Minutes | Board Finance Committee (BFC) Meeting 12 March 2015

12-13 March 2015

BFC Attendees: Cherine Chalaby (Chair) (12&13 March), Chris Disspain (13 March), Asha Hemrajani (12 March), Gonzalo Navarro (12&13 March) and Bruno Lanvin (12&13 March)

Other Board Member Attendees: Fadi Chehadé (12&13 March) and Ram Mohan (12&13 March)

ICANN Executive and Staff Member Attendees: Susanna Bennett (Chief Operating Officer) (12&13 March), Megan Bishop (Board Support Coordinator) (12&13 March), Xavier Calvez (Chief Financial Officer) (12&13 March), Carole Cornell (Sr. Director Business Intelligence & Program Management) (12 March), Vinciane Koenigsfeld (Board Support Content Manager) (12 March), Taryn Presley (Sr. Manager, FP&A) (13 March), and Amy Stathos (Deputy General Counsel) (12&13 March)

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

1. FY16 Budget Process Update – Staff provided an update on the status of the FY16 budget process. Staff began with a discussion of the timing of the various stages of the revised budgeting process, including communications, discussions with the community, development of the draft budget, public comment process, responding to public comment, and developing the final version of budget for Board approval. The BFC discussed whether any particular aspects of the budget, when posted, will be of particular interest to the community and, potentially, the subject of questions or comments, including the allocation to the U.S. Government transition project and revenue assumptions. Staff indicated that the draft FY16 budget is on track and expected to be published for public comment next week.

   Staff then provided an overview of the types of revenue ICANN receives, and the major assumptions regarding revenue that the FY16 budget includes. The discussion reviewed the estimates for each of the various types of revenues: (a) Registrar fees (application fees, accreditation fees and variable fees); (b) Registry fees (including transaction fees from legacy generic top-level domains (gTLDs), and the fixed and transaction fees from new gTLDs); (c) New gTLD Program application fees (in terms of the level of revenue recognition) throughout FY16; and (d) contributions from various other parties, such as Regional Internet Registries, country code TLDs (ccTLDs), and meeting sponsorships. Further, the BFC invited Ram Mohan to participate in the discussion in order to provide BFC members with direct DNS marketplace knowledge, and therefore help with the assessment of the reasonableness of the revenue assumptions. Following the staff presentation, and discussions lead by Mr. Mohan, the BFC discussed the maturation of the domain name industry in relation to more traditional business assumptions and practices.

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   Staff provided an overview of the expenses assumptions in the FY16 budget, which include baseline expenses and initiatives. Initiatives constitute the large projects that are outside of the normal scope of the organization but contribute to or define activities that are either being designed or will become activities of the organization in the future, and are funded by the Reserve Fund. Staff noted and the BFC agreed that the first principle is to have expenses in line with revenue, meaning the baseline expenses should be equal to or less than baseline revenue. The BFC also discussed the go-forward objectives to flatten out the baseline expenses growth, which is in keeping with the commitment that ICANN made to the community.

   Staff also reported that the FY16 Operating Plan is consistent with Year 1 of the Five Year Operating Plan, with just a few small differences in timing or deliverables. For example, the extension of the U.S. Government Transition project into FY16 (which was not addressed in the Five-Year plan) and the timing of the launch of the second round for the New gTLD Program. Staff then provided an overview of the expenses and variances from FY15 to FY16, as well as potential risks and opportunities regarding revenue and expenses for FY16.

   Staff then provided an overview of the next steps in the FY16 budget process, which include completing the public comment period, responding to public comment, developing the final version of the budget for Board approval, and obtaining Board approval. Staff recommended and the BFC discussed methods by which to make the community aware of the fact that ICANN takes each of the public comments into consideration and mechanisms to communicate its response to those comments. Staff also provided a summary of the structure and sections of the draft budget that will be posted for public comment. The BFC then approved the posting of the draft FY16 Operating Plan and Budget for public comment.