Executive summary
This paper presents the concept of a Nominet Foundation and seeks stakeholder feedback. It introduces the history and context of our financial situation, explains our set-up and the fact that we are unable to distribute the excess funds we generate and lays out the vision of a Nominet Foundation.
The Board is proposing the establishment of a Nominet foundation for the purpose of public benefit to UK Internet stakeholders through education, research and the funding of suitable projects. It recommends that we create the Nominet Foundation as a charity and company limited by guarantee, with a first year donation of £5m.
Introduction
Over eleven years ago, as part of the discussions about what type of organisation would succeed the Naming Committee, John Carey (who later became our first Director of IT) circulated a draft business plan. He proposed a not-for-profit management company take over the role of the Committee and that as part of its main objectives:
"the company will establish a charitable [trust] which it will pay any annual surplus not required for the prudent ongoing manageme[nt of the] operation. The trust will, in turn utilize its income for research for the [?] industry, and/or provide that industry with other educational benefits". *
*
We only have a printed copy of this email, which has truncated the right hand side of the text.
However, this text was dropped from later drafts as it was thought unlikely that Nominet would ever make any surpluses, particularly as it was envisaged that our charges would only just match operating costs. At that time, registration prices were also being set at £100 and it was thought that, if anything, these should be lower.
Nominet has been profitable almost since its earliest years and these profits have been used to fund the development of the business and to accumulate reserves. In 1999 we developed a set of financial principles, known as the Bligh principles, one of which was 'the company will build up reserves sufficient to cover two years of running down costs (in the event that the need for new .uk registrations should cease), unexpected legal costs and unforeseen budget variances'. The level of reserves needed has been met since 2003 and we have continued to add those funds with each subsequent year. The level of reserves has been an issue and what we should do with these funds has become a topic of debate within the membership.
Context
Strategic context
- The growing levels of our reserves, with no apparent purpose, are likely to result in external pressures.
- The recent change to our scope has the potential to increase our profitability in the longer term.
- Our not-for-profit status does not allow us to distribute funds to members and this is expressly prevented by clauses in our constitution which can never be changed.
- We remain not-for-profit in a competitive world of for profit companies.
Financial context
- We calculate that it would be prudent to hold £15m in reserves which is sufficient to cover two years of running down costs.
- Current reserves exceed £20m, so we would be able to donate £5m to the Foundation in its first year.
- We currently generate sufficient ongoing funds to operate, maintain and develop our support infrastructure and systems. Funding the ongoing operations and development of Nominet would remain our first priority.
- Profit before tax totals are rising: £1.4m 2004/5, £3.5m 2005/6, 2006/7 £4.9m (estimated). The sum allocated to the Foundation each year would need to be decided annually by the Board and would vary depending on the financial performance of the business.
The situation with regards pricing
- Registration and renewal prices have not changed since 1999.
- Any price changes would currently require a 75% majority on a membership vote.
- Whilst some registrars would like a price reduction or profit distribution, others would not support this. There are also some members who would like a price increase.
- Changing the price may not resolve this issue longer term.
Feedback from stakeholders
Whilst considering the issue of the size of the reserves, we have actively sought member and wider stakeholder feedback, at member lunches, meetings and at other events. There has been general consensus that this issue is growing, needs to be resolved and that the concept of a foundation is a good one that fits with Nominet's mission.
Vision
In response to the context outlined above and the positive comments from our membership and other stakeholders, the Board is proposing to establish a Nominet Foundation for the primary benefit of the UK Internet.
We have looked at
foundations operated by a number of 'for profit' and 'not-for- profit' organisations and in particular how they use the money for the benefit of the wider stakeholder community within their specific sector.
Therefore we aim to use our profits for a purpose for the benefit of the UK Internet community with an emphasis on education, research and development projects.
We are planning to set up the Foundation on the following basis:
Purpose and potential beneficiaries of the Foundation
Purpose
The primary aim of the Nominet Foundation is to be of public benefit to UK Internet stakeholders through education, research and the funding of suitable projects for their benefit. The Foundation may also benefit international Internet stakeholders, but this is secondary to the primary aim.
Potential primary beneficiaries - some suggestions
- Organisations who promote and support online safety for children
- Community projects designed to increase access to the Internet
- Organisations who promote and support user training and education
- Academic research into security for the UK Internet
- Other relevant academic research
Further benefits of a Nominet Foundation
- It would provide a clear purpose for the ongoing growth and development of Nominet.
- It would provide a clearer driver for ongoing cost/efficiency initiatives.
- It would increase motivation and job satisfaction for staff.
- It would improve the reputation of both Nominet and the UK Internet industry.
Governance of the Foundation
The Foundation will be governed by a board of Trustees - people with appropriate skills and experience. For example, this may be experience of being a charitable Trustee or direct experience of the UK Internet industry. Our current thinking is at least one Trustee should also be a Nominet Board member and at least one should be a Nominet staff member, and the other Trustees should be appointed by an open and competitive appointment process.
Feedback
We are seeking member and stakeholder comments up to 17 December on the proposed Foundation and to develop a list of possible beneficiaries.
Please give us your feedback by completing our
online survey or by emailing
foundation@nominet.org.uk.
All responses will be published below (unless you have asked us not to do so). However, we reserve the right to remove any materials that in our reasonable opinion are defamatory, offensive or unintelligible.
Questions
Question 1:
What do you think about the proposal for a Nominet Foundation?
Question 2:
What are your views on the types of potential beneficiaries and are there any you would like added to this list?
Question 3:
What projects or organisations are you aware of that could benefit from a grant from the Nominet Foundation?
Question 4:
What other comments do you have?
Responses