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<p class="MsoNormal">Dear Work Track members,<o:p></o:p></p>
<p class="MsoNormal"> <o:p></o:p></p>
<p class="MsoNormal">Please see below the action items and notes from the meeting today. <i>These high-level notes are designed to help WG members navigate through the content of the call and are not a substitute for the recording or transcript.</i> See the
chat transcript and recording at: <a href="https://community.icann.org/x/ERohB">https://community.icann.org/x/ERohB</a>.<o:p></o:p></p>
<p class="MsoNormal"> <o:p></o:p></p>
<p class="MsoNormal">Slides are attached for reference.<o:p></o:p></p>
<p class="MsoNormal"><b> </b><o:p></o:p></p>
<p class="MsoNormal">Kind regards,<o:p></o:p></p>
<p class="MsoNormal">Emily<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">----------------------------------------------------------------------------------------<o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">Notes: </span><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">2. SOIs</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- No updates</span><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">3. Financial Evaluation</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Program Review feedback:</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- "Consider whether an alternative approach to the Financial Capability evaluation would be worthwhile." -- CC2 comments are in agreement with this feedback</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- "Review Financial Capability CQs and responses to determine whether improvements to the application questions can be made."</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- From the slides -- if the approach to financial evaluation changes, 2012 questions won't be of much use</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Feedback from ICANN org:</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Financial evaluation from 2012 -</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Criteria didn't recognize different business models, one set of questions for all </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- No differences in criteria for TLDs that were cost centers vs. revenue generating TLDs</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Something for the WT to consider - what is the purpose of financial evaluations?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Set of criteria to see if the applicant understood what evaluators would check financially based on the technical approach proposed. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Significant number of CQs in the 2012 round that followed up on financial questions</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- Did the applicants really understand the financial questions?</span><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat:</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Steve Chan: </span></b><span style="font-family:"Arial",sans-serif;color:black">If anyone is interested in reviewing the Program Implementation Review Report, Financial Capability Evaluation section, there is an extract here on the Wiki: </span><span style="font-family:"Arial",sans-serif;color:blue"><a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__community.icann.org_download_attachments_58735969_PIRR-5F2.7-2520Financial-2520Capability-2520Evaluation.pdf-3Fversion-3D1-26modificationDate-3D1484003566000-26api-3Dv2&d=DwMFaQ&c=FmY1u3PJp6wrcrwll3mSVzgfkbPSS6sJms7xcl4I5cM&r=mBQzlSaM6eYCHFBU-v48zs-QSrjHB0aWmHuE4X4drzI&m=2FxE833aRhjeZjkh4FAxP2Ufj5A2Y3M7S8s3st9cvn8&s=wo7ESsntXxPGNmEFcrgEvcWS-Q1wR37vK4FtPOL2bik&e=" target="_blank">https://community.icann.org/download/attachments/58735969/PIRR_2.7%20Financial%20Capability%20Evaluation.pdf?version=1&modificationDate=1484003566000&api=v2[community.icann.org]</a></span><o:p></o:p></p>
<p>- <span style="font-family:"Arial",sans-serif;color:black">Threats being addressed: insolvent registry, lack of market performance, parent company extinction or business fine closure, unwillingness to provide financial stantements to contract due diligence, applying for more TLDs than a company can handle</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- In what other ways can we address those threats: current financials, stock exchange listed companies (but some companies are not profitable, what about startups?)</span></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Another group of applicants that struggled with meeting financial criteria: large orgs that are not publicly traded. They were not comfortable providing financial statements. ICANN had to have a lot of discussions to help them understand the requirements. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- All applications passed financial evaluation, but 25 failed the initial evaluation: 2 failed multiple financial and technical questions, 18 failed question 45 (financial statements), 2 open TLDs and 1 brand TLD failed question 50 (contingency planning), 1 geoTLD failed question 48 (funding and revenue).</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat: </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Jeff Neuman: </span></b><span style="font-family:"Arial",sans-serif;color:black">what is it about the financial statements that caused failures?</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Jeff Neuman: </span></b><span style="font-family:"Arial",sans-serif;color:black">Is it just related to proposed business cases?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- There are a number of those 25 applicants that failed due to question 45, and eventually decided they did not want to share confidential information in evaluation and felt more comfortable going to extended eval (primarily large companies that are not publicly traded)</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Some didn't provide financial statements for the correct period. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Some did not take into acount methodology for evaluating applications, but this is a small number</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- What did ICANN actually do with those financial statements? Was it a box checking exercise, or did they evaluate the financial health of the applicant?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Q45 criteria - asked for audited financial statement, if no financial history, gave options for other info to provide. Evaluators checked that the criteria for question 45 were met (provision of cash flow, balance sheet, etc for the correct period).</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- What if the company provided the requested information, they follow correct accounting practices, but it showed poor financial health. Would this be evaluated?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- If there is a concern that was flagged by the auditor, this would trigger a clarifying question.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Audited financials do reflect if the company could take on the additional business. There was not evaluation to see if the company was stable enough to handle a new gTLD. Is that accurate? Yes. There was not financial due diligence. Financial evaluation does not evaluate business models. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat: </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Phil Buckingham: </span></b><span style="font-family:"Arial",sans-serif;color:black">jeff - there was no due diligence . It was ticking boxes according to a " balancing templated model " The template didnt balance . It was standardised for ALL applicants </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Phil Buckingham: </span></b><span style="font-family:"Arial",sans-serif;color:black">how did they ( evaluators ) deteremine when the application ( rather than the applicant ) was a (not) a going concern </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- There was no evaluation of projections in Q46, and whether those align with the business model.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Funding and cost questions looked at projections template to see if there was adequate projected funding to align with proposed technical infrastructure provided. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Question 46 - What guide did evaluators use to evaluate whether applicant can cover costs? Is it just based on the information the applicant provides?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- In the technical section of the application, the applicant provided information about the infrastructure they planned to use. Evaluation checked that there is alignment betweeen financial calculations and infrastructure proposed. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Evaluators were taking the projections on registrations the applicant expected to generate and made sure that it aligned with other information provided in the application on costs and funding. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Straw person proposal: "No need to do any financial evaluation as part of the application process. ICANN Org would be allowed to evaluate any financial information deemed appropriate as required by usual corporate governance before contract signing (like OFAC regulations and credit reports). Applicants will be provided in AGB a non-exhausive list of likely documents to be required as part of the contracting process, if they succeed in their applications." </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat: </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Jeff Neuman: </span></b><span style="font-family:"Arial",sans-serif;color:black">So we have to go back to the original 2007 policy which states: Applicants must be able to demonstrate their financial and organisational operational capability.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- The straw person would be a change to the 2007 policy.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- By not evaluating financials, we don't deliver on a mentioned goal of potentially blocking speculation through financial analysis, but was it possible to implement this in the first place?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- But we do streamline the process and provide fairness among applications.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- There is a precedent for self-assessment in other industries.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Could this decision suggest an application fee floor or applicant support design when WT1 and WT4 proposals are combined?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat:</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Cheryl Langdon-Orr (CLO): </span></b><span style="font-family:"Arial",sans-serif;color:black">In applicant support situations , support may even be required to present in appropriate language and form , business planning and financials etc. </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Phil Buckingham: </span></b><span style="font-family:"Arial",sans-serif;color:black">so if there is no financial evaluation then the overall mission statement ( q18) needs to be points scored in terms of financial , technical , operationally capability . This would need to be points scored on an annual basis to check if there are any material changes .</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Eliminating financial evaluation may not be accepted by some members of the community. Are there alternatives that we could propose? Ususally there are ways to ensure that the group you are doing business with is financially stable –such
as credit reports, financial/credit evaluation firms, and other measures. To what extent are these tools the same/different in different countries. The idea of eliminating financial evaluation completely is difficult to swallow. Getting rid of the 2007 policy completely will likely not be acceptable to many.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat:</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Trang Nguyen: </span></b><span style="font-family:"Arial",sans-serif;color:black">or obtaining a certified statement from an auditor...</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Cheryl Langdon-Orr (CLO): </span></b><span style="font-family:"Arial",sans-serif;color:black">there is a risk of being too US or EU centric on all this though Jeff</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Cheryl Langdon-Orr (CLO): </span></b><span style="font-family:"Arial",sans-serif;color:black">we always base things on our own experience set of course</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- Straw person does not prevent ICANN from asking for information, such as credit checks, but this would not be part of the application and evaluation process. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat: </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Phil Buckingham: </span></b><span style="font-family:"Arial",sans-serif;color:black">any certified statement would need to in complaince with US GAAP , since ICANN is a US corporation . This could prove to be very problematic to (say) an African NGO applicant </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Jeff Neuman: </span></b><span style="font-family:"Arial",sans-serif;color:black">But what is the remification of not passing any of these checks?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-Ramification would be not getting a contract. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat:</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Jeff Neuman: </span></b><span style="font-family:"Arial",sans-serif;color:black">Of course "passing the checks" has to be defined</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Jeff Neuman: </span></b><span style="font-family:"Arial",sans-serif;color:black">So you can be awarded the TLD, but not sign a contract?</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- We need to look at something allows appropriate flexibility and meaningful results while supporting stability. </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- ICANN regional hubs may be able to provide information about local norms. It would be good to allow greater flexibility in terms of the information provided to accomodate different norms.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">- If ICANN is going to look at credit reports, they should state it up front in the AGB along with the standard it is going to apply to make its determination. Not convinced that ICANN shouldn't ask for this info in the evaluation process if this is going to be part of the process, even if it is just a box-checking exercise.</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">From the chat:</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Rubens Kuhl: </span></b><span style="font-family:"Arial",sans-serif;color:black">Credit scores are very jurisdiction-dependent... </span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Cheryl Langdon-Orr (CLO): </span></b><span style="font-family:"Arial",sans-serif;color:black">"credit score of [....] or ratifyable alternate" perhaps Jeff</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Jeff Neuman: </span></b><span style="font-family:"Arial",sans-serif;color:black">But personally agree that the existing questions and answers did not really assess what it was meant to assess</span><o:p></o:p></p>
<p><b><span style="font-family:"Arial",sans-serif;color:black">Phil Buckingham: </span></b><span style="font-family:"Arial",sans-serif;color:black">+1 Rubens it might work in 1 st world countries . I cant see how this would work in 3 rd world ( potentially more riskier / corrupt ) countries </span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">5. AOB</span><o:p></o:p></p>
<p><span style="font-family:"Arial",sans-serif;color:black">-- None</span><o:p></o:p></p>
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