Hello, everybody. Welcome to Sandow Podcast number
65. I'm Lancer, and today is a very, very special
episode to me considered one of the most anticipated
that I've done on the Foundation Company series.
We'll be interviewing a... an actual foundation
director, someone who does this for a living.
And as a reminder, the scope of the talk is an
analysis of the facts. This is just a question
and answer session, a learning session, where
we're looking to equip the Sandbox community
with good data, good information, so that we
can make smart decisions in our community. A
disclaimer, we do not represent the Sandbox game
or the Sandbox Foundation. We are neither your
financial or legal advisors, and nothing we say
is to be taken as financial or legal advice.
When we say the word SIP, we mean Sandbox Improvement
Proposal. When we say the word DAO, we mean Decentralized
Autonomous Organization. And when we use words
like the SanFam, we mean the Sandbox community,
those who participate in the people, product,
or purpose of the Sandbox ecosystem. That ecosystem
looks a little bit like this. Everything from
the gamer to the sandbox team, the game client
to the DAO, the white paper. All that comes together
in the ecosystem, and today's episode is squarely
on the DAO portion of that. Today we have Glenn
Kennedy from Leeward Management. He'll introduce
himself here in just a second. But he's an actual
foundation director, professional, and... In
Lancer. After 65 episodes, we'll just skip over
that part. So a very brief recap. It all started
in Sandow 34, where we started to look into the
Foundation. No pun intended. The origins of the
Sandbox, where we looked into how it all came
to be. And we didn't really know much at the
time. I knew nothing. I still know very little,
but I knew extremely... I knew nothing. So that
was more of like a... critical investigative
look. But then as we started unfurling, what
is this foundation thing all about? In Sandow
56, we did a four -hour reading of the foundation,
company's law, the foundation, the company's
act, everything into the Cayman Islands law itself.
And that was extremely eye -opening. What that
did was it opened the door to us learning about
how there were very, very many good reasons why
one would have a foundation company. in the Grand
Cayman Islands and how it all came to be. Then
Sandow 57, we hosted a U .S. attorney, a practicing
U .S. attorney, Ernest, where we looked into
the case law of DAOs, things that are shaping
up in mostly the District of California, where
how it's affecting the way DAOs are perceived
through dispute resolution and the court system.
In Sandow 59, we hosted Mel and Carolyn from
From Rockers Global, an international law firm
and advisors to many DAOs as legal counsel. And
we had a brief from them about what a foundation
company was from the legal perspective. And then
Sandow 60, we did a six -hour reading of the
Sandbox DAOs documents. That was the Memorandum
of Association, the Article of Association, and
their bylaws. And that was... That was a very,
very deep dive, so six hours. And Sandow 62 wasn't
much better, clocking in at four hours. We did
a reading of Star Atlas dolls and did a comparison
of the two, how they were different, both of
them being foundation companies. And then last
episode was episode 64. We had Carolyn back on,
did a finishing Q &A with all the questions we
wanted to ask back in Sandow 59. and pretty much
cleared up all of the remaining cobwebs and stuff
that we wanted to learn about foundation companies,
how they're run, their standing, all that. And
last but not least, we're now at 65, an interview
with an actual foundation director, ourself,
leading us to the TLDR. So TLDR, before we get
started in this, is a foundation company. It's
built in the name of the Sandbox DAO, and it's
a type of company in the Cayman Islands. It's
very flexible in how it's structured and operates.
As Carolyn mentioned, it's the very best of a
corporation and a trust. An exempted company
means a company that does business outside the
Cayman Islands. Limited by guarantee means the
members of the foundation can only lose what
they put into the company. Without any share
capital means there's no shares or units of ownership
that were created when the company was formed.
And the articles and memorandum of association
The memo being, it creates a foundation company,
the articles describes how it will be operated,
and the bylaws establish internal business rules.
Lots of business is done on the Cayman Islands.
In one month alone, over 1 ,000 companies were
registered, and at last count, there's about
120, at this point, probably 130 ,000 represented
active companies. Foundation rules are very varied
and flexible. The subscriber creates a foundation
company. The secretary is licensed to document,
record, and certify things that happen. The director
leads the foundation company. And the members,
founders, officers, supervisors, managers, they
all conduct the daily affairs and activities
required in a foundation company. And last but
not least, it's governed by Grand Cayman Islands
Law, specifically the Companies Act and Foundation
Companies Act. But as we learned in Sandow 56,
that's definitely not the only law. that's applicable
here as we did our reg stack. Go take a look
at 56 if you'd like to learn more. So, Glenn,
if you wouldn't mind, please introduce yourself
and Leeward Management, and very happy to have
you here. Thank you. Thank you very much for
having me. I would compliment you on your on
your deep dive on the Cayman Islands Foundation
company structure. I think it's been probably
very helpful to many of our members and others
listening and very comprehensive. So thank you
for having me. In terms of a bit of a background,
I'm I'm the founder of Leeward Management. We
are a corporate services and governance based
in the Cayman Islands. We're just under 50 people.
We do everything from foreign foundations as
a company. manager, to serving as secretary,
to fulfilling director roles and supervisor roles,
not only with foundations, with regular companies
and funds as well, but increasingly over the
last few years, foundations have been the focus
of what we do. Well, thank you very much again
for coming on. And yeah, let's just jump right
into it at this point. So the first question
was, in the TLDR that we just mentioned, was
there anything that you see that requires correction?
No, I think that's a very helpful and succinct
summary of the concept and the attributes of
the foundation company. Awesome. Thank you. Thank
you. I'm glad I got... That's really – I'm really
happy to hear that because it didn't take – we've
just been trying to figure this out as a community,
and I'm going to end up pushing this out everywhere
I can. So question number two, independent director,
corporate director, licensed director, and I'm
pulling those words from the Director's Registration
and Licensing Act. What can you tell me about
– are you one specific one? How would you phrase
– look at that. Yeah, these are terms, some of
which are grounded in Cayman regulation and others
are more general. Suppose I'm, you know, all
of those things at various times for various
clients. I guess starting with independent director,
that's kind of a universal concept, I would say,
that describes a director who is not a member
of senior management of an organization, nor
an owner, nor a shareholder. So they come to
the board. And they're appointed in an independent
capacity where they're not answering to the shareholder,
the owner, which doesn't exist in a foundation,
but nor them in our senior management. There
are some aspects of Cayman regulation where an
independent director is actually required, others
where they're not. Independent directors are
not required on a foundation company, but they
are required on an entity which is registered
as a virtual asset service provider or FASP.
And the idea there is to. give the regulator
and the financial services industry in Cayman
some comfort that there is an independent set
of eyes on a board that's able to challenge management
or ownership. That's really the concept of an
independent director, and that's universal. You'll
find that across public companies in most countries
and in a lot of offshore centers as well. The
other words you have are corporate director and
licensed director via the DRLA. Corporate director
might mean a few different things. That's a bit
of a less specific term. It might mean a director,
which is a company, which can actually happen.
You can have a company serve in a director role.
But I think what it probably means more commonly
is a director. which is an actual board member
of an organization. So you might have a large
company, someone who's the director of sales
or the marketing group, you know, some other
kind of business title, which is. Unfortunately,
a bit of a poorly chosen term if you're looking
at it from a lawyer's point of view, because
those people are not corporate directors. They're
really officers given some director term in a
very loose sense. Corporate director might just
mean that this person is actually a member of
the board of directors as opposed to one of those
other titles. And then your last concept is the
license director via the DRLA. That's the Director's
Registration and Licensing Act. That's a specific
Cayman Islands regulatory law which requires
directors of quote -unquote covered entities
to register with the Cayman Islands Monetary
Authority, pay an annual fee. The covered entity,
though, is not a foundation. A covered entity
is really an investment fund and certain entities
that relate to investment funds. Got it. not
generally applicable in the space we're talking
about here, but it's an additional regulatory
measure for that industry in the Cayman Islands.
Got it. And if you wouldn't mind, is your background
law business or something else? I was a partner
at a Canadian law firm before I moved to the
Cayman Islands 20 years ago. I was then with
one of the offshore law firms and did a lot of
work in the fund space. Fast forward to around
2018, the Foundation Company Act was passed and
some crypto projects were started to look at
using it in the early version of what we're doing
now with SandboxDAO and others. And I had calls
from attorneys that knew I was a director in
the fund space and other space and knew a fair
bit about technology and was into blockchain.
So one thing led to another. And I was probably
one of the first directors along with one of
my other colleagues in the Cayman Islands to
actually serve as a director of a foundation
company for a project. Wow. So you became the
guy because of blockchain. The only guy for some
period of time all those years ago. Now there's
many of us, but I might have the claim to fame
as being the first. Yeah, I think we learned
from Carolyn and Mel that Mel was a huge engine
behind foundation companies, regulations and
law, but very involved. Yeah, absolutely. She
was certainly a pioneer, is a pioneer in the
space. She was also very heavily involved in
the design of the Limited Liability Company Act,
as I understand as well. Yeah. Well, how about
that? The original director. So what would you
say? Yeah, yeah, yeah. My words, my words. What
does a director, how would you describe the director's
role? What do they do in a foundation company?
Yeah, well, look, in some ways it's very similar
to being a director of any business company fund.
In other ways, it's unique and somewhat different.
The directors really are the executives of the
foundation. They are responsible for seeing its
operation, hiring service providers, monitoring
contracts, being on top of compliance, ensuring
that what the foundation is doing is within the
law. taking legal advice where necessary, defending
or filing lawsuits if necessary. Basically, all
of the executive functions of a foundation are
listed in the board of directors who oversee
its operation and management. I actually have
no follow -on there. I think that pretty much
sums it up. So the person who, at the end of
the day, takes the responsibility of the foundation.
That's correct. Directors are the ultimate authority.
There's a big gloss on that with foundations.
Really? What would you say? Well, the gloss is
that there's also a supervisor role, which is
unique to foundation companies. And supervisor
is really seen as a stand -in for the shareholder.
The way that Cayman Islands enacted the foundation
company was to basically... create this bolt
on to the regular companies act and the regular
companies moved obviously has a lot of roles
for shareholders you know making fundamental
changes to a company i mean its constitution
terminating it for example those are shareholder
actions with the classic company and because
the foundation company is is a bolt onto that
you needed to have the shareholder power exercised
by someone. And there isn't a shareholder in
most foundations. There can be, but there usually
isn't in the crypto context. So those powers
vest to the supervisor. And there is sometimes
a supervisor in the picture who can, for example,
remove the directors the way a shareholder can
do in a regular company or take some fundamental
actions like terminate its existence or amend
its constitution. But typically, just to come
back to my earlier point, the director is the
final say in the operation of a foundation company.
Got it. And what would you say as a director?
What is a day in the life of you? How does it
work? Yeah, good question. A lot of reading,
I think, is probably the most succinct answer
I can give you. You know, it's a bit like I remember
the enthusiasm of getting accepted into law school
all those years ago, and I didn't know what I
was going to do. But, you know, your vision of
a lawyer is like, you know, you picture a movie
like The Firm. I forget the name of it now, the
Tom Cruise, Jack Nicholson one with the courtroom
drama. And a lot of people get excited and go
into law. Yeah, that's it. Thank you. You know,
people go into law thinking that's what it's
all about. And in reality, law is a lot of reading
and writing and very little. You know, I mean,
a select few are courtroom lawyers and have that
level of adrenaline. But most just do a lot of
reading and writing. And being a director is
not unlike them. more reading than writing them
obviously but you know there's an awful lot of
paper that that comes at the board of directors
in terms of agreements policies construction
of the foundation constitution and a lot of my
day is spent reading through that material and
you know questioning it or commenting on it or
ultimately approving it And probably focusing
in on the approval aspect. So you do a lot of
reading to understand it, to figure out what
the intent is or what they're driving at. But
at the end of the day, you're the one responsible
for approving it into the Constitution, if need
be, or elsewhere as required. Well, it can be.
Again, in the context of a crypto foundation,
the early stage work is really reviewing a lot
of the architecture and the constitution of the
foundation company and maybe the wider DAO. So
things like the bylaws, which you discussed with
Carolyn and Melissa earlier, there's a lot of
detail in there. That is the architecture and
the governance framework that the... the project
and the DAO is going to have. So you kind of
want to get that right at the beginning, and
it's easy to get it wrong. And it's not so easy
sometimes to rewind on some of those things,
particularly if you're talking about decentralized
governance rights. Got it. What's an example
of getting it wrong in your experience? Well,
I'll use the example of... of decentralized governance
aspects. So, you know, we might start a typical
foundation in what's sometimes referred to as
a director -led manner, meaning that most of
the powers are exercised by the director, and
the director might take into account the DAO,
if there is one, or the nascent DAO if it's just
being spun up. you know direction will be taken
from the community to the holders and exercise
ultimately by the director and the director -led
lobby um with progressive decentralization those
powers are often seated to the dow but you could
make a mistake and and do that too soon and and
for example you know architect the foundation
in a way that that powers need to be exercised
by the dow right away under the agreement under
the colson bible then maybe you haven't got it
down yet. Maybe there aren't any token holders.
So you kind of have to think how these powers
are first set out and to be exercised and how
they might evolve over time. And that takes some
careful consideration. Got it. Yeah, I didn't
even know that director -led and then to token
holder -led was a thing until Mel and Carolyn
explained it to us. That was a surprise to me.
I think it made a lot of sense for the academic
reading of the laws and then the application
of them. What would you say are some misconceptions
that do exist about the director's role? Yeah,
there's a few. I think one is probably that it's
an easy job. It would not be nice. You're just
a director. You just sign stuff, and you can
spend the rest of the time. golfing on your boat
or whatever you want to do i mean that's a pretty
big there may be a class of directors out there
somewhere that that um you know earn very large
fee for the one public board they're on and and
uh might be semi -retired and can enjoy those
things but uh at least in the world i live in
being a director is a real job i mean i am on
you know nearly 24 hours a day but for when i'm
asleep firm logo or our firm motto, sorry, is
always on governance. And we need to really move
and be responsive to the clients we have. Things
move very quickly in the space we're in. As you
know, weeks can make a huge difference to a launch,
to some counterparty negotiations, agreements.
So being incredibly responsive and being on all
the time is a requirement of the job, in my view,
and that makes it a pretty demanding job. You
know, as you say that, I guess it kind of clicks
in my brain that, especially crypto folks where
it's 24 -7, that always -on governance that Leeward
and yourself offer as a service to support matches
the ethos of an international community who is
trading for activities 24 -7 in the blockchain
space. I didn't quite consider that. And you
made a good point, which I didn't make. But global
is the other point, right? So, you know, we support
client projects out of Asia, Europe, obviously
North America. And those people have, you know,
quite a few different time zones to cover. And
waking up in the morning means there's email
from Asia and Europe overnight. And, you know,
when you're ready to log off and sign off for
the North American clients at 6 or 7 p .m. And
then they start up again with Far East and Europe.
So, you know, it's a pretty dynamic piece, and
it was pretty quick. Yeah. So one misconception
is that it's an easy job. Were there any others
that came to mind? Yeah, I mean, I guess there's
other aspects of it. Easy, you know, directors
don't do anything. Got it. Service providers.
work you know that that is is also a misconception
directors have uh have a lot of risk as well
great directors can be sued for all kinds of
things breach of fiduciary duty or to the foundation
this is the main heading of damages but you could
get into it with regulators as well so in addition
to being pretty demanding as a client service
and in terms of keeping up on reading and documentation
and the law, you need to be very careful about
risk and ensure you're managing risk in an intelligent
way or you'll have a blow up on your hands at
some point and that will not end. Yeah, we definitely
have a couple of questions about that later on
about the fiduciary part. But as you do your
job day to day, How would you define success
as a director? Good question. Look, I think for
me, success is the satisfaction I derive from
clients referring me to other clients and saying,
you know, this is a person you can trust and
I'm not holding back work at the speed you're
working and help the project succeed. So, you
know, with that. It was a sense of action and,
of course, increasing business as well. I, some
time ago, brought on additional directors at
Leeward and introduced them. None of the clients
I've worked with before are firms that have preferred
work, and that's how we've really built our business,
based on that sort of reputation and referral.
And to me, that's success. I think that's...
I mean, the more we delved into this subject
from where we started, which is this kind of
cynical, like there's the Illuminati and the
offshoring and everyone's on their boat. And
from where we started to there, to where we are
now, which is these are real people. They've
got families. They've got hopes, dreams. They
want to do a good job, just like anybody else.
They just happen to live on an island surrounded
by beautiful water. That's all. That's all. It's
really humanized the whole process. The tropical
weather certainly doesn't help in that misconception
department, but hey, it is where it is. Yeah,
yeah. I remember, I think it was Mel or perhaps
it was Carolyn who mentioned kind of the story
behind that and how Cayman Islands came to be
like a British protectorate and the whole like
that. That was cool. That was cool to hear about
how things happen. So increasing business. That's
quite the story. Yeah. Yeah. You saved a British
monarch's family member. And then for time and
forever, you know, the Cayman Islands has like
a special status. Well, there's some lore in
there as well. You know, that story you're referring
to, I think they've tried very hard to dig up
actual evidence of what happened. I bet. I bet.
but i like the story it's it's a neat one and
uh and uh just the general evolution of the king
this is a fascinating story from financial services
perspective and and to see what what the islands
have created now in terms of both the fun space
which is by the way a lot larger than what we
do in the digital asset crypto space and and
and now with with the foundation company being
the leading i guess real world interface for
for them so that's quite remarkable Yeah, when
I saw just how much business was being conducted,
and I think at this point, I can definitively
say there are some really good reasons why you
would want to have a foundation company in the
Grand Cayman Islands. Not just foundation companies,
but the reason why business is the way it is
there. It's an open environment. It's very flexible.
There are a lot of benefits, and we've talked
about that previously. But the more you look
into it, these are real people, not like… Secret
cabal behind the scenes trying to take over governments
and all that stuff. The sort of things that you
hear in the crypto space that I had to acknowledge
because those are real. Those are real perspectives.
But as we delve deeper into this, you definitely
see people like Glenn who really define success
as satisfaction from clients, referring him as
a trusted person, and then increasing business
based on reputation referral. I mean, that's
just very relatable. So what would you say are
some skills that are important to have as a successful
director? Good question. I guess it would probably
start with having some subject matter expertise
and having something to offer. So, you know,
most of the successful directors I know have
come from a profession or a business line which...
gives them something in terms of knowledge and
expertise that they can offer to their client
boards. In my case, as I mentioned, I was a lawyer.
So law, as it turns out, is actually a pretty
good fit with crypto. I've kind of said it jokingly
sometimes, but not that jokingly, that if you're
not a developer in crypto, you're probably a
lawyer. And I guess that's owing down to the...
the gray area and the legal uncertainty and the
legal risk and regulatory risk that the space
has experienced, at least for the last decade
or so, hopefully improve it now. But having that
background has helped me deliver good governance
to the boards I'm on. It helps me deal with people
like Nolan and Carolyn and the other many lawyers
that work in the space. and kind of tackle the
issues that are often very legal or regulatory
in nature and often don't have very clear answers.
So for me, it's first of all having something
to offer. Now that might not always be a lawyer.
It could be that there are some founders or developers
that have been on boards. And they come to the
board with that experience. You know, they've
launched a startup before. They've launched,
you know, maybe a Web2 company. They've been
in a crypto project before. They know the game
plan. They're able to see things through a lens
which is different from mine. And there may also
be other professionals. You know, accountants
are pretty common in the Cayman Islands due to
the funds industry. But on fund boards, it's
very important to have them. sort of form of
auditor because financial reporting is a very
big part of being a director and overseeing financial
reporting of a fund so i would say the first
attribute is have something to offer that that
that you can draw on from your your own professional
and work experience i mean all this like once
you say it out loud like it like you said in
the beginning there are a lot of similarities
between foundation company and just a regular
company that this sort of good business sense
that you would bring to it you also bring to
a foundation company yeah right that's it that's
it you know I like to think with my skill set
I have a lot to offer my boards if I was approached
to be a director of I don't know a mining company
say for example you know maybe I wouldn't be
the best candidate because I don't want to i'm
not a geologist and i've never run a mining company
and i don't know anything really about how it
works so i think you you want to pick your director
based on the from the client side now and you
pick your director based on the skills that they
have to offer and may also be some other things
like connections you know you can pick a director
who has very good connections maybe with say
exchanges or or market makers or development
teams that can bring that to the project and
contribute that knowledge and network through
any other things too. I mean, obviously being
responsive, as I mentioned earlier, having a
team of people behind the director, you know,
Leeward, we're close to 50 people now, a lot
of those people support what I do and make sure
that if I happen to be on a plane or whatever,
there's someone there who can, you know, answer
or assure a client that I'll be back online very
soon type of thing. So, you know, having that.
is an important aspect in the space we're in.
Making sure the platform or whoever you're choosing
is one which is licensed, regulated, insured.
There's a few other attributes to it, but I would
go back to my first point, which is pick the
candidate who can bring some knowledge to your
project and your board. Yeah. And pivoting now
to DAOs, going down the DAO road. How would you
know, or what are some indicators where you know
if the foundation company is successfully serving
the DAO? That's a good question. And as you said
earlier, and as I think Carolyn and Mel explained,
the foundation setup is very plastic and can
be configured in many different ways. Same configuration
is where the director's role is very limited.
And that governance is... is decentralized and
it's done by token holders through platforms
like snapshot or tally or whatever and the director's
role in that case is props for knowing this is
going to be pretty limited right i mean you're
kind of what's the sorry say again i said props
for knowing both of those by the way i expected
nothing less No, no, no problem. No problem.
I'll take the compliment. But in those scenarios,
the foundation is more of an executor, I guess.
It's just carrying out the will of the DAO. And
success is probably pretty easily measured there
because the foundation is really just doing what
it's told by token holders. And as long as it
does what it's told, and it should do that, barring
maybe illegality or whatever. or some other limited
factor, it will function as designed. And that
should be a successful marriage between the DAO
and the foundation company. There are other scenarios,
I guess, kind of going back to my comment about
director led foundations or foundations which
are not really a wrapper for the DAO. There's
sort of another organ in the governance structure
of a project. In those scenarios, you could get
a bit of divergence from what... elements of
the DAO, groups of token holders expect from
the foundation and what the foundation's board
thinks it should be doing. It could be various
political pressures in the world. Some group
wants to, you know, for protocol and others don't
and the board doesn't want to take any risk on
that. Loud members of the community do. In scenarios
like that, you can start to, I guess, assess
your question a little. with a little bit more
substance because, you know, you might be agreeing
with the foundation's point and say, the foundation's
not doing what we need to do. You know, we need
to move this project forward by doing X, Y, or
Z, but, you know, the foundation's not doing
it. The verse could be true. The foundation could
be plotting a bit of a course, which the DAO
is not in favor of our elements of the DAO. So,
you know, I don't know. It may mean success or
failure, but it might mean a divergence of opinion
between the token home community and the foundation's
spirits. You mentioned there are some configurations
where the foundation company could act as another
organ, which I took to mean it has a little bit
more agency rather than just being doing what
it's told. Is there a way to tell which one we
have as a DAO? Yeah, generally, that's an answer
that can be found in the bylaws and the articles
of the foundation company. If you look at a project
like, say, Ape Foundation or Arbitrum, those
are heavily DAO forward or empowered DAOs, I
suppose, where the foundation role is going to
be more limited. And so the director of the company,
and you'll find that by looking at those documents,
which are, you know, I mentioned those two examples
because they're online and they're transparent
and you can read them. They have language in
the bylaws, which talks about, for example, resolutions
and token holder voting mechanics and things
like, you know, voting thresholds for proposals
and SIPs or PIPs. apes or whatever that whatever
the acronym is for the proposal mechanism but
when you see that in in in the documents that's
say null that this is a decentralized governance
project they may have different degrees of decentralization
some might say you know on on the passing of
a proposal the foundation shall implement it
might say, you know, the information may be implemented.
The may implies a bit more discretion to the
directors where it's not completely, the direction
is not completely set by the DAO, but there's
some reserve power by the directors. So there's
a spectrum there of governance arrangements.
And if you look in those documents and projects,
constitution and bylaws, you'll see where that
project is on the spectrum. Yeah. I'm showing
right now the timeline event slide that Mel and
Carolyn gave us from the incorporation over to
the sliding scale of token holder led from director
led. And would you say that when you said arbitrage,
what was that second entity? Bitcoin. Bitcoin,
got it. Which just recently had a very... seismic
shift in its approach but another podcast another
day all right how do you see the relationship
between the down the foundation company i learned
from mel and carolyn that that it can be um well
the between the token holder led and and director
led the various spectrum of the director led
as vested with much of the authority and power
needed to execute, and then as a sliding scale
over to token -holder -led, either relinquishes
or, with updating the bylaws, doesn't have as
much power. How do you see that relationship?
You particularly set out the kind of spectrum
where the... pathway, I guess, that is followed
in terms of decentralized governance. Few of
them come out of the gate as token holder -led.
Typically, the difference between one and the
other in your example is a function of time and
community growth. So out of the gate, at incorporation,
a lot of them are director -led and will progressively
decentralize governance to become token holder
-led over time. um that's a fairly common approach
and it's usually one that is calibrated with
the growth of the dow and the scope of the project
and the maturity of the dow so you know ensuring
that sometimes sometimes it might be too early
to decentralize i know that might be anathema
to some um some purists in the space but but
you know um The project may have just launched
its application, its network, its protocol in
its very infancy. And the foundation there might
be more interested in sort of shepherding that
growth and making sure that the vision for the
project is carried out. And the DAO really only
comes to have controlling powers over the protocol
at a later point when it's sufficiently decentralized,
when there's enough people and you don't want...
You could say, how can that be? Why should we
let two foundation directors have all the power
over the foundation? But in a very early day,
in a project's life, there might only be a couple
of token holders. So either way, you're going
to be fairly centralized. So I guess to go back,
typically, they come out of the gate director
-led. And over time, they will often descend.
which relies on the point of being token holder
-led. That's not always true. Some foundations
come out of the gate that are token holder -led
and they're, you know, big enough launch with
a big enough and dispersed group of token holders
that token holder governance will start from
day one. So it almost sounds like that relationship
is with, on a good day, I'd say ideally the foundation
company is the shield. is the thing that keeps
the DAO on track to, if it wants to become token
holder -led, it matures into what that is. I
think it's a fair statement. There's certainly
a role there for the directors of a foundation
in shepherding that growth, that early growth
of the protocol and the ultimate decentralization.
All right, moving right along. What responsibility
– I mean, at this point, I think I'm starting
to hear a pattern. What responsibility does a
foundation company have to the Dell? Well, yeah.
There's some legal answers to that, and then
there's obviously some variability from project
to project. But typically, I guess just – coming
back to the director's role, the duties of the
director are usually owed to the foundation company
only and not to a broader group. It's sort of
a legal construct which is in keeping with the
concept of a corporation and then added to that
though are Sometimes a constitution, not the
memorandum articles, but a separate document
constitution, which talks about the overall construct
of the project. And the bylaws, which deal with
token holder voting. So it may be that through
those other instruments, there is a sort of an
expanded set of duties and responsibilities owed
to the DAO and to the wider project. legal duties
of the director or to act in the best interest
of the company, of the foundation company. Earlier
when you said it was responsibility to the foundation
company only, what I would read there is not
the DAO, not the thing it's wrapping, but the
actual legal entity. Yeah, that's right. What
is in the best interest of the foundation company
is then the next question. And if you're talking
about a foundation company, which is there to
serve a DAO and enable a project to contract
and own whole real world assets or whatever,
really its objects are to further the DAO and
further the project and further the protocol.
So it's not, in my view, fair to say that even
though the legal duties are said to be owed.
only to the foundation company that you can ignore
as a director the wider dao and the community
and the token holders so it's uh it's a little
bit of a circular discussion as you're probably
picking up on but but uh that that's the construct
we're working from yeah probably some healthy
disagreement i imagine within the community itself
and certainly on on the the lower end it's called
the voters and Being in the receiving end of
you've got a foundation director who can do what
he wants, so to speak, in quotations, or she
do what they want. But then you've got the foundation
company that's far away on the other side of
the world and offshoring and boats and yachts.
And then just things start to take a life of
its own from there. But I think what's been clear
between you, Mel, and Carolyn is you don't just
get to ignore the doubt, especially if the objects.
are specific in furthering the Dow's growth,
furthering the protocol, as you mentioned. And
then there are all sorts of mechanisms in place
to ensure a check and balances on both sides.
You check and balancing us, the Dow, and then
the Dow check and balancing the foundation company.
It seems like there's a symbiosis there in an
ideal scenario. Yeah, that's very well described.
And as to that, at the decentralized end, at
the DAO -led project end of the spectrum, there
is typically, or quite often anyway, a right
of removal that the DAO might have to remove
directors or remove a supervisor who can in turn
remove directors. So these are not, at that end
of the spectrum anyway, sort of a... of the foundation
anymore. They're organizations where the directors
are subject to removal by the DAO if they are
not seen to be doing what they're supposed to
be doing. And let's take a maybe less obvious
case, which would be if it's not just, say the
director, you've got everyone on the side, the
director's on the side of the DAO pursuing to
the objects, but then the lower levels management,
like the officers or... They start becoming,
I'm just going to use some terrible phrasing,
you know, bureaucrats, you know, just getting
in the way of the objects and the purpose. But
then there's a situation where the director maybe
just hasn't taken any action against them. So
the DAO might view those lower level officers
as getting in the way of the DAO and not acting
in the best interest of the DAO. How does that
– like in that hypothetical, what are your thoughts
on – it's not the director that's the problem,
but maybe the lower levels. And it's all interpretation,
people's viewpoint. Well, I guess one of the
very first questions you asked, what are the
director's duties? And it's to – the duties really
don't precede the operation of the foundation.
So if there are officers that are not performing
or doing their job. poorly or seem to have very
little support amongst the DAO for the direction
they're plotting and the day -to -day actions
they're taking, that would quite likely become
a discussion at the foundation company board
level as to whether those officers are the right
people to have in place. And how would the DAO
raise that to a foundation company to begin with,
to alert you to that? It could be a lot of different
ways. It can sometimes be informal. Large token
holders or groups of token holders might reach
out and say they're not agreeing with the direction
of the project, that they see Mr. or Mrs. X as
not the appropriate leader for the time, or maybe
they suggest someone else. Maybe they suggest
adding people to the management side of the project.
It could be that way or it could also be formally
through proposals to either remove or add officers.
I guess that makes actually a lot of sense. If
you say it like that, we could just put a proposal
out, which would be the will of the DAO and any
other proposal. So reaching out to you informally
and – I mean all I'm hearing at this point is
– is good business sense like the sort of thing
that you would conduct in normal business operations
you know email phone call writing them a letter
just the dow adds the you know snapshot or tally
votes and formalized voting with token holders
that's here you know and then you just said a
judgment right and and and and you know emphasizing
powers with a fair bit of discretion and in a
reserved way. These are the kind of attributes
that I think should be present in a board of
directors. Not really maybe getting into it with
various factions that might exist and personalizing
it and becoming a... We're a HUD for one group
within the community versus another. My view
of exercising those kind of powers in situations
like that is to be very judicious and reserved
and exercise good judgment carefully. When directors
start becoming politicians, this is when governance
constructs start to break down, if you ask me.
I think that's very well said. I think that clears.
Makes it pretty clear. So I had an episode some
time ago, and not even some time ago. It feels
like it was so long ago. But when the reading
of the Cayman Islands law, I think it was, where
I was trying to figure out with the reading of
it, all these positions started popping up. The
director, the officers, and each law had its
own. sometimes its own word. I create a table
out of this, a terminology translation table,
where it would use director in one, it would
use officers in another, and all these different
positions started. And I was so confused. I called
it my triangle of confusion. And it basically
was all of the roles, subscriber, director, secretary,
supervisor, founder, how do they interact with
each other? How does that work? Yeah, there's
sort of an alphabet soup of terms and acronyms
that can apply to a foundation company. Remember,
the foundation company was not designed to do
what it's doing now in the context of DAOs and
crypto projects. It was there really as an alternative
to trust for... mainly people who would look
to use the jurisdiction from civil law countries.
So, you know, Europeans don't know what a trust
is. Well, they know what it is, but it doesn't
exist out of their laws. So the Foundation Campaign
was designed to be more familiar for that. And
it was designed sort of... as a vehicle to manage
estate planning, maybe carry on some dynastic
family business that will hopefully exist for
hundreds of years and we'll need to have a mechanism
to roll with the changes in the family over generations.
That's what it was designed for and historically
used for in Europe. Turns out it actually is
a pretty good vehicle. call for DAOs in that
the foundation exists in a tax neutral jurisdiction,
the Cayman Islands, with a very familiar and
established legal system staffed by very competent
law firms that have been in business for years.
So these things just sort of aligned and with
some ingenuity on the part of some practitioners
in Cayman sort of repurposed this. this vehicle
for dows and and foundation companies so a lot
of to go back to your question a lot of the the
kind of verbiage uh that that exists in and around
the foundation company beneficiary founder for
example um they kind of drawn from that use case
that i described the original updated use case
so the founder might be the you know the the
man or woman who started the business empire
and is now in his or her 70s and wants to set
up a foundation for the two generations of descendants
to own this very well -known iconic business
that he or she created. Founders in the context
of Crypto foundations and DAO -facing entities
is not commonly used. There is at least one law
firm I know of that does use the founder concept,
and they sort of suggest it. TTA, right? Yeah,
that's right. So TTA, they take the view that
the founder is an important, I guess, break on
governance. and can be powers of removal of a
rogue director, for example, or even a rogue
supervisor. And they kind of, I think, position
it as in, okay, well, you know, we're a law firm,
we've been around forever, we're trusted, we
can exercise these, you know, break glass in
case of fire type powers as the founder if things
really go bad. And some founders and some projects
think that's very helpful. other law firms don't
use the founder concept at all so it falls away
and then the beneficiary concept again you know
going back to my example the family business
wrapped in a foundation company you know those
would be the the grandchildren and and and whatever
uh typically that have a beneficial interest
in the foundation company We don't use that concept
in the crypto sense either. So token holders
are not beneficiaries of foundations. Their rights
exist only as to the token they hold and the
powers they have are granted under the bylaws
or the articles. So we don't use the beneficiary
concept. So founder and beneficiary, put that
aside as something pertaining more to state planning
and generational businesses. um secretary supervisor
subscriber director um those are very applicable
to to what we do i'm the director i don't say
anything more about as i've been speaking about
for most of this uh this podcast um the supervisor
as i mentioned earlier is sort of a stand -in
for the shareholder to you know make this legal
contract work and can have numbers of removal
appointment or sometimes very little power at
all And then the last two roles I'll touch on,
and feel free to ask me about others if we missed
any, but secretary, that's actually, I think,
a bit of a poorly named term. Typically a secretary
is someone who sort of keeps the clerk's records
and has custody of the minute book and makes
sure filings are made and sort of supports the
board in terms of minute taking. drafting corporate
resolutions. That's what a secretary is historically.
In this case, though, the secretary role is actually
more of an AML control role. I would have probably
called it a money laundering reporting officer
or an AML responsible person. Yeah, because the
real function of the secretary is in a foundation
company context is to look into any transfers
of assets into a foundation, which are gratuitous,
i .e. not paid for, and ensure that the assets
coming in are not derived of criminal origin.
So, you know, that's a money laundering control,
really. So that's what the secretary does. And
that's quite a commonly acted thing. Secretaries
have to be licensed entities. Leeward is a licensed
entity. So we act as a secretary for a lot of
foundations and quite often assets will be transferred
into a foundation via tokens or intellectual
property or cash sometimes in the form of stable
coins and we'll have to look at the source of
those assets and say okay well you know the tokens
were minted so we're okay with this or the usdc
came from a coinless sale which was you know
done with aml controls so we're okay with it
that's really what the secretary does um And
then a subscriber is, as you said, and in your
TLDR, this is the entity quite often, which is
the initial guarantor or subscriber to the memorandum
of association, which creates the foundation.
And that's just a point -in -time role, really.
Got it. And say, like, when you have a meeting,
how do these, like, you call the meeting to order.
Who is doing what in the meeting at that point?
For me? When you have a board meeting or a foundation
company meeting, you call the meeting to order.
Who is doing what in that meeting? If there is
a founder, what is the founder doing? What is
the supervisor doing? Is it just the director
most of the time talking? How does that work?
Well, typically, it's only the directors. okay
founders don't want to meet a board meeting suppose
they could be invited in theory um as could the
supervisor sometimes supervisors are invited
to a board meeting but not always and typically
they don't have a right of attendance but uh
you know as to the the kind of process of a board
meeting. It's typically called by one director
with, you know, some number of days notice. Sometimes
that notice is waived if it's our, you know,
no shine on what we have to approve contract.
Other times you'll let the notice run and have
the meeting on the day specified in the notice.
The agenda is set, could be set out in the notice
of meeting. So we're now a meeting to discuss,
you know, this contract approval or this amendment
to It's another item of business. And the meeting
will proceed to nominate a chairman, which would
be one of the directors, and to work through
the business. I'm sure Orem is there to disclose
any conflicts and then proceed to the business,
the meeting, majority rules. And after that,
minutes are prepared and filed on the minimum.
Is non -nomination of the chairman, is that like
a temporary role just for the meeting, or is
there a... a more persistent role there? Typically
the former. So a chairman is a chairman of the
meeting, and that might be a different director
each time, or it could be usually the same director.
It's different from the kind of chairman of the
board term that you might see in public companies.
Yeah, okay. Yeah, I think that's what I was getting
at. All right. A secretary must be licensed by
SEMA. When does the director need to be? I think
you covered that earlier. When is the covered
entity? That's right. Yeah. Okay. And when it's
not a covered entity, does an independent director,
do they have any licensing requirements? Yes
and no. So it depends where they live. I guess
is the answer to that question. If the director
was in the U .S. or the U .K., I'm not aware
of any licensing requirement in those jurisdictions
to be a director of a company. The Cayman Islands
doesn't require directors to be resident in the
Cayman Islands, so that person, resident in the
U .S. or the U .K., can be director of a Cayman
Islands foundation. If they live in the Cayman
Islands, then there are some local laws which
would apply. Are they employed by a licensed
company manager like Leeward? Then there's no
further licensing required. If they're not employed
by a firm like Leeward, then they would need
the authorization of a work permit to be in the
Cayman Islands and fulfill the director role.
Okay, I see. Okay. So work visa requirement type
things and they're just natural citizens. Yeah,
exactly. Okay. All right. That's correct. Got
it. It would be different than if I were to move
to Miami and wanted to, I don't know, wait tables
or something. I'd need a green card or a work
permit or something to do it. Got it. Yeah, that
makes sense. So what would be the major advantage
of having, I guess you could say, an unnatural
-born citizen of the Grand Cayman Islands be
a director of a foundation company in the Grand
Cayman Islands? Well, the main reason why projects
would choose to have a director in Cayman is
to ensure that the mind and management of the
project of the foundation company is in the Cayman
Islands. You probably have not accomplished very
much if you're looking for a crypto -friendly
jurisdiction and you choose to incorporate in
the Cayman Islands, but then remote control the
foundation from London or New York. For Hong
Kong, if you're doing that, you're probably at
risk regulatory -wise, tax -wise. There are other
reasons being said to be resident in one of those
other places. So being in the Cayman Islands
is important, obviously. It's probably the number
one reason. But then the other reasons are really
expertise and specialization. Yeah, the network
effect, as you might have heard, and the crypto
space. Yeah, all the things you would need to
do, conduct good business and be successful in
the environment that you're in. See, this is
all just starting to just make sense. It's very
civilized. I'm glad I've been able to shed some
light on it. Yeah, the last couple of questions
we're on now, let's get to the fiduciary thing.
The director is a fiduciary of... Is it the objects,
the members, beneficiaries, some, all of it?
Well, they have fiduciary duties to act. Fiduciary
duties owed to the foundation company. So that
is a duty of utmost good faith. So it means things
like not acting with a conflict of interest,
not being interested in contracts. you as a director
are then improving by the foundation uh it it
means to fulfill your duties with honesty and
integrity those are the the types of concepts
of duties that are owed to the foundation company
as a director okay so it's it's to the foundation
company itself so we're not talking like just
the objects or just the members whatever the
foundation company is there to do The entity
itself is what you owe the fiduciary duty to.
Yes? Yeah. So my answer was in response to the
concept of a fiduciary duty. I think you're now
mentioning the objects and the director. need
to, you know, discharge his or her duties and
govern the foundation in accordance with the
objects. That's another very important point,
right? So if the object were to, you know, further
the use of the protocol and the network, then,
you know, going off to, I don't know, have the
foundation company open an ice cream stand or
something like that is not in keeping with the
objects. The director could be liable for taking
decisions like that. They're in keeping with
the objects. Yeah. That makes sense. Discharge
the duties and govern the foundation company
in accordance with its objects. Okay. I think
one of the last things that I wanted to get here
was I created a little flow chart that I sent
you. And that flow chart was my best representation
of what actually happens when you try and create
a foundation company. Were there any adjustments?
Carolyn recommended that I take out the whole
semen license director. So I put a big X there.
What adjustments would you have for me? Oh, you
see my rectangle of confusion there on the far
right, which is no longer confusion. Now I get
it. Yeah, I think it's a good flowchart. I'm
just trying to bring it up here now. It seems
to me my computer's gone slightly sleepy as I've
been talking. But yeah, I think Carolyn's suggestion
of removing the SEMA licensing is... It's probably
on the basis that that's already there, that
already exists. There's already a leeward willing
to incorporate a foundation, and it is already
SEMA licensed. So that's a good change. The rest
of it, though, no, I feel like you've set out
graphically the general process for forming a
foundation, and over on the right side of it,
a lot of the kind of inputs needed for it. Okay.
Well, Glenn, is there anything that you'd like
to leave us with, any closing remarks? Well,
first, a big thank you. I think that what you've
done here in this series is incredibly helpful.
You know, some people have firsthand knowledge
of the foundation company and the formation process
and how they work in practice from having worked
with projects, but probably a lot of other people
don't really know the inner workings of. of the
foundation company and the legal concepts that
go with it and the people behind it and the attorneys
and, in my case, the director. So I think you've
done a great public service here to both your
DAO and to any other listeners out there wondering
about some of these things and how they actually
work. So a big thank you from me and from the
Leeward team. Yeah, well, the pleasure is all
mine. I have thoroughly enjoyed. Trying to poke
prod and examine and turn this around and upside
down to try and figure out what exactly. I mean,
it really surprises me that a year ago, almost
12, 13 months ago, the Sandbox DAO came out with
its foundation company in the DAO. And it was
very sudden at NFC Lisbon. And I interviewed
Cyril, the current DAO administrator, and Seb,
the COO, and they explained that that was by
design. They wanted to be like, bam, the DAO,
and bam, the foundation company, and progress
this decentralization, and let's go vote. And
the reaction from the community was, first of
all, what is a DAO? What is a foundation company?
What are all these things you're saying? And
it's now like we all laugh about it for the most
part, but it wasn't the reception they were expecting.
They were expecting, and most of it was just
confusion on our end. Like, what are we supposed
to do with this thing that we now have? And that's
what really started this podcast, was an attempt
to understand, what is this DAO thing? And then
the DAOs led to foundation companies, and now
here we are toward the end. Oh, Glenn just left
for a second. But what is a foundation company?
And yeah, now here we are, episode 65. And the
thing looks a little bit weird, but it's okay.
Glenn gave us so much of his time, and perhaps
it was time for him to go. There we go. So, here
we are at the end, and 65 episodes later. Lynch
has imparted a lot of knowledge, and that knowledge
was extremely helpful to understanding foundation
companies and what it is that we do. I thank
Glenn very much for his time and all of the wisdom
that he just imparted on us and how foundation
companies are run. We went through our questions,
and I will likely do a recap episode here in
the near future from episode 34, covering 56,
57, 59, 60, 62, 64, and now episode 65. So thank
you all for your time, and thank you very much,
Glenn. for giving us a look into what does it
mean to be a director. All right, everybody.
Have a great day.