Minutes of the Meeting of the CIRA Board of Directors held at Marriott Don February 28, 2019 at 8:30 a.m.
Directors attending: Don Bowman, Ryan Black, Andrew Escobar, Matthew Gamble, Jill Kowalchuk, Rowena Liang, Louise Macdonald, Tyson Macaulay, Helen McDonald, Bill Sandiford, Rob Villeneuve
Advisors: John Demco, Byron Holland, Pamela Miller
Regrets: Alex Beraskow
Corporate Secretary: Paul Havey
Guests: Sanita Alias, Albert Chang, Steven Barry, Dave Chiswell, David Fowler, Andrew Fraser, Jacques Latour
Recording Secretary: Lynn Gravel
1. In-Camera Session
The Board of Directors held an in camera session.
S. Alias, A. Chang, S. Barry, D. Chiswell, D. Fowler, A. Fraser, L. Gravel, P. Havey, B. Holland and J. Latour joined the meeting.
2. Approval of Agenda
It was moved by J. Kowalchuk and seconded by M. Gamble that the agenda for the meeting be adopted as presented.
3. Chair’s remarks
The Chair did not have any remarks.
4. Consent Agenda
The Chair called for any items to be removed from the consent agenda for discussion.
4.1 Draft Minutes of the November 20, 2018 Board of Directors’ Meeting
4.2 Report on Statutory Obligations
4.3 Q3/FY19 Financial Results
4.4 AGM Venue
4.5 2019 Policy on Nominations and Elections
It was requested that the draft minutes of the November 20, 2018 Board of Directors’ meeting be moved to the regular agenda for discussion.
(Moved: B. Sandiford, seconded: D. Bowman, unanimously carried)
5. Draft Minutes of the November 20, 2018 Board of Directors’ Meeting
A few minor edits were noted and it was resolved that the draft minutes of the November 20, 2018 Board of Directors’ meeting be approved with these amendments.
(Moved: B. Sandiford, seconded: J. Kowalchuk, unanimously carried)
6. Management Report
Staff reported on the current state of the domain business. Staff noted that in the last two quarters there is increasing volatility in the domain name market with a material decline in growth rates across the board. As the domain business continues to mature, there are slower overall growth rates globally. Within this global context, it was noted that despite this significant downward trend in the industry, the growth rate for .CA in the third quarter was consistent with the growth rate over the previous two fiscal years. Staff noted that the YTD growth rate for .CA for FY19 is one of the highest among the top 15 largest TLDs globally. Ultimately, it was noted that .CA is currently experiencing what the rest of the market is undergoing, but that .CA is outperforming the industry.
Staff reported that like many mature product categories, it will become increasingly difficult to maintain growth without new approaches to the market. There was discussion on the multiple uses of a domain name. It was noted that while domain names have historically been used for either brand purposes or as a navigation tool, a third category has emerged in the form of utility domains as a label in the Internet of Things (“IoT”) space. This is a new area that has significant potential for growth. Staff noted that CIRA is currently exploring this area of using domain names for IoT devices and actively discussing this opportunity internally.
Finally, staff reported on the successful migration of the .CA registry onto the new FURY platform. It was noted that the team executed very well and the transition went according to plan. Members of the Board congratulated the CIRA team on the successful migration. It was noted that Registrars would be receiving a request to complete a survey about their experience regarding the transition of .CA onto Fury.
7. Committee Reports
7.1 Report from the Governance Committee
The Chair of the Committee reported that the Committee had met on January 24, 2019 and discussed the appointment of additional independent non-Directors to complete the composition of the Community Investment Committee. It was noted that there was unanimous support from the Committee on the individuals selected to be appointed to the Community Investment Committee.
The Committee was therefore recommending the appointment of the following Community Investment Committee members:
Be it resolved that the Board of Directors approve 1) the re-appointment of Paul Andersen and Iris Almeida-Côté to the Community Investment Committee for a one-year term; and 2) the appointment of Bram Abramson and Destiny Tchéhouali to the Community Investment Committee for a two-year term.
(Moved: L. Macdonald, seconded: J. Kowalchuk, abstaining: M. Gamble, motion carried)
The Chair of the Committee also noted that the Committee would be reviewing the Board Skills Matrix and Skills Gap Assessment at its next meeting. Directors will be asked to refresh and submit their self-assessment forms, indicating their level of knowledge in each of the different areas. The results from these self-assessment forms will then be used to complete the Diversity report to the Nomination Committee.
7.2 Report from the Finance, Audit, Investment and Risk Management Committee on Cost Allocation
The Chair of the Committee reported on two outstanding action items.
Firstly, it was noted that the Committee had reviewed the audit quality indicators (AQIs) with the auditors. It was expressed that AQIs are relatively new and generally only applicable to larger engagements. Given the size of CIRA, the Committee therefore agreed not to implement these measures at this time.
Secondly, it was also noted that to address an outstanding action item, staff provided more clarity on the non-recurring revenues and expenditures in the detailed FY20 budget package provided to the Board.
There was discussion on CIRA’s preliminary Net Asset Drawdown strategy. Staff noted that this plan was simply being provided as a heads-up and for reference only. It was noted that an initial Net Asset Drawdown multi-year expenditure utilization plan (i.e. Strawman) had been socialized with the FAIR Committee. Further discussion on the Strawman will be held during the June 2019 Board meeting in conjunction with the Strategic Plan session.
The Chair of the Committee reported that the cost allocation exercise was now complete. It was noted that this exercise has improved the understanding of the costs of the organization, has provided more clarity on the relationship between the various inputs to the portfolio level outputs, and has provided insights and a better collective understanding into CIRA’s overall operations. It was noted that some cost allocation principles would be maintained and may be revisited at a later date. The Committee thanked staff in supporting this exercise.
Staff provided a summary of the outcome of the FY19 Cost Allocation exercise based on the budget, as compared to the three (3) strategic pillars and the 13 portfolio level products/services, activities and programs. It was noted that the three (3) major cost inputs are People, Infrastructure (CAPEX and OPEX) and other OPEX, as allocated within the 13 portfolio level products/services, activities and programs. Staff also highlighted the process and Board representation/oversight that occurred over the duration of the exercise.
Staff noted that the principles & allocation approaches agreed upon have some degree of repeatability and the outcomes from the exercise may be applied illustratively as proxies and/or as rules of thumb, but cautioned that the exercise was based strictly upon a single point in time Budget view. As such, the information presented would not necessarily reflect an Actual view, variances to Budget or changes in the allocations that could certainly occur over time with changes in CIRA’s products/service, activities and programs.
Staff presented an overview of the analysis and to illustrate one means of depicting results as simple individual and aggregated reflection of how the $9.50 domain registration fee is spent on CIRA’s mission. Moving forward, it was highlighted that Staff will finalize the documentation on the allocation methods adopted and process utilized for People, Infrastructure and Other OPEX and undertake any further analysis, if required, as next steps.
Staff will have to consider and contemplate how feasible it will be to maintain certain aspects of cost allocation prospectively and the relative cost/benefit to the organization.
There was discussion regarding whether the cost allocation exercise/process could be leveraged to develop a simple tool to further assist in the analysis of progress on the new product diversification. In this regard, staff proposed that it would make sense to test the applicability with a single product, such as DNS Firewall to reformulate the operating results in the format of a product profit & loss (“P&L”) statement and obtain a more refined view on the coverage of associated direct, indirect and overhead costs.
Overall, the Board was satisfied with the outcome of the exercise, and applauded the effort that went in to gain a better understanding of the costs of the organization. A few questions arose regarding the cost recovery for some of the new products & services, and particularly, who is benefitting from these services and whether some services are subsidizing others. In response, it was expressed that while the original intent of this plan was to diversify CIRA’s revenue stream to mitigate and counteract the declining rate of revenue growth in CIRA’s core business, it has been determined that many of these services have mission related benefits that are beyond purely financial. For example, it was noted that building a service that CIRA sells to other ccTLDs such as DNS Anycast also benefits the .CA DNS and Canadians, and contributes to CIRA’s mission.
In closing, members of the Board expressed the view that the cost allocation exercise has provided them with additional comfort on the costs of the organization, and that staff will now look at costs differently. It was also noted that there are different perspectives on how this information could be used going forward. While this information could be used to develop cost of sales, cost of goods and gross margin (loss) associated with new products and services, it was also important to recognize that some of the new products and services also provide non-financial benefits and could contribute to CIRA’s mandate to build a better online Canada.
P. Miller joined the meeting.
8. Community Investment Program Strategy
The Co-Chair of the Community Investment Committee noted that after in-depth discussions on the Community Investment Program (“CIP”) strategy, the Committee had agreed on the overall plan. The Committee agreed to develop the CIP strategy in two phases, a high-level strategy and then subsequently an execution plan. It was noted that the Committee is seeking feedback from the Board on the high-level strategy. The overall goal would be to have the Strategic and Execution Plans developed and approved at the November 21, 2019 Board meeting.
The Committee noted the confusion with the naming of the various elements of CIRA’s community investment program and supporting committees. The Committee was therefore providing suggested nomenclature for the overall program and the two supporting committee structures. The Community Investment Program would be used to denote all community investment activity at the corporate level and would include both management led and granting program initiatives recommended to the Board. The Community Investment Committee (“CIC”) would denote the CIRA Board Members responsible within the Board for CIP. The Community Investment Advisory Board (“CIAB”) would denote the CIC Board Members and the external advisors that evaluate, choose and recommend projects for funding by CIRA through the annual granting process.
There was discussion whether this plan entailed the creation of a new committee, since there is not currently a CIP committee comprised entirely of Board members. Rather, the current CIP committee is comprised of Board members and independent non-Directors, whose primary function is to evaluate, choose, and recommend projects for funding by CIRA through the annual granting process, which is reflected by the CIAB in the proposed nomenclature. It was also noted that the term “Board” in the CIAB could generate confusion. There was also discussion on the two options for the high-level strategy. The main difference between the two options is that option 1 included a specific target on the number of Canadians whose lives the CIP wished to impact by 2026, whereas option 2 provided that the CIP would substantially impact the lives of a number of Canadians by 2026 in general terms.
After some discussion, it was agreed to review the terms of reference of each committee and look at renaming the CIAB Committee by removing the word Board to avoid confusion. The Committee would also add definitions for funding and management initiatives. The Co-Chair of the Committee also noted that as the Board seemed aligned with option 2 of the plan, the Committee would provide more details and specific targets in the execution plan, and bring it to the Board at the next meeting.
9. Report from the Market Strategy Committee
The Chair of the Committee reported that the Committee had met recently to discuss routine matters. The risk continuum was now complete with the addition of the product vs. services category. The Committee reviewed the product portfolio and noted that the Canadian Shield program was a budgeted item for approval in the budget proposal. Staff provided a brief update on the product scorecard noting the market opportunities and sales activities.
10.Operational Plan and Budget FY20
Staff presented the FY20 Detailed Operating Budget noting that this was the last year of the current four-year Strategic Plan. It was noted that the planned corporate initiatives, product activities and departmental budget submissions for operating and capital expenditures are based on broad input and were discussed with the management leadership team and prioritized.
Staff noted the FY20 budget submission would encompass an intentional operating deficit of ($1.5M). It was noted that although the Board had not yet approved the Net Asset Drawdown Strawman, it still felt to be prudent to plan to incur an operating deficit for the upcoming fiscal year. As well, it was noted that members of the Board had indicated at the last Strategic Planning session in November 2018 that they would be comfortable increasing their financial risk appetite provided the proposed area of investment furthers CIRA’s mission and/or has a reasonable business rationale.
Staff provided a high-level summary of the FY20 Budget. In approximate terms, it was noted that a $2M revenue increase would be offset by a $2.5M core operating expenditure increase resulting in a $0.5M overall decrease in the surplus from CIRA’s core operations and an increase of $0.5M in CIP to fund a number of specific management led initiatives. Taken together these would lead to an overall operating deficit of ($1.5M).
Staff identified the primary non-recurring operating expenditures within the FY20 budget and also noted that certain of these expenditures could subsequently become ongoing expenditures depending upon the outcome of initial consulting activities and/or promotional efforts.
Staff presented a general overview of the key initiatives under the strategic pillars and strategic enablers that the proposed budget is intended to fund. Staff noted some of the other new initiatives for FY20 within the broader Community Investment Program are to address the gap in the Canadian IXP landscape with an Operator Service and enhance CIRA’s ability to withstand DDOS attacks; IPT promotion; enhancing the availability of DNS to Canadians through a free offering; an ICANN Canada Night; as well as a notional prize celebrating activities reflecting innovation.
Staff noted that the budget is prepared based on domain portfolio profile information available in November with an estimate of the transactional and sales activity for the remaining four (4) months of FY19, prior to the observed softness in the domain business. As such, staff noted that the revenue budget may be subject to both recalibration and adjustment based upon actual year-end results. When comparing the FY19 new domain growth to the previous four years, it was noted that due to current market volatility, it is anticipated that the domain registration unit growth for FY19 will fall between the FY17 – FY18 results.
The Board highlighted that the FY20 budget included $750K under the overall marketing expenditure that had previously been approved as an optional marketing expenditure in the FY19 budget on the basis of it being a presumed to be a non-recurring item.
Staff reminded the Board how the industry is changing, with the introduction of 1000+ new gTLDs as part of the new gTLD program, and the growth of social media platforms. Consumers have more choice, competition is increasing and market growth continues to decline. In this regard, Staff noted that it is important to generate loyalty and build a strong brand for .CA in order to grow, which requires a consistent effort and recurring expenditure level over time. Staff was therefore recommending maintaining the previous incremental marketing spend with a change in strategy by shifting more investment towards brand building and market position.
Staff noted that the full impact, insights and observations of the FY19 marketing programs would not be available until the year is finished and a full analysis is completed.
P. Miller withdrew from the meeting.
Overall, the Board was supportive of the proposed FY20 budget, including the marketing spend component of the budget. A few Directors noted that it would be helpful to come up with key performance indicators and/or targets to measure progress and what success would look like, and furthermore, to develop a plan of sustainability with respect to the IXP strategy. Staff agreed to these action items.
It was therefore resolved that the Board approve the FY20 detailed budget submission, as recommend by the FAIR Committee.
(Moved: A. Escobar, seconded: M. Gamble, abstaining: D. Bowman, motion carried)
11.Strategic Planning Update
Staff provided an update on the strategic planning timeline. Staff reported that several workshop sessions had been held with staff during the past several months on the development of the strategic plan framework. Sessions with the Board will be held in the coming months, with the final approval of the FY20-FY25 Strategic Plan by the Board at the November 2019 meeting.
The next meeting of the Board will be held via teleconference on May 1, 2019.
There was no other business to discuss.
S. Alias, A. Chang, S. Barry, D. Chiswell, D. Fowler, A. Fraser, L. Gravel, P. Havey, and J. Latour withdrew from the meeting.
The Board of Directors held an in camera session.
There being no further business, on motion by M. Gamble and seconded by J. Kowalchuk, the meeting was concluded at 4:45 p.m.