In the case of organizational or associative networks the power of direction founds in company regulations — cooperatives — or results from consensus — second-degree cooperatives, horizontal groups, consortiums, or EIG, even when statutes establish majority decision, since the members possess extremely easy ways to exercise the right of separation.
The network directory provides the network’s business strategy and controls the performance of its members based on the power under contracts or statutes that govern the relationship that links each one with the others or with the head of network.
It also coordinates the activities of its members on achieving the targets — expression of shared interest — and mediates or arbitrates competitive struggles among its members — expression of divergent interest —.
In any case, the preservation of effective competition in the market stands as a limit to power steering, as we will discuss in the last section of this paper.
b. Network’s governance
The exercise of the directive power in networks requires that is shall be done for the benefit of the network, as in the case of corporations and corporate groups, in which it should be exercised for the benefit of society or group.
Unlike the case of corporate common interest, the interest of the network includes not only the parallel interest shared by its members but also their divergent interests. The attainment of the shared interest must respect their contradictory divergent interests.
In this sense the network resembles democratic states which are characterized not only by taking majority decisions but by respecting minorities taking into account their interests.
In this sense the exercise of network directive power by the directory shall take into account of the divergent interest of the members and shall not hurt them if there is not need. Just as in antitrust logic we postulate that a directive action that hurts the divergent interest of a member shall be covered by the shared interest and justified as inevitable to obtain a network goal. This implies that it must be clear that no other less harmful alternative for the member may be found.
An efficient exercise of directive power requires appropriate network governance.
This involves the recognition of the existence of special duties of care and loyalty that affect the network directory in the exercise of directive power and the establishment of a framework for dialogue within the network, enabling efficient pursuit and not conflictual power steering.
Appropriate definition of network governance requires the identification of the duties of network head, the definition of the framework for dialogue in the network and the establishment of an internal frame of moderation and internal resolution of disputes through mediation and arbitration.
The duties of head of network includes a special duty to act in good faith that is based on the stability and duration — real or potential-of the network connection and on the intuitus personae character of network contracts — intuitus personae that includes the intuitus instrumenti that is not an opposed alternative to the former, as it is generally accepted by the legal scholarship, but an evolution of it —.
The duty of good faith may involve a special set of duties: the duties of information, the duty of confidentiality, duties of care, duty of deliberation of important decisions for the network or a duty to give a preferential option to the network members.
The duties of loyalty that affect the network head — that is to act in accordance with the interests of the network to create value and no unnecessary damage to the divergent interests of its members — are based on the collaborative nature of contractual agreements or the associative relationship in the case of networks of this nature and in any case in the existing cooperation between the parties or members of the network.
The duty of loyalty means acting in the best interests shared by network members without unduly hurting the divergent interests of its members. The act that fulfils these conditions is often described as an act in “network interest”.
Some duties are deduced from this, such as the duty of transparency regarding the interests of the network head in the enterprises providing goods or services to the network, the duty to refrain from using the network resources for business purposes, not shared with the members of the network, the prohibition to replace an efficient network member in order to appropriate their business, or the prohibition of the encroachment and tortious interference which in some legal systems as the Spanish one may be also grounded in the duty to act in good faith and fairly.
A network regulation or auto-regulation shall provide rules that ensure the respect of these duties.
A network legal framework may rule in a more detailed way — as it is done in internal documents of some networks — the limits of the ius variandi and when the opinion of either the head of network or the member shall prevail.
An internal framework of the network for a non-confrontational and efficient exercise of directive power steering also requires the dialogue with associations of members, the creation of advisory or co-makers councils and the co-development of the internal network rules of operation.
Network governance also implies the organization of an internal dispute resolution system through mediation and arbitration. These mediators or arbitrators shall help to find solutions or give solutions to the problems between the members but also between the direction or network head and the members. In order to be efficient and in accordance with the good faith principle, a truly independence of internal mediators or arbitrators from the network direction is need. This independence may be obtained by creating a wide list of eligible mediators or arbitrators and by limiting the number of interventions of each one of them. If arbitrators or mediators are always the same and are paid by the head of network it is difficult to believe that they will act independently.
c. Ius variandi
The change of the activity conditions implies in general the conformity of all the members in organizational networks, with the exception of cooperatives and second degree cooperatives, companies, and consortiums or EIG’s where the statutes introduce the majority principle.
The decision to submit some or all decisions about the change of conditions to the majority — in company directory or assembly — concerns all members.
In the case of contractual networks the change of conditions may be attributed by contract to one of the parties — the network head for example in parallel contracts' networks as franchise —. In these cases the ius variandi concerns only one of the network members, limited by abuse of right doctrine — not global accepted — an objective novatio doctrine.
All these systems of control — consensus or majority, and unilateral attribution of the ius variandi with the limits of abuse of right or objective novatio doctrine are inadequate to regulate this question in networks, as the experience teach us.
d. Encroachment, virtual encroachment and tortius interference
The relationship of network members with customers is a typical source of tensions between them and, in some cases, with the network head. Network direction shall coordinate its members without infringing competition rules12. Encroachment and tortius interference are sometimes used by the network head to convert shared customers in own exclusive ones. In the last years internet development has also created problems in networks regarding the internal relationships between members and between members and network head, if any, in relation with customers — virtual encroachment —.
In all these cases we find conducts which are far from competition by efficiency. The network head, either alone or in connexion with other network members, undertakes