“Annual income twenty pounds
Annual expenditure nineteen nineteen and six,
Annual income twenty pounds
Annual expenditure twenty ought and six,
(David Copperfield, Charles Dickens)
If Mr Micawber was ICANN’s bookkeeper, his waistcoat buttons would be popping.
ICANN’s 2014 tax return (IRS form 990) shows a net trading loss. The true picture is somewhat masked by ICANN’s new gTLD cash windfall. In 2013, ICANN turned over $230 million and spent over $120 million, and made a slight profit in 2014. Result: happiness.
But ICANN prudently keeps new gTLD income and expenditure separate from its regular business. If you disregard new gTLD money, ICANN’s income in 2014 was $84 million, expenses $113 million. Result: misery.
Except it’s not misery, because ICANN still has a stack of cash ($340m in current assets) in the bank, and this seems to have loosened its financial stays.
In a recent paper [pdf] for the Global Commission on Internet Governance, I argue that ICANN needs a membership in order to improve its accountability. The paper provides evidence that ICANN’s financial controls are weak. Sadly, the recently published tax form only increased those concerns.
Staff salaries – not your average not for profit
The average pay per staff member at ICANN in 2014 was over $187,000. Even excluding top executive pay, on average ICANN employees earned $169,000, an increase of $25,000 (10 per cent) per head since 2013. This is against a backdrop of continuing recession in US, and an inflation rate of less than one per cent.
Transparency concerns: gaps in senior team disclosure
ICANN’s tax return discloses the salaries of 34 people, including directors and some executives. US tax authorities require companies to disclose the salaries of directors, officers and key employees. It is surprising not to see some of the CEO’s direct reports in there – such as the Senior Advisors on Governmental Engagement, Strategy, Global Stakeholder Engagement, and the Chief Innovation and Information Officer. No reason is given for these omissions.
Women are short-changed (comparatively)
Analysis of the top executive salaries that are disclosed, reveals a gender gap: ICANN’s top women are paid on average 35 per cent less than their male counterparts. The figures are skewed by the three highest earners (all male), but even excluding the top three, ICANN’s women executives earned on average $17,000 less than their male counterparts.
Salary bills are a risk to long-term viability
Staff salaries are now 55 per cent of turnover (excluding gTLD income) posing potential threats for ICANN’s future financial wellbeing. ICANN’s staff salaries have never been such a high percentage of turnover. It’s true that ICANN has received a huge cash windfall in the form of gTLD applications, but it’s not prudent to increase annual outgoings on the basis of a one-off lump sum. Registrations in the new gTLDs that have launched are not yet generating enough fee income for ICANN to justify permanent increase in expenditure, such as commitment to staff salaries.
Another shocker is ICANN’s travel spend, which rose by a staggering 85 per cent in 2014 to $17 million. That’s 20 per cent of ICANN’s income. There is little detail in the tax return as to how the travel spend breaks down. Yes, ICANN relies on community volunteers, and travel support helps recognise this. My paper argues that travel support is an area where strict financial accountability should be observed, as “soft power” derived from such financial support is difficult to quantify.
In 2014, the average cost per ICANN public meeting was $6 million, compared with $3.2 million in 2013. The community needs to understand how this money was spent, and who the recipients of the extra travel and meeting costs have been.
What do the ratios say?
Financial analysts have a toolkit of ratios which reveal a company’s profitability, capital growth and solvency. While, thanks to its substantial cash reserves, ICANN remains almost rudely solvent, its profitability ratios (excluding new gTLD income and expenses) have declined. Net profit margin, which indicates the effectiveness of its financial controls, has declined from 15 per cent in 2013, to -35 per cent in 2014. Return on capital invested decreased from around 10 per cent for 2009-2011 to -8 per cent in 2014, suggesting poor efficiency in use of capital
Members of a non-profit exercise important governance functions, which are explored in “Bridging the trust gap”. These include residual financial oversight. Mostly, it’s pretty formulaic. Occasionally, things kick off, like when British Gas shareholders brought a live pig to its Annual General Meeting in a protest against executive pay.
Importantly, membership rights provide the script for company meetings, forcing directors to explain the company’s financial performance to people who have the power to fire them. All this is a valuable check on executive power. A company that’s unable to balance its books, as Mr Micawber knew, is heading for misery. ICANN’s failure to take evasive action, and double digit percentage rises, are warning flags which indicate fragile governance controls. If ICANN is to be ready to cut its umbilical cord with the US Government, it needs to do better.