Recently, three members of our board – Michael Faye, Chris Hughes, and Paul Niehaus — announced plans to start a separate, fee-for-service for-profit venture called Segovia to develop technology for managing field logistics, with a focus on programs that transfer cash to the poor.
This is potentially an exciting effort to reduce poverty: developing countries spend huge sums on their social programs, but these are often plagued by leakage and high administrative costs that could be reduced with better technology. At the same time, the overlap in directors that will result raises questions about how the two organizations will relate to each other. GiveDirectly’s board — and I in particular as an independent director — spent several months consulting with legal counsel, certified accountants, and other stakeholders to understand these questions as they pertained to our fiduciary responsibilities, and wanted to share the answers we reached.
How are the organizations’ roles related? GiveDirectly’s tax-exempt purpose is to reduce poverty by providing financial assistance to the extreme poor. Segovia’s current focus, on the other hand, is to create technology that enables institutional customers — including governments, multilaterals, and NGOs — to manage field logistics. Segovia will provide this technology to GiveDirectly freely for philanthropic work, while charging other customers. One analogy might be to a firm that uses spreadsheets to manage its operations (GiveDirectly) and another that creates spreadsheet software (Segovia).
How will the roles of current GiveDirectly staff change? Overall there will be little change: Faye and Hughes will continue to serve on GiveDirectly’s board as currently, and Niehaus will continue to serve as president of GiveDirectly while also joining Segovia’s board. One employee will split time between the organizations, providing administrative support to both boards. One GiveDirectly employee will serve as designated liaison in order to describe what GiveDirectly needs from the technology Segovia will donate.
Is Segovia acquiring anything of value from GiveDirectly, and if so, what compensation is required? We retained Morrison, Brown, Argiz & Farra as auditors to assess this question. Their review found that Segovia should compensate GiveDirectly for the fair market costs of recruiting the one employee mentioned above who will split time. No other assets (code, contact lists, etc.) are being transferred. Segovia’s founders are also making GiveDirectly a minority owner of the firm to ensure that it participates in any financial upside subsequently created.
How will potential conflicts of interest between the organizations be managed? While we generally expect GiveDirectly to benefit tremendously from the creation of Segovia, we recognize that conflicts of interest between the two organizations may potentially arise at times. In such cases, the directors with dual roles (Faye, Hughes, and Niehaus) are required to recuse themselves from GiveDirectly board votes. In addition, we will shortly announce an expansion of GiveDirectly’s board which will increase the number of independent directors participating in such votes. Finally, on the recommendation of counsel, GiveDirectly’s board drafted and approved a Memorandum of Understanding codifying the relative roles of the organizations as described above as principals by which potential conflicts should be governed.
Culturally, we have always sought to break with mainstream practices while at the same communicating clearly about what we are doing and why. Our goal is that this development will be no different. If you have questions about anything related to GiveDirectly and Segovia, please don’t hesitate to contact us.