[Chapter-delegates] What's going on? As presented, the sale of PIR should be rejected by the Board

[Andrew Sullivan]

Hi Dave,

On Wed, Nov 13, 2019 at 05:00:04PM -0500, Dave Burstein wrote:

> Either the substance of this deal is very different than the brief
> announcement suggests or it is* clearly a very bad mistake that would
> necessitate major layoffs and force longterm cutbacks in ISOC activity.

There is a third possibility, I suggest, and that is that the deal is
a good one for both the Internet Society and PIR.  From this deal, the
Internet Society gets a substantial legacy fund that permits us to
continue working as we have historically.  At the same time PIR gets a
partner committed to promoting and supporting the .ORG Community for
years to come.

Through this transaction, we can protect the Internet Society’s future
by diversifying our revenue stream going forward. In this way, the
funds from this transaction provide us with a valuable opportunity to
broaden the scope and range of our investments – and will enable us to
plan for the long term.  It also frees the Internet Society up from
managing the business aspects of PIR, allowing us to focus on the
tangible work that is core to our mission of building a bigger,
stronger Internet.  At the same time, the transaction aligns PIR with
Ethos Capital, a strong strategic partner that understands the
intricacies of the domain industry and has the expertise, experience
and shared values to further advance the goals of .ORG into the
future.  It will also enable PIR to expand its work and further
strengthen its commitment to the .ORG Community.

> *I ran some numbers; "do more" is impossible unless some very
> important information is being held back.

I can't comment on your numbers without seeing them.

> Andrew - What's going on?

What is going on exactly what you see: Ethos Capital is purchasing PIR
and ISOC will be the beneficiary of the resulting fund.

> The balance is by far the largest funding of any non-profit dedicated to
> improving the Internet for all of us.

Indeed.  Our goal with this is to ensure that the Internet Society's
mission can be pursued in perpetuity.

> figure in the release. Is it really that high? It would be about 18X

The financial details of the transaction are not being disclosed at
this time.  But we can say that it will provide substantial funding to
support the Internet Society’s work on an ongoing basis and enable the
Internet Society to fulfill its mission to support and promote the
Internet, and to strengthen and expand its reach around the world.

If you in fact believe that the Board and management are as devoted
and well-intentioned as you say you believe, then you will have to
draw your own conclusions about this transaction.  I will note that
the figure cannot remain secret forever because we are a non-profit
and will need to file our 990s eventually.

> It appears the deal will require changing P.I.R. from a non-profit to a
> for-profit. In two cases I know in New York, that took years. What have we
> done to get government approval for a Q1 close?

PIR is not incorporated in NY, but in PA.  We have had strong and able
advice from Morgan, Lewis & Bockius LLP and Proskauer Rose LLP, and
have engaged local expert counsel on the processes we need to
undertake in PA.  There is indeed regulatory approval required for
this.

> Specific questions I'd welcome answers to, besides the financial terms of
> the deal, It's easy to imagine what people will assume if a "transparent,
> multistakeholder" organization holds back such important information.

The Internet Society is not the only actor in this transaction, and
when making commercial bargains all the players' interests must be
taken into account.  We are simply not free to disclose that number at
present.
 
> If the endowment income is less than ~$30M, what programs or salaries
> should we cut back? Do we need a hiring freeze?

We do not need a hiring freeze.  The staff will be presenting our
Action Plan for 2020 to the Board before the end of the month, but it
has been developed over the course of 2019 in collaboration with the
community.  Those consultations have not been perfect, but they are a
start on which we hope to build.
 
> From whom do we receive funding? I've asked before and been told the ISOC
> does not reveal donors. In the US, non-profits usually give strong
> recognition to funders.

There are definitely funders we acknowledge, when those donors wish
it.  We are proud, for instance, of our collaboration with Facebook on
delivering network infrastructure in Africa.  Oracle has been a strong
partner over the past year, and I am sitting in the Indigenous
Connectivity Summit right now with prominent logos from the sponsors
indicated on
https://www.internetsociety.org/events/indigenous-connectivity-summit/2019/.
Organization members, too, are often active and public in their
involvement.  

> PIR transferred an extraordinary $40M in the 2017 fiscal year to ISOC? Why
> was that, what is being done with the money, and where is the accounting?

Both PIR and ISOC publish our 990s promptly.  
 
> What was the board discussion, the details of which are not in the minutes?
> Now that the deal is concluded, that doesn't have to be secret.

If you mean the board discussion about this deal, then there are some
discussions that were held in executive session and will never be made
public.  That is why we have a board of trustees.  Moreover, the deal
is not in fact concluded, so there are many items under non-disclosure
through the deal close.  Finally, most things shared under
non-disclosure in fact remain covered by the terms long after the
relevant deal is concluded, and that is the case here as well.  

> May we have copies of the 2018 990's for PIR & ISOC? The budget as
> presented has no detail. Compare the detail of the ICANN budget.

The ISOC 2018 990s will be published once they are ready and have
received the requisite approval of our board for publication.  They
are have not yet.
 
> Is a breakup fee part of the deal?
> 
> What reserves are we putting aside for possible tax and litigation expenses?

These terms of the deal are not subject to disclosure, and it would be
extremely unusual that they be public.

I hope these answers give you some comfort that in fact we are working
in the best interests of the Internet Society.

Best regards,

A

-- 
Andrew Sullivan
President & CEO, Internet Society
sullivan at isoc.org
+1 416 731 1261