TDF situation in relation to the German Foundations Authority, and why this led the BoD to make an extremely difficult decision on the MC election

Board Discuss
#9

Thanks Italo for the excellent summary.

As you might be aware I’ve been working on this specific topic in June 2022 together with our legal counsel, Caolan and Emiliano, during the short period of time when the legal subcommittee has been allowed to work on various legal matters that you mentioned, which then eventually resulted in the decision to amend TDF’s statutes.

The analysis I made of the judgement at the time, and reviewed again following your message, is for the best part aligned with the summary of your conclusions with a slight difference in interpretation for which we could ask advice so that we can work with the same understanding of the matter.

It is true that most of the focus has been put on conflict of interests and violation of the arm’s length principle as for several years these were the indicators that something wasn’t quite right based on commonly applied rules and regulations. We discussed this at length within the board and in this forum about the behaviour that should be shown by directors with personal interests that can lead to conflict of interests. As some still have different ideas on how to handle their personal interests and avoid them to become actual conflict of interests we should work on clarifying that once and for all.

In my reading the judgement goes beyond the issue of conflict of interests and the violation of the arm’s length principle as it’s clear that these issues are indicators that these legal transactions, and the behaviours leading to approve these transactions, might be contrary to the purpose of the foundation and/or detrimental to the charitable status with the result that the power of representation has been exceeded.

As from the judgement: “Anyone wishing to enter into a contract with a foundation recognised as charitable must generally be aware that legal transactions detrimental to the charitable status will not be covered by the board’s power of representation.”

With a very short and non exhaustive explanation we could say that the issues we are facing are in good part due to decision taken in conflict of interests and due to violations of the arm’s length principle which could lead to potential loss of charitable status so those decision and the resulting actions exceed the power of representation of the board.

There are surely other situations where the power of representation might be exceeded so directors will need to pay extra care during the whole decision process and in case of doubts consult our legal counsel.

So, IMHO, the judgement does not represent something new but is a good clarification of what happens in situation when certain common principles are not respected.

#10

Muito obrogado @italovignoli pela explicação e como membro, apoio a decisão tomada pela diretoria, com base nas robustas justificativas estando, muito bem explicado e fundamentada.

#11

I want to thank @italovignoli for emphasizing some of the legal principles which (formally) govern the foundation, and the BoD’s conduct and the application of its powers. I also think this is a good framing of the problematic aspect of the TDF’s relations to ecosystem companies. However, the description of this situation as a “problem” is only part of the truth. Because much, or perhaps even most, of the LibreOffice development work is done by ecosystem companies and their employees; and a large fraction of the trustees are employees or affiliates of these companies. And with the foundation being democratic, then, naturally, some candidates will either be from these companies or closely associated with them. If this is a “problem”, than the solution must be the tearing away of body of people from the TDF; not a huge body, but a significant and active one. If we were just designing the TDF today from scratch, and if we had enough active trustees, I’m guessing I would support stronger statuory guarantees against our symbiosis with ecosystem companies. But right now we can’t define the flesh of our flesh as a “problem”, and assume that nautrally, they should not be members of the BoD or MC because there’s a change this might be inconvenient or create problems for us.

Something like your post could be a start of a process of discussion of whether we want to have a symbiotic TDF as our basic form, and accommodate legal restrictions as best we can (e.g. special independent and separate TDF body for tendering); or whether, on the contrary, we want to switch the “arms-length” variant of a foundation, in which case we encase the interaction with ecosystem company employees and affiliates away from decision-making.

But that process of strategic deliberation is not one which the BoD can hold itself, private, consider held and completed, then piggyback its conclusion - which is not shared by the trustees - onto a retroactive disqualification of an MC candidate, after not having brought any of this up before and during the elections.

Comments:

Cor would naturally have been excluded from the auditing process. If you don’t have faith that this would be the case, then you (= the BoD) should have at least brought this matter up after his candidacy had been presented, vis-a-vis all candidates, and in the town halls.

It’s not a repeated presence, it’s a different presence, in a different body, and a non-excecutive one. Also, you are asking us to assume implicitly that the previous board, and Cor particularly, has engaged in gross misconduct which merits a ban on him serving in official capacities in the TDF. While many may share that belief, the TDF has never established this to have been the case, and you can’t just do so suddenly and with zero due process. Like you said, “the authorities have not yet commented” on Cor’s conduct as a BoD member. Alternatively, you may be arguing that it should be an impersonal moratorium on Collabora/Allotropia affiliates; but then, what about @lpranam and @bvarga91 ?

It’s more than just that. A BoD member can abstain from voting and still be extremely influential on the vote: By bringing up the issue and promoting a discussion and the taking of the decision; by their influence on other board members; and by earlier influence (even if legitimate in itself) on the composition of the BoD.

Questions:

What about internal actions within the foundation, rather than transactions with an outside party? Can those be null/void, or nullable/voidable, if determined to be detrimental for the nonprofit status?

Is this audit taking place now? Will it take place after 2024 is concluded?

Was this strategy published and I missed it? Was the process and discussion for reaching this agreement published?

Importance in principle is one thing, and being binding in practice is another thing. I don’t believe the BoD acts as if bound by the bylaws in practice; especially because our mechanisms for enforcing the bylaws on the BoD are barely existing to being with, and atrophied. And also with the MC being the subject of the current row.

#12

That is incorrect. “The board” did not initiate any research and review of the situation, the legal subcommittee that proposed the vote did the research and review. Then from the board only the then chairperson engaged in questioning the matter and only in relation to the effect it would have on, at the time, current and future contracts with suppliers.

The judgement has been released in 2021 but it covers events that started in 2011.The decisions found to be not in line with the purpose of the foundation and/or detrimental to the charitable status, as mentioned by Italo and reported in legal statements and the audit, also in my opinion did exceed the power of representation. To be noted that legal statements and the audit already found some of these decisions to be invalid and the excess of power of representation was additional to them.

Italo is mostly right. As written above there has been a brief discussion, between the then chairperson, Emiliano and myself, about the urgency of the vote we sent out and how that sentence would affect current and future contracts. Apart from that back and forth no other elements of the judgement have been taken in consideration by the majority of the board including when it has been explicitly communicated that some decisions being taken, after we implemented that sentence, were very likely exceeding the power of representation of the board. As the majority of the previous board did have issues in respecting the arm’s length principle and avoiding influencing discussion in which they were in conflict it was clear that most did not give much thought to this matter.

#13

Hi Paolo,

thx for the additional details, and indeed as you said, a not insubstantial part of the previous board did spend quite some time on the matter.

One remark:

Indeed the board did, but it was initiated even earlier (I’m talking about the entire review of the situation, around what, how & where TDF is structuring its activities - of which the change to the statutes was a partial result). To set the record straight: it was @uwealtmann and me, later joined by @lothar.becker , who were first hunting for experts, then starting the conversation with the Winheller law firm.

As I said, I’m disputing this topic was hardly ever considered on the boards I’ve served. :wink:

#14

Hi Italo,

I am not a lawyer, and I am confident that TDF has its own counsel to protect and structure its activities, so I will not wade into the detail here on my own. I’m grateful that you pointed out that there should be broad convergence on common interests between TDF and the ecosystem.

The write-up also seems to me, while interesting, to be not that relevant to whether the statutory election process has been followed fairly in Cor’s case.

For a more complete and helpful perspective on tendering I posted this some time ago and re-link it - which puts some numbers around this:

It is also worth bearing in mind that with the average full-time staff salary, as of some years back when I was on the board, many individual staff have been paid more in total than any software development supplier.

Beyond that; I again make again the offer I’ve made before - if competitive tendering on the open market (something that is not generally required anyhow for TDF) is in some way not a good enough way to get a fair market price (how?) - I would be well up for getting a 3rd party audit of our pricing, time logging & margin (if any) there. That has been an open offer met with silence for a long time AFAIR.

Ultimately there is always the suspicion that the lack of focus and urgency to tackle these issues, is part of a political agenda to disenfranchise corporate trustees (and now even ex. corporate trustees which is new).

I understand that for your part you appear to want to fix things rapidly, which is great! once again - I’d recommend talking - I want the dream that was LibreOffice/TDF to rock and am open to helping constructively.

Thanks !

Michael.

#15

I must stress that, while your post explains your motivation and perceptions, it does the opposite of explain or legitimize your vote, i.e. you focused on the TDF’s overall course and on the conduct of past BoDs and Cor as a director - and did not establish: 1. The basis for a claim of illegitimacy / disqualification of Cor’s candidacy (as opposed to whether it is desirable or not). 2. What gives the BoD the power to disqualify a candidate retroactively.

1 Like
#16

I respect your opinion, but the reality is that I provided plenty of reasons for rejecting Cor’s election. Of course, you may disagree with my opinions, but they are explained in details in my post.

#17

I have never written that ecosystem companies cannot participate in tenders. On the contrary, having a procurement policy written by a lawyer - a sound procurement policy can never developed following on a discussion amongst TDF members, as the result would probably be the same as the former procurement policy, which was developed following that kind of discussion - will allow all stakeholder to bid, including ecosystem companies. Of course, solving the issues based on the arm’s length concept will not be easy, but is definitely possible, and this is what Carlo Piana is doing.

#18

You’ve provided reasons why you don’t want him / think it’s a bad idea for him to be in the MC - but not the two things you (and the BoD) need to provide, which I listed: A basis for the claim of Cor’s illegitimacy as a candidate, and the source of BoD power to retroactively disqualify him. On the contrary, the reasons you provided seem to be rooted in your interpretation of the foundation’s best interests (which I may not disagree with); yet, someone’s candidacy being a bad idea or detrimental to the foundation in certain ways - even if that is conceded as the objective truth - does not make him disqualified, nor grant the BoD the power to disqualify them. Your decision still appears as being “ultra-vires”, even had it been taken before the elections, and after them - it gains another aspect of illegitimacy which is your failure to disqualify earlier.

Even someone completely agreeing with all your reasons must still demand that you recognize you did not have grounds for disqualification and could not disqualify retroactively; that you acknowledge Cor’s election as an MC member; and finally, if you believe you have both grounds for his removal and the power to remove him (e.g. as per §8.4) - that you make that claim explicitly. I doubt that you can establish such a claim, and thus will all simply have to “live with” Cor as an MC member for the next term (assuming our statutes don’t change).

1 Like
#19

Hi Italo,

again thx for the very extensive, independent & (likely) time-consuming summary of the issue!

Beyond my earlier (rather tangential) remark, I’ve encountered two more questions, that I don’t see answered (neither in your initial positing - and I’ve read it several times in full! - nor in any of the follow-ups):

That is indeed true, and in my view it is a feature rather than a bug (for any OpenSource community, not just for LibreOffice). But as you rightly state, this community-of-peers setup has saddled us with some challenges, on how to structure our governance.

My first question now is: how are the past issues with the arm’s-length-principle, while ecosystem companies had representatives on the board, any different from the current situation? Right now, there are four board members with significant portions of either their personal, or company income, originating in TDF. If I understand your rationale for disqualifying Cor in the MC election correctly (violation of the arm’s-length-principle) - would not the board need to act similarly also for this case? Certainly there’s collaboration, and a working relationship, perhaps even friendship, amongst directors?

My second question relates to this paragraph:

Are you sure, that merely “demonstrating […] due consideration, and […] embarking on a path aimed at […] solutions” will be enough for the current year? My reading of the audit result was, that plausible explanations are required, that past contracts and licenses were not in violation of relevant tax regulations?

In case the board would want to take that route, I’d of course repeat my earlier offer (similar to @mmeeks ’ one), that a suitable 3rd party would get access to allotropia books and timelogs, to ascertain that indeed the tenders we’ve worked on were not overpriced.

Best, Thorsten

#20

Hi Italo,

Referring to what I wrote before:

… let me do that here.

Thanks again for your massive work, Italo, in sharing this information that, to my knowledge is mostly correct!
Then: alas I don’t know/understand why items that were full on the boards agenda at the end of last year are still there, but trust people’s best effort of course.

Additional I notice more useful information to understand the situation (in a broader context) is missing. Apparently pieces that you don’t know or have missed it in the massive amount of communication (and no one made you aware). But since you, we ,are looking for understanding, let me add these. (Briefly now; in much more detail later.)

The audit having taken place, and the remarks in the report, are correct. I think that is is important to realize that legal report, that is at the base of the audit, could have been significantly better. It has been pointed at that the author of the legal statement could have had better information about some of the important processes in TDF. Some fundamental questions made to the statement, related to topics that ended in the audit, could have been looked at prior to the audit. From the audit itself, it seems more information could have been (pro-actively) shared with the auditor. Internal, I would say it is useful to make the discussion around place/role of (members that are working for) ecosystem companies not needlessly complicated, by avoiding to pick only part of the legal advise. As already mentioned in other comments: offerings to resolve at least one of the issues, at that time did not lead to action. For these reasons it looks to me that a ‘less troublesome picture’ of ecosystem companies and a much better audit for TDF could have been possible.
I can understand trustees will be interested to learn more of this; hence more later.

So short: I do agree that taking care for CoI’s and arm-length principle are important (and not new) but need to add that these are really not the (only) problems.

Cheers,
Cor

#21

Italo: Thanks for your work analysing the background to the issues TDF is facing and which I know the board will discuss next week. I agree with your analysis in relation to those issues.

However, I came to a different conclusion to you in relation to the decision to intervene against the Trustees’ decision in the Membership Committee vote. I did this for multiple reasons:

  • The reaction against Cor seems very personal, Neither personal dislike or affinity should play a role in this decision. Whether or not we agree with the approach he took to countering arguments by one of the directors in the last and current Board is not relevant to a decision to frustrate the choices of the Trustees about who should serve on the MC.
  • The issue of a conflict of interest, of the need for arm’s length dealing, is most likely addressed in the new MC by Cor’s detachment from the companies involved in the issue. I do not find the probability it is still disqualifying to be great enough to justify making up a special procedure to void the MC election.
  • In each of TDF’s bodies there is a need for each elected member to decide when and how to participate based on the matter at hand and the situation involved. I have every confidence the new MC will make good decisions in this regard and see no need to intervene in advance.
  • The Statutes lay out a mechanism for dealing with a situation where a member of the MC is not a suitable person to serve, in § 12 (3). It does not involve the Board denying the election of the individual and I believe if there is a case for Cor to answer it should be dealt with via that mechanism.

I recognise that other directors may disagree (and I do not accuse them of “serving interests that are neither TDF’s nor LibreOffice’s” for doing so) but I believe the appropriate solution to disagreement is discussion and mutual compromise to create consensus. That’s why I proposed referring the decision to the process in §12(3) of the statutes so that the Trustees can decide.

In conclusion, I believe the Board’s decision to have been made in error and without due process, which is why I voted against it, and will propose at Monday’s board meeting to reverse the decision (as the Board has done to so many other questionable decisions), confirm the MC election result as it shgould have done and then refer the matter to the Trustees.

2 Likes
#22

Hi @ohallot , Olivier,
I don’t want to deny posts of e.g. Eyal 11 18, Michael 14, Thorsten 20 and others. I even think that in various aspects these are even more interesting than mine. But pls allow me to be so selfish to ask if you can be so kind to translate my not too long comment, also in serving your language community.
Thanks!
Cor

#23

Oh, similar kind request to @jfn (JeanFrancois) and @Italo of course.

#24

Hi Italo,

It would be really appreciated if you could cite case numbers and more ideally link the judgement to which you’re referring; I am not a lawyer but I spent some time this morning looking through the database to try to find this with no luck.

The board changed the statutes and added the lines you cite about representation after the decision you express concern about were made as Thorsten linked which has a case number there:

The German Federal Court of Justice decided (in judgement of 15 April 2021, case number III ZR 139/20

and is readable in translation with some work from the original German here.

Thanks.

#25

supremecourt.pdf (256.0 KB)
supremecourt-english.pdf (45.8 KB)

The case number is exactly that one, i.e. III ZR 139/20, and according to my understanding does not leave any room to interpretation. I have uploaded the original judgement and the English translation of the most relevant contents (the length of the original German text has been reduced by omitting all the references to other laws, which were not needed to understand the issue of excess of power of representation.

The English translation is based on my translation to Italian of the original German text (which of course was more convenient for my full understanding of the original German text), so there may be some small inaccuracies. What I did was to translate the entire German original, read it carefully, and once understood the contents get rid of what I considered redundant. No one else participated in the translation process or tried to influence my understanding and the resulting opinion, and the draft of the post to Board-Discuss, which was originally written in Italian for accuracy, read by my wife to check if it could be understood by someone completely unaware of the topic, machine translated into English and double-checked by myself to avoid the typical machine translation errors.

To better understand the issues related to the power of representation in not for profit foundations, I have also read several documents which explain the topic under different point of views. This is a list of the documents, which can be easily found on the internet in PDF format:

Deloitte - The Effective Not for Profit Board
Edward L. Glaeser - The Governance of Not for Profit Firms
VVAA - Governance Challenges for Not for Profit Organisations
Weil - Guide to Not for Profit Governance 2024
Wolfgang Reinhard - Representation of Power and Power of Representation

They are all interesting, but the last one provides a historical perspective on the development of the concept, which helped me in understanding the issue and shaping my opinion.

#26

Hi Simon,

I respect your opinion, but I continue to think that Cor Nouws candidacy was a completely irresponsible act, based on the fact that he was aware of the results of the 2023 audit on 2022 balance sheet, he knew that there would be an audit in 2024 on 2023 balance sheet, he knew that the authorities have not yet taken any action in relation to the 2023 audit but can take it at any time, he knew that he was involved in some of the issues spotted by the 2023 audit and that he will be involved in some of the issues which will be spotted by 2024 audit because of his position as a TDF Director and his former Conflict of Interest, and that by being elected he could sit on the other side of the table as TDF MC is overseeing TDF BoD’s actions. Even in Italy, which is not known to be respectful of laws, the concept that you cannot sit on both sides of the table during an investigation is respected. Silvio Berlusconi was banned from the Italian Parliament until the Italian Supreme Court decided that he was not guilty of the charges he was accused of. I find this incredibly simple to understand, and I am amazed that the BoD decision continues to be analysed under different points of view. In this case the Conflict of Interest, the potential abstention, and any other possible solutions to the issue do not apply. I repeat, while you are investigated, you cannot sit on the side of who controls the investigation.

#27

You keep repeating that, without responding to the clear rationale comments that show that there is no logic connection of the items you mention in your argument.

#28
2 Likes

Impressum (Legal Info) | Datenschutzerklärung (Privacy Policy)   Content on this site is licensed under a Creative Commons Attribution Share Alike 3.0 license.