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ISOC and the PIR Sale: Lessons Being Learned

The PIR/.ORG transaction is a watershed moment for ISOC. What had once seemed (at least to ISOC and its Board) to be ISOC’s chance to transform its finances now seems to many to be a threat to ISOC’s essence, and even its very existence.

From the ISOC-NY perspective, this entire affair points out the paucity of community-involved multistakeholder participation in ISOC’s critical decision-making processes (and other processes, too). Navigating the very different worlds of non-profits, ICANN and billion-dollar private equity transactions has been a huge challenge for ISOC. This has exposed cracks in ISOC’s processes and in its sense of self at every point where decisions had to be weighed and made. ISOC’s claim to be even moderately multistakeholder in governance has been found wanting.

A fair amount of the (most visible) opposition to the sale is alarmist, ill-informed and rife with self-dealing. But that doesn’t make the sale a Good Thing. It also doesn’t make all of their criticisms wrong or unfounded (even if they are overblown).

Frustratingly, this fervent opposition tends to obscure a number of the more thoughtful and analytical critics and criticisms of the sale, coming from a variety of different angles. Those who are not taking a hard line in opposing the sale are not supporters of the sale (though some of the hardliners want to say they are or convert them to their cause). This is the skeptical but undecided “middle” portion of the community, trying to think this through and avoiding rushed judgments, even if they feel a bit queasy.

The ultimate positions of these swing groups are important, maybe even more important than those of the entrenched opposition. In one version of reality, these folks would have swung toward supporting the deal, their concerns addressed, their voices counted. We are not in that version of reality. For better or worse, I think these “swing groups” are now swinging toward the opposition, or at least putting on the brakes until significant concerns can be addressed.

The demise of the summit meeting being planned for the weekend of February 22, shows how troubled this whole steaming stew has become. Speculating wildly, it sounds to me like some of the hardliners pulled out (or were never in) the meeting, because they have a plan, something up their sleeves, perhaps even a counterattack in mind. This left the more moderate but concerned contingent in the lurch. Apparently, this, in turn, caused one of the deal participants to shrink the meeting to irrelevancy, perhaps because the participants wanted to deal with the noisy hardliners, rather than the more low-profile opponents that were left on the agenda. This move further alienated those in the moderate camp.

This is a negative outcome for those who want the deal to go forward, and for all those involved in the deal regardless of the outcome.

The moderates were at least fact-checking the hardliners while still demanding facts and changes from the deal team. Potentially, at least some of this group could have been brought around to support the sale, with some significant safeguards and adjustments. Without some serious support from within this group, the deal participants, their advisors, and the few active proponents of the deal look pretty isolated.

The traditional playbook of M&A dealmakers at this point would likely be to “Get The Deal Done,” by any means necessary. The Proskauer letter is solidly within the tradition. The traditional “Get The Deal Done” playbook would focus efforts on those with the clear, formal power to stop the deal (ICANN, government regulators, AGs), convincing, mollifying, co-opting neutralizing or defeating them. Meanwhile, the noise of the rabble would be more or less ignored (and guess what? We’re all rabble). The deal participants would be limited to carefully-crafted statements and sound bites and carefully orchestrated situations. No matter how many words, ultimately they would say very little.

The traditional playbook has certainly informed the buyer’s decisions. It has seemed to inform much of PIR and ISOC’s thinking as well.

The traditional playbook has been a disaster at every turn. If the deal participants keep following this playbook, there’s still a possibility the deal will get through and close, while leaving scorched earth in every direction and a persistent stench wafting over the land. More likely every day, taking the traditional approach will continue to harden and grow the opposition to the deal and spawn more significant, powerful and effective opponents and methods of killing the deal.

The private equity veterans, investment bankers and lawyers involved in the deal have likely been very persuasive in convincing the other deal participants to “stay the course.” Sadly, these experts had little or no idea what they were getting themselves into. The world of investment banks, private investment firms, Big Law, big finance, and private equity could not be more different than the world of domain names, ICANN, non-profits, domain investors, social activists and Internet pioneers. This is a culture clash.

As someone with experience in both worlds, it’s been frustrating to watch this slow-motion train wreck. At every major inflection point, I’ve thought I should tell ISOC that “this is going to get worse before it gets better.” And I hoped for the best. At this point, the message feels like “this is going to get worse, and it may not get better.” Unfortunately, this is almost as much a product of the way the deal has been handled, as it is a product of the fundamentals of the deal.

To my mind, the only way this deal gets done in a satisfactory way (and maybe if at all) is if there is a radical restructuring of the deal, of the buyer, of the post-ISOC shape of PIR combined with an embrace of radical transparency, the adoption of genuine accountability, and a true multistakeholder stake and meaningful voice in PIR.

No matter what the outcome, ISOC will come through this facing some real challenges. It is dented and scuffed. It didn’t help that PIR and Ethos have adopted a low public profile (at least in person), leaving ISOC (and particularly Andrew Sullivan) swinging in the wind while trying to explain and defend the transaction, including parts that have nothing to do with ISOC. This has been unfair to ISOC (and particularly Andrew Sullivan).

Though worse for wear, ISOC is still structurally sound. It is not a given that ISOC will remain so as things move forward. How ISOC handles matters, how it defines itself, how it makes decisions and how it communicates from this moment on (both during and after the denouement of this entire affair), will speak volumes about its long-term identity and even viability. ISOC needs to figure this moment out, and who it wants to be.

I, for one, want ISOC to come through this better and stronger than before, more multistakeholder, more meaningful and more engaged. A noisy few want quite the opposite (and quite a number of them want something for themselves). Many others opposing the sale know little about ISOC, and may not have heard of it at all just a few months ago. Most of what these people have heard is so negative (some of it true, some slanted and some “fake news”) that ISOC is merely a cartoon villain to them. This increases both the difficulty and the stakes for ISOC “getting it right” from now on.

The rest of this month (and beyond) will be a true test for all involved. Innovative, inclusive, empathic thinking will likely be rewarded. Accepting outcomes that are not any one party’s ideal solution will be required if there are going to be real winners. (Not surprisingly, this is often the successful result of the bottom-up consensus-driven multistakeholder process.) If the various participants choose to battle it out instead, it seems likely there will be no real winners—only survivors.

By Greg Shatan, Partner, Moses & Singer; President, ISOC-NY; ICANN Participant

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" a threat to ISOC's essence, and even its very existence." Joly MacFie  –  Feb 21, 2020 4:14 AM

Oh, please!

What is surprising is how many, who should know better, are ready to write off this organization which has, and continues to, shoulder the burden of husbanding the Open Internet. For it to get out of the registry business, while 1) providing itself with sustainable funding, and 2) allowing PIR to be able to focus on its own interests rather than providing that funding, is a no-brainer.

The Deal Can't Stand the Light of Day Michael Roberts  –  Feb 21, 2020 11:57 PM

Greg’s thoughtful post lays out the numerous contradictions and unanswered questions. Instead we get arm waving without facts from the principals, including the head of ISOC in these pages. The AG letters, especially that from California, where ICANN is incorporated, will lay it all out, if answered. I have a suspicion that the shadowy PE figures behind all this value their capitalist privacy more than the deal. Especially since ICANN’s lawyers have come alive and are sounding as tough as the AG.

ICANN inherited a split personality from the USG in its very early days. The original idea was that the orga nization and its Board would mediate between raw capitalism and the public trust in the management of the DNS. The tsunami of cash resulting from TLD expansion has skewed its focus to the commercial side such that an otherwise ordinary registry transfer has become a touchstone for re-examination of first principles. What are we about, after all? The chartering goals include “promote competition.” As everyone knows, ICANN has actually been handing out monopoly licenses with no price constraints on the dubious theory that many monopolies will promote lower prices and provide the benefits of competition to the Internet community. That hasn’t happened, so what to do?  As my environmentalist wife likes to say, “concerned citizens want to know!”

Political solutions are seldom more than incremental, unless heads are rolling. So it is likely that some version of ‘status quo ante’ will emerge.  What would be more satisfying to many ISOC and ICANN friends is a demonstrated recommitment to the public trust goals on which both organizations were founded.

- Mike Roberts
ISOC Founding Trustee and Director, 1991
ICANN Founding CEO and Director, 1998

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