Out of interest, how are KGS' policies decided, who would be responsible for updating them, and on what circumstances would an update be considered to be appropriate? Are there any polls or reasons supporting the existing policies, or was it just either wms or a group of KGS admins saying "we should do it this way" and that's how things are as they are?

Policy changes (and new functionality for that matter) can come from user opinion.
For instance, being allowed to talk "off topic" in evented games.
The managers and admins also have suggested new policies on occasion, not always successfully. (For instance, it was suggested to ban using as a username the name and variants thereof, of every single political figure and every single religious figure. - but this was rejected)

I imagine most of the original policy comes from wms himself, don't know for sure though.

Is this to say that talking "off topic" is allowed in evented games? I was never really able to find much documentation on this policy to begin with (though I've been kicked for it), but it'd be nice to know if it's been changed.

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be immersed

Kirby, in moderation is OK. Usually.

Evented games, like a broadcast?

It seems like those would be were off-topic chat is most obnoxious because of the sheer number of spectators. If I'm playing my friend, and two other friends are watching, who cares if there's off-topic chat?

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Occupy Babel!

Javaness has it right. Mostly I let the superadmins (currently Sweety and Taro) decide on what the policies should be. I will override them when I feel strongly about a topic. The superadmins presumably discuss most issues with other admins on an informal basis, and of course when users complain about things or seem to be having issues then that is taken into account too.