we are convinced this push towards decentralization will make the EA ecosystem more resilient and better enable our projects to pursue their own goals.
I’m surprised. Why? What was wrong with the EV sponsorship system?
(I’ve seen Elizabeth’s and Ozzie’s posts on this topic and didn’t think the downsides of sponsorship were decisive. Curious which downsides were decisive for you.)
[Edit: someone offline told me probably shared legal liability is pretty costly.]
There’s no inherent contradiction between the current sponsorship program isn’t a good fit for this sponsor and these sponsored orgs and fiscal sponsorship is often a good thing.
There are a number of specific reasons I could see that this wasn’t a good fit:
EV’s reputation took damage due to the FTX scandal, particularly with the Charity Commission
We don’t know what action the CC will take, but—either by CC mandate or “voluntary” action—EV’s board will likely have to be significantly more involved in monitoring sponsored orgs than another sponsor would be, given that the CC appears to be concerned about lack of control issues
There’s no reason for sponsored orgs to be linked to a corporation that is seen as the flagship corporation of effective altruism. Under that structure, bad stuff that happens at a sponsored org can disproportionately affect EA as a whole (and bad stuff that happens with EA senior leadership can have a disproportionate negative effect on sponsored orgs).
EA Funds and GWWC may be relatively legal-risk-intolerant in that they regrant large amounts of donor monies
CEA is relatively legal-risk-creating, especially the Community Health / Special Projects team
Certain sponsored orgs may create reputational risk for other sponsored orgs (e.g., GWWC seems relatively sensitive to reputational risk given its purpose and target audience)
In my view, fiscal sponsorship is a good thing for the right sponsored orgs. But that function should be placed in a corporation whose primary role is to be a fiscal sponsor. Its board should consist mainly of people who have the time and talents to guide sponsored orgs, not some of the most prominent people in EA. Their role would be more to make the trains run on time than trying to lead the effective altruism movement.
I think centralization can have a lot of benefits, but the situation with EV in particular seemed to have substantial downsides. (I’m not sure how much of this was historic aspects of EV vs. being a charity in the UK, which, from what I understand, has some unique hurdles).
Also, it’s not entirely clear to me that each of the spun-off orgs need to have the whole cumbersome dual US/UK structure. There are simpler ways for a UK non-profit to be able to access tax-advantaged donations from the US (e.g., a so-called “Friends Of” organization). And as you imply, UK charitable regulation is more onerous, so it’s not clear that an organization whose funding and operations were primarily in the US would find having a legal existence in the UK sufficiently worthwhile.
I think you’re underrating run-of-the-mill operational/bureaucratic reasons why a project might want to be its own org rather than part of a larger org
My take is basically that (a) the projects have been run so independently that there was minimal benefit from being within the same legal entity, (b) organizations with very different legal risk profiles sharing a legal entity requires either excessive caution from some or excessive risk to others, and (c) board oversight is important for nonprofits and overseeing so many independent projects with their own CEOs didn’t make sense for part-time volunteer board members.
I’m curious to what extent these issues are linked to worries about the brand’s reputation, specifically the negative connotations currently associated with the EA brand.
Alphabet was created because investors got tired of Google’s founders keeping control, and a series of bad financial results gave investors enough power to force the founders to partially cede control.
I think it’s clear that investors would prefer that alphabet further split up into separate companies, e.g. see this Harvard business review article about the founding of Alphabet:
Investors will inevitably push for more. The market’s response has so far been positive, with the stock price up 6%. And I suspect it will also have a longer-term performance impact, as greater transparency of both its cash flows and investments prompts greater discipline and accountability. But I doubt this move will fully pacify the uneasy investor. While this new organizational form increases transparency, that transparency only further illuminates the disconnect between Alphabet’s various businesses. It simply highlights the question of why the various businesses are bundled together. Investors are still buying the whole collection of projects, only now they’ll be able to see clearly just how much search advertising is subsidizing the rest.
This is a very good point, when huge companies get split the stock usually rises.
When Alibaba was forced to split into six separate groups the stock went up 10%. Please someone correct me if I’m wrong, but if I remember correctly when Standard Oil split into 43 companies the combined stocks also appreciated a lot.
Quick flag that this is mixed evidence for “EA organizations should be very small”.
First, this focuses on gigantic organizations. Alphabet has around 190k employees now, ~60k in 2015 when it “split”. https://www.macrotrends.net/stocks/charts/GOOG/alphabet/number-of-employees. I believe we have more information about mergers and acquisitions than we do companies splitting up, and there I think things seem more favorable. (My impression is that companies often do more M&A than investors would want, but there are definitely some cases where it’s a good fit for both executives and investors.)
Second, I believe one big reason why the stock market prefers large companies be split up is because that way they could invest less in the parts that funders don’t like. In the case of Alphabet, I believe the executives were spending a lot of money on non-search products that investors would have rather been shut down. I’m not sure how much this applies to the nonprofit case, at least in worlds where funders have a lot of control.
I haven’t looked at Alphabet specifically, but generally similar corps are holding companies. They are the sole shareholder in their subsidiaries, which are legally distinct corporations in their own right. Basically, as long as proper formalities are observed and the subsidiaries aren’t alter egos of the holding company, shareholders enjoy protection from corporate liabilities.
That model probably wouldn’t work for an org like EV—making all the orgs sufficiently independent to not be alter egos of EV would largely defeat the whole point of centralization in the first place.
I’m not entirely convinced it doesn’t! But I think the biggest difference there is that the other companies under the alphabet umbrella benefit a lot from their connection with Google for (a) money, which works very differently from a non-profit, and (b) technology, where being able to use internal tech helps a lot in a way I don’t see analogs for within EV.
I’m curious to what extent these issues are linked to worries about the brand’s reputation, specifically the negative connotations currently associated with the EA brand.
I doubt that’s much of it: at least the largest orgs spinning off (CEA, 80k, GWWC) are explicitly EA branded.
I’m surprised. Why? What was wrong with the EV sponsorship system?
(I’ve seen Elizabeth’s and Ozzie’s posts on this topic and didn’t think the downsides of sponsorship were decisive. Curious which downsides were decisive for you.)
[Edit: someone offline told me probably shared legal liability is pretty costly.]
There’s no inherent contradiction between the current sponsorship program isn’t a good fit for this sponsor and these sponsored orgs and fiscal sponsorship is often a good thing.
There are a number of specific reasons I could see that this wasn’t a good fit:
EV’s reputation took damage due to the FTX scandal, particularly with the Charity Commission
We don’t know what action the CC will take, but—either by CC mandate or “voluntary” action—EV’s board will likely have to be significantly more involved in monitoring sponsored orgs than another sponsor would be, given that the CC appears to be concerned about lack of control issues
There’s no reason for sponsored orgs to be linked to a corporation that is seen as the flagship corporation of effective altruism. Under that structure, bad stuff that happens at a sponsored org can disproportionately affect EA as a whole (and bad stuff that happens with EA senior leadership can have a disproportionate negative effect on sponsored orgs).
EA Funds and GWWC may be relatively legal-risk-intolerant in that they regrant large amounts of donor monies
CEA is relatively legal-risk-creating, especially the Community Health / Special Projects team
Certain sponsored orgs may create reputational risk for other sponsored orgs (e.g., GWWC seems relatively sensitive to reputational risk given its purpose and target audience)
In my view, fiscal sponsorship is a good thing for the right sponsored orgs. But that function should be placed in a corporation whose primary role is to be a fiscal sponsor. Its board should consist mainly of people who have the time and talents to guide sponsored orgs, not some of the most prominent people in EA. Their role would be more to make the trains run on time than trying to lead the effective altruism movement.
This take makes a lot of sense to me.
I think centralization can have a lot of benefits, but the situation with EV in particular seemed to have substantial downsides. (I’m not sure how much of this was historic aspects of EV vs. being a charity in the UK, which, from what I understand, has some unique hurdles).
Also, it’s not entirely clear to me that each of the spun-off orgs need to have the whole cumbersome dual US/UK structure. There are simpler ways for a UK non-profit to be able to access tax-advantaged donations from the US (e.g., a so-called “Friends Of” organization). And as you imply, UK charitable regulation is more onerous, so it’s not clear that an organization whose funding and operations were primarily in the US would find having a legal existence in the UK sufficiently worthwhile.
I think you’re underrating run-of-the-mill operational/bureaucratic reasons why a project might want to be its own org rather than part of a larger org
My take is basically that (a) the projects have been run so independently that there was minimal benefit from being within the same legal entity, (b) organizations with very different legal risk profiles sharing a legal entity requires either excessive caution from some or excessive risk to others, and (c) board oversight is important for nonprofits and overseeing so many independent projects with their own CEOs didn’t make sense for part-time volunteer board members.
(Also seconding Elizabeth’s post.)
Why wouldn’t the same apply to Alphabet?
I’m curious to what extent these issues are linked to worries about the brand’s reputation, specifically the negative connotations currently associated with the EA brand.
Alphabet was created because investors got tired of Google’s founders keeping control, and a series of bad financial results gave investors enough power to force the founders to partially cede control.
I think it’s clear that investors would prefer that alphabet further split up into separate companies, e.g. see this Harvard business review article about the founding of Alphabet:
This is a very good point, when huge companies get split the stock usually rises.
When Alibaba was forced to split into six separate groups the stock went up 10%. Please someone correct me if I’m wrong, but if I remember correctly when Standard Oil split into 43 companies the combined stocks also appreciated a lot.
Quick flag that this is mixed evidence for “EA organizations should be very small”.
First, this focuses on gigantic organizations. Alphabet has around 190k employees now, ~60k in 2015 when it “split”. https://www.macrotrends.net/stocks/charts/GOOG/alphabet/number-of-employees. I believe we have more information about mergers and acquisitions than we do companies splitting up, and there I think things seem more favorable. (My impression is that companies often do more M&A than investors would want, but there are definitely some cases where it’s a good fit for both executives and investors.)
Second, I believe one big reason why the stock market prefers large companies be split up is because that way they could invest less in the parts that funders don’t like. In the case of Alphabet, I believe the executives were spending a lot of money on non-search products that investors would have rather been shut down. I’m not sure how much this applies to the nonprofit case, at least in worlds where funders have a lot of control.
I agree, if anything data in the for-profit world probably updates me against very-small-sized companies being optimal.
That argument just doesn’t go all the way to trillion dollar behemoths like I thought.
In the non-profit world, GiveWell’s top charities seem to have very different team sizes, so maybe we just can’t say much with generality.
I haven’t looked at Alphabet specifically, but generally similar corps are holding companies. They are the sole shareholder in their subsidiaries, which are legally distinct corporations in their own right. Basically, as long as proper formalities are observed and the subsidiaries aren’t alter egos of the holding company, shareholders enjoy protection from corporate liabilities.
That model probably wouldn’t work for an org like EV—making all the orgs sufficiently independent to not be alter egos of EV would largely defeat the whole point of centralization in the first place.
I’m not entirely convinced it doesn’t! But I think the biggest difference there is that the other companies under the alphabet umbrella benefit a lot from their connection with Google for (a) money, which works very differently from a non-profit, and (b) technology, where being able to use internal tech helps a lot in a way I don’t see analogs for within EV.
I doubt that’s much of it: at least the largest orgs spinning off (CEA, 80k, GWWC) are explicitly EA branded.
Why would for-profit and non-profit be the same?