Tuesday, February 19, 2008

Access Copyright Board of Directors' Report: Part 3: the Most Egregious Finding

Professor Friedland, who was hired by Access Copyright ‘to undertake a full review of the distribution policy and methodology currently in practice at Access Copyright,' is far from an ordinary person to conduct this work.

Some have dismissed his work as just another consultant, just another lawyer. For those, I dare the reading of this link.

To the 20 recommendations he made in his report, the last one for a new composition to the Board itself to provide for independent Directors appeared quietly stated yet very wise, and has created what has to be a case study for what I would call a time paradox. The recommendation to add these independent Directors was not accepted by the membership of this organization, as implied by the actions of the Board, causing further evidence to come forth justifying the very recommendation.

This makes the actions of the Board here egregious to an observer that can use this episode as a case study of what not to do when you are on a Board and you have an outside consultant challenge your Boards’ composition, recommending independent Directors.

For a small corporation run for profit, it would be easy to reject this. For public corporations it is no longer a choice. For a private corporation, operated on a not-for-profit basis, with significant trust extended to it by the government of Canada, it presents an ethical challenge, that itself cannot be addressed logically without taking some significant steps.

From my perch at Northworthy where we aspire to the higher grounds, I would have to call this egregious conduct. There is no other word that comes to me that would attach to the sin of commission here. For a Board to make this decision itself, it appears to be a Board with greater control over its membership than it ought to have.

To justify it, to tightly control the message on it and to reject it, to refer the matter to and receive a recommendation from a subcommittee of the same Board, lacking independent Directors, this has obvious reek. When an independent consultant comes in and says something is wrong with your Board, it appears that this is the time to bring in specialists for a second opinion, and put it to the membership, if indeed you do not have independent Directors for this type of matter. This is the dilemma that Professor Friedland presented: what does a Board do if it does not have any independent Directors, and someone it hired says it should have had them in the past to prevent the otherwise accepted and acknowledged problems found from reoccurring?

Why did Professor Friedland venture into this subject area?

To argue the governance of the organization is beyond the fact finder's scope, is not realistic in that the Board’s decisions made on distribution policy and the rules incorporating them, in the past lead to the hiring of this independent fact finder. This was the Board itself that had approved the cumulative policy decisions known as its distribution rules that were found sufficiently problematic by its membership to hire this person.

Professor Friedland stated frankly at recommendation 20:

"Although the governing structure may not be directly within my terms of reference, I believe its structure has contributed to the present problems."
My emphasis above is on his use of the words “may not” and "I believe."

I believe he was being very political here in his choice of the term “may not” that could lead to a doubt arising to this question of task, knowing that this recommendation would not be readily appreciated. The discussion of the draft report for about one month prior to its finalization may have lead to this defensively stated but otherwise strong and sound recommendation in our opinion. To my analysis, the policy choices and how they are made could not be excluded by the express mandate he was given; to just look at the methodology, he would appear a unaware vassal instead of one highly proficient in all of his work.

Here is a problem. Here is the cause of it. Here is how to fix it.
Read em and Weap!

To the issue he raises, independent board members can provide greater assurance to all members, and members seeking to join, using a not-for-profit framework of analysis. They can also give a greater assurance to those who listen to their demands for tariffs and changes in laws to their benefit, giving greater credence to the conveyed public interest in taking such actions.

We remind in the public corporation sphere, there is no longer a question of the value of the independent Director: they are mandatory (Ed. Note: issues also arise as to social responsibility). So much so there is a Chartered Board of Director designation available for such purposes.

Lessons to Learn

Other non-governmental member organizations, operated on a not for profit basis, dependent on statutory laws passed by the government for their existence, might want to consider the Friedland report's recommendations and its discoveries, as a case study for their own governance. We can only guess as 'likely' what would have been found previously had there been independent board members, with no specific membership interests to consider above the whole of the membership. The publisher-creator even split into two equal groups with competing interests, on this Board, invites rather divergent debates and cabal like behaviours, without the necessary consideration of the other group’ interest. Worse, it may play to those known interests. Likely there were times after meetings, where each group met separately, overjoyed for what it thought it got away with on the other group.

The impact of independent Directors on this apparent conflict, to work for both interests, and what that impact may have been, is conjectural. It is however likely that some of the actions the Board took in 2007 from the Friedland report would have been accomplished sooner. Further, the more difficult areas that ought to have received prior recognition may have been subjected to earlier scrutiny, and the benefits of any such actions, would likely have been in the hands of the membership sooner. One can think of the cost savings too from not needing such an independent report with the now known suspicions to cause its commissioning, addressable by independent Directors.

Public Impact: What Does the K-12 Issue Really Say?

As to public impact, it appears quite apparent that the tariff put forth by Access Copyright for the K-12 educational group should have been made exempt by Canada on the basis of "national treatment." If Canada provides a benefit to its nationals, we cannot discriminate to deny that benefit to non-nationals who are treaty partners (see subsection 73(2) of the Copyright Act). When a large international discriminator is known to specialists in this area, the options and impacts ought to be considered. The misspent advocacy for tariffs omitting consideration of this lack of a reciprocal benefit to domestic copyright holders (if in fact Access Copyright does unfairly compensate the US holders who do not provide a similar benefit to Canadian holders), is just the type of matter than an independent Board member would put full consideration to, we would hope. By not letting this pass, in greater benefits to the foreign partners of the publishers, for small domestic gains to the writers, if any, the higher ground available to obtain in this type of matter would have been an option.

As is, the government and the Copyright Board of Canada may have questions to ask in this matter from the chief protagonist here, in the future. Instead of authorizing tariffs on internationally non reciprocal royalties, could we not have had higher tariffs on items subject to reciprocal royalties, without the unfair gains of the foreign controlled publishers apparent?

Surrendering such higher ground is not something an independent Director would likely do in any endeavour, behind otherwise the cloak of a private not-for-profit company. Revealing a possible low ground taken, and the losses to Canada unnecessarily on service royalties here, just cannot be in the long term interests of any actor in the Canadian copyright sector.

A legitimate question to ask: what if the same money was collected by Access Copyright but instead of the 31% of revenues from the K-12 sector, it got $0, in parallel to the United States, our largest trade partner, and obtained revenues from other sources equally? The outflows to foreign interests without reciprocal compensation, is stopped. The writers would appear to lose nothing from this, at worse, and potentially gain but the publishers of all stripes appear on first examination, to keep more, right in Canada.

An excerpt from the 2006 Annual Report of Access Copyright, with a final question, asked before the quote from Page 7 (two can play at that game!): to whom is any of this fair?

Copyright Board Filing

In 2006 we completed the school study that was initiated in March of 2004, when Access Copyright filed an application with the Copyright Board of Canada asking the board to determine the value of our Pan Canadian Licence Agreement with K-12 schools. In order to determine the value of the licence, the Copyright Board requires information on both what is being copied in schools, and the volume of that copying. Through the school study, which took place between February 2005 and March 2006, data was collected on more than 10 billion pages of materials that had been photocopied in schools across Canada. Analysis of those pages was completed in late 2006 and the final data was filed with the Copyright Board in November. The Copyright Board hearing will take place in 2007 and we are confident that the data collected through the school study will lead to a decision that is fair to both copyright owners and licensees.

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