Board Finance Committee (BFC) Minutes 15 September 2011

BFC Attendees: Sébastien Bachollet, Cherine Chalaby (Chair), Rajasekhar Ramaraj, and George Sadowsky.

Other Board Attendees: the following Board members were present in the room for all or part of the meeting – Rod Beckstrom, Steve Crocker, Chris Disspain, Bill Graham, Bertrand de La Chapelle, Erika Mann, Thomas Narten, Mike Silber, Bruce Tonkin, and Kuo-Wei Wu.

Invited Attendees: Judith Vasquez, and Linda Ruiz-Zaiko.

Staff Members Present: Steve Antonoff, Akram Atallah, Xavier Calvez, Daniel Halloran, John Jeffrey, Juan Ojeda, Kurt Pritz, and Diane Schroeder.

The following is a summary of discussions, actions taken and actions identified:

  1. BFC Schedule for 2011-2012. The Chair reviewed a proposed work schedule for the BFC, including timing of work on the Strategic Plan and the Budget. A draft of the Strategic Plan will be posted in September 2011, and work will begin on the budget in preparation for posting a framework in January 2012.

  2. BFC Budget/Scope of Work. The Chair discussed the proposed scope of the BFC's role in developing the budget: the BFC should ensure that the approved process for developing the budget was followed correctly; the BFC should look at the big-ticket items, big variations from previous year, and other issues, including risks. BFC should be able to recommend to the Board that it has reviewed the budget and recommends adoption. Discussed the need for reporting to the community and building in opportunities for community input. Discussed goal to move to quarterly financial reporting.

  3. Minutes. The BFC approved the minutes of the prior meeting. The BFC discussed the need to review the action items from the previous meeting.

  4. Investment Policy. ICANN retained an expert consultant to review and make recommendations for improving the investment policy. Linda Ruiz-Zaiko of Bridgebay Financial, Inc. presented the results of her firm's review of ICANN's investment policy: the policy is comprehensive and well-articulated; good risk control; identifies investment objectives and risk tolerances for operating fund (principal preservation) and reserve fund (conservative, enhanced returns); policy and asset allocation targets are consistent with conservative objectives; reviewed and recommend no changes to objectives, allowable assets, risk controls, monitoring and reporting; recommend changes to reporting from the investment management company in the event of material changes to the management company's financial strength, asset levels, SEC investigations involving the investment management company, or any material litigation involving the investment management company. Recommend adding investment horizons; short-term horizon and principal preservation for operating fund, and medium-term for the reserve. Recommend deletion of hypothetical investment mix since it might imply a specific asset mix. Recommend use of safest, registered, most conservative money fund, regulated by either SEC 2a-7 or international equivalents. All investments must have market values per FAS 157 that are readily determinable. Discussed management of the operating fund and the need for liquidity and principal preservation. Discussed the goals for the two funds, 3 months' expenses for the operating fund, and 12 months for the reserve fund. The new gTLD program should result in contributions to the reserve fund to cover the funds that would have gone into reserve if not for expenditures on the development of the new gTLD fund. The BFC agreed to adopt the recommendations of the advisor and to post a revised investment policy.

    • Action: Staff to post the revised Investment Policy including suggestions supplied by the outside expert.

  5. Reserve Fund Cap. The BFC discussed the possibility of putting a cap on the amount in the reserve fund. It was noted that a three-year view of the cash flow forecast would be needed to make any determinations about a capping system. The Chair asked staff to come back to the committee with such a three-year forecast.

    • Action: Staff to develop a three-year cash flow forecast.

  6. Investment Manager Selection. BFC recommends that the Board approve State Street Global Advisors as ICANN’s new Investment Fund Manager and authorize the transfer of funds.

  7. International Banking Relationship. ICANN currently uses Union Bank, Bank of America, and National Australia Bank. Staff recommends moving to a bank with one view for all accounts in multiple countries, including Brussels, and multiple currencies. Offered by HSBC. BFC recommends Board approval for HSBC to replace Union Bank as ICANN's banking partner and to authorize opening new accounts with HSBC in MdR, Brussels, and Sydney.

  8. MDR Office Lease. MDR lease expires 30 June 2012. Evaluated options for staying or moving. Received proposals to stay in existing space and to move to Playa Vista nearby in the City of Los Angeles. Received, reviewed and finalizing leases. Staff recommends BFC authorize staff to enter either lease based on best value. PV is slightly more expensive, but offers more and newer space. BFC inquired about management's preferred option. PV is a new building with no infrastructure issues, new and more space, all on one floor. PV is a direct lease, not a sublease, so is more flexible. Discussed the possibility of purchasing instead of leasing space, and the issue of internationalization of ICANN. BFC recommends that the Board approve a resolution authorizing the COO to execute lease for space in the MdR area on “best value” basis. (Three yes, Sébastien Bachollet abstained.)

  9. Brussels Office Lease. BFC recommends that the Board approve a resolution authorizing the COO to execute a lease for space in Brussels.

  10. New gTLD Applicant Support. Discussed JAS report, implementation issues, and financial impact of recommendations. Staff has initiated efforts to be ready for implementation if and when approved. Establishment of a fund – a short-term mechanism for earmarking funds for applicant support, and a long-term formal mechanism for several purposes. Meeting community expectations: Board had approved US $2mm, while the JAS/GAC-ALAC recommendations would be more costly. Four tasks: developing criteria based on the JAS report plus practical concerns, developing procedures, entity for considering applications, and mechanism for holding the funds. Discussed the need to stay within the mission and purpose of ICANN and the ability to set-up special funds. Reviewed a high-level summary of the content of the JAS report and the GAC/ALAC statement. Agreed to continue discussion of financial implications of JAS report.

  11. Financial System Implementation Update. Microsoft Dynamics GP system, Phase 1 (including expense reporting and other reporting), went live on 1 July 2011. Phase 2 (including cost accounting, purchasing, and cash management) is in progress. Phase 3 and 4 scheduled for October/November 2011.

    • Action: Staff to investigate what financial templates/reports can be shared in time for Dakar.

  12. Any Other Business. Discussed the possibility of BFC discussion with the community in future meetings.