first on developing the preliminary measurements and initial target ranges for each objective and examining the possible use of other metrics.

There was general support for the proposed FY14 Operating Expenditure Budget and some discussion ensued regarding the allocation of funds between the Growth initiative and CIP. A member of the Board did not support the budget in its current form, mainly due to the allocation of funds under the Community Investment Program. Staff reported that initially $100K had been earmarked for a third party entity but from a timing perspective, to set up a third party entity, it was determined this amount might be reduced to $50K. As for the CIP budget allocation, staff reminded the Board of Directors that the proposed budget represented 5.7% of total operating expenses, exceeding the minimum target of 5%. After further discussion it was agreed to provide an additional $50K for the third party entity to bring it back up to $100K.

It was therefore resolved that the Board of Directors approve the proposed FY14 Operating Expenditure Budget, resource allocations and proposed FY14 Capital Budget of $1,352,000 and allocate an additional $50K to the CIP budget.

(Moved: R. Liang, seconded: K. Brown, unanimously carried)

5. Composition of the Nomination Committee

The Governance Committee reported that 487 applications had been received this year. The Governance Committee then held several meetings to review the applications and was recommending six candidates for appointment to the Nomination Committee, two of them returning from last year.

It was therefore resolved that the Board of Directors appoint the following people to the Nomination Committee for a term of two (2) years, starting February 27, 2013: Marc Blanchet; Bill Graham; Kirk Lapointe; Glenn McKnight; Cynthia Robertson; and Deborah Rosati.

(Moved: B. Sandiford, seconded: B. St.Arnaud, unanimously carried)

6. Update on Committees

6.1 Report from the Governance Committee

The Chair of the Governance Committee reported that two meetings had been held since the last Board of Directors' meeting.

It was noted that when the Director Compensation Policy was reviewed, it was not intended that Directors would be paid for both Board and Committee meetings being held on the same day. The Committee was therefore recommending that payment be capped at the remuneration for a Board meeting, even if Committee meetings were held on the same day.

It was therefore resolved that the Director Compensation Policy be amended, retroactively to January 10, 2013, whereby payment to Directors per day would be capped at the remuneration for a Board meeting.

(Moved: S. Mehinagic, seconded: A. Escobar, unanimously carried)

At its meeting earlier, the Committee followed up on the process for the formation of the Nomination Committee. Staff received close to 500 applications from individuals interested in being on the Nomination Committee. Given the number of applications, the Committee reported that they would be reviewing the content of the emails and communications as well as perhaps setting minimum criteria in order to make the number of applications more manageable.

The Committee also reviewed the Director Orientation, Education and Travel Expense Guideline policies noting that they generally worked as is, but needed to be reviewed to make it easier to administer. The Committee will report back to the Board of Directors with revised policies at its next meeting.

It was noted that the Board of Directors would be asked to complete a self-assessment of their skills to assist in identifying the existing gaps from the current and the retiring Board members. The Governance Committee would therefore prepare the report from the input received and amalgamate the responses to determine where the gaps exist. A draft report will be presented to Industry Canada before it is delivered to the Nomination Committee.

6.2 Report from the Audit, Finance and Investment Committee

The Chair of the Audit, Finance and Investment Committee reported that three meetings had been held recently. It was noted that the work plan for the year had been finalized earlier to include the timeline for the budget process.

At its February 1, 2013 meeting, the Committee reviewed the audit planning report for the period ending March 31, 2013 by KPMG. It was noted that the financial statements for FY13 will represent for the first time the adoption of CICA Handbook Part III - Accounting Standards for Not-for-Profit Organizations. In the transition year, the financial statements will reflect any adjustments required to the financial statements to adopt the new accounting standard and the impact on the Statement of Operations and Statement of Financial Position. The Committee also recognized the significant time and effort from staff in continuing its process to remediate the internal controls.

6.3 Report from the Risk Management Committee

The Chair of the Committee reported that the Committee had met earlier. The Committee reviewed in detail major risks set out in, as well as the changes to, the risk registry. Overall, the Committee was of the opinion that staff had a very effective risk management process for evaluating and positioning risks. Staff will be reporting back to the Committee on certain risks for its next meeting. It was noted that staff was also working on a high level Strategic Risk Register to present to the Board of Directors.

7. Other Business

There was no other business to discuss.

8. Next Meeting

The next meeting of the Board will be held on May 30, 2013, the exact location to be determined at a later date.

D. Fowler, L. Gravel, P. Havey, B. Holland, J. Latour and M. Stewart withdrew from the meeting.

9. In Camera Session

The Board of Directors held an in camera session. The Chair of the HR and Compensation Committee provided his report to the Board of Directors during the in-camera session.

Following the in camera session, L. Gravel rejoined the meeting.

10. Adjournment

There being no further business, on motion by L. Macdonald and seconded by K. McArthur, the meeting was concluded at 5:10 p.m.