Update on GiveDirectly

Three members of GiveDirectly‘s board of directors (Paul Niehaus, Michael Faye, and Chris Hughes) are planning to start a for-profit technology company, Segovia, aimed at improving the efficiency of cash transfer distributions in the developing world. Segovia plans to sell software to developing-country governments for use in implementing their cash transfer programs.

This development was announced today (though we have been aware of and discussing it with GiveDirectly for some time). Some discussion is available at today’s post on the Development Channel blog.

GiveDirectly and Segovia will work out of the same office space in New York City.

Dr. Niehaus, who has been our primary contact at GiveDirectly and has unofficially played the role of GiveDirectly’s full-time Executive Director, will continue to devote significant time to GiveDirectly and serve as its President with primary responsibility for GiveDirectly. He will be co-employed by Segovia and has told us that he may spend up to 20% of his time on Segovia. Dr. Faye will become Segovia’s president. (Previously, both Dr. Niehaus and Dr. Faye have had full-time jobs outside of GiveDirectly, though they have had substantial responsibilities at GiveDirectly.)

We think this development is simultaneously a potentially very positive one broadly – bringing the possibility of greatly leveraged positive impact on the world – and one that raises new issues and risks for GiveDirectly and its donors.

We think these issues and risks (discussed further below) are noteworthy but ultimately similar in magnitude to, or smaller than, similar risks that exist for our other present and past recommended charities. We plan to continue recommending GiveDirectly as a top charity and continue to see it as an outstanding giving opportunity.

Note that we have discussed all of these issues with Dr. Niehaus and Dr. Faye – they have reviewed a draft of this post – and we believe they are aware of all of the issues we discuss below.

This post focuses on the following:

  • What costs and benefits does this decision pose for GiveDirectly right now?
  • What additional issues could arise in the future, particularly potential conflicts of interest between Segovia and GiveDirectly?
  • Why have Dr. Niehaus, Dr. Faye, and Mr. Hughes decided to serve developing country governments and why are they using a for-profit-company structure?
  • What effect will this have on our recommendation of GiveDirectly?

We have not tried to formulate a view on Segovia’s possible impact because this does not seem directly relevant to GiveWell or our donors. Based on what Dr. Niehaus and Dr. Faye have told us, we believe it’s plausible that given (a) the amount of money governments transfer to recipients and (b) the amount of money that may be lost by those programs due to negligence and/or corruption, Segovia could be very impactful and may represent some of the “upside” we hoped to see from GiveDirectly.

What costs and benefits does this decision pose for GiveDirectly right now?

We discuss several potential negative impacts Segovia could have on GiveDirectly; we also discuss potential positive impacts.

  1. What impact will Segovia have on key staff’s time allocation to GiveDirectly?
  2. Will Segovia’s existence affect the intensity with which GiveDirectly leadership work to maximize GiveDirectly’s impact?
  3. Will Segovia directly affect GiveDirectly’s ability to absorb and distribute funds to recipients?
  4. Will the general public react negatively to this announcement in a way that affects GiveDirectly’s ability to raise funds or otherwise distracts it from its core work?
  5. What benefits might Segovia have for GiveDirectly?

What impact will Segovia have on key staff’s time allocation to GiveDirectly?

Dr. Niehaus and Dr. Faye told us that they expect the following changes to staff time allocations due to Segovia:

  • Paul Niehaus, GiveDirectly’s President, had previously been splitting his time between GiveDirectly and his academic position at University of California at San Diego. Pending the university’s approval, he hopes to take a one-year leave of absence from his academic position to enable co-employment at GiveDirectly and Segovia. During this one-year leave of absence, he expects that the total amount of time he devotes to GiveDirectly will increase slightly and that he will spend a maximum of 20% of his time on Segovia.
  • Michael Faye, Segovia’s president and a member of GiveDirectly’s Board of Directors, had previously worked at a management consulting firm but spent significant time on GiveDirectly. He has now taken a leave of absence from his job and intends to spend the vast majority of his time on Segovia while still offering time to GiveDirectly. He expects the time he spends on GiveDirectly to increase. More on this below.
  • Melissa Harpool, Outreach Coordinator, will split her time between GiveDirectly and Segovia. Her current primary role is managing schedules, and the people whose schedules she manages will now be splitting time between Segovia and GiveDirectly. She had previously been full-time at GiveDirectly.

Dr. Niehaus and Dr. Faye told us that relevant staff track their time allocation to projects and will be able to share whether or not they have hit the targets described above.

Will Segovia affect the intensity with which GiveDirectly leadership work to maximize GiveDirectly’s impact?

Dr. Niehaus told us that he retains his ambitions for and commitment to GiveDirectly’s long term impact, but splitting attention between two organizations is difficult, especially when both are growing rapidly and likely to face significant obstacles.

It is plausible that given GiveDirectly’s and Segovia’s overlapping leadership, staff and office space, those involved with both might see Segovia as the more exciting opportunity. We believe that this could lead to reduced ambition or it could reduce the quality of the mental effort GiveDirectly’s leadership dedicates to maximizing GiveDirectly’s impact.

Will Segovia directly affect GiveDirectly’s ability to absorb and distribute funds to recipients?

Assuming that GiveDirectly staff meets the time targets described above, we don’t think Segovia will have a direct impact on GiveDirectly’s ability to absorb and distribute funds to recipients.

Will GiveDirectly receive a negative response from the general public that affects its ability to raise funds or otherwise distracts it from its core work?

We continue to see GiveDirectly as an outstanding giving opportunity and plan to continue recommending it to donors. That said, we are not confident about how others will react and remain concerned about the impact that the general public’s reaction might have on GiveDirectly’s future fundraising prospects.

Dr. Niehaus and Dr. Faye told us that they have attempted to reduce the likelihood that the response is negative by speaking at length with media in advance of the announcement so that stories written about their decision present a reasonable perspective on this new development. They have also communicated with their major donors and report that they have not encountered negative reactions.

What benefits will Segovia provide for GiveDirectly?

Potential benefits include:

  • GiveDirectly will receive an equity stake in Segovia, which could result in GiveDirectly’s receiving additional funding in the future. The size of the stake is not yet determined. Dr. Niehaus, Dr. Faye, and Mr. Hughes are currently discussing the size of this stake with potential investors.
  • The technology Segovia is planning to develop would likely be helpful to GiveDirectly. Segovia would give this technology to GiveDirectly without charge.
  • As discussed above, Paul Niehaus has been based in San Diego and the rest of GiveDirectly staff is in New York. Dr. Faye has been employed full-time at a management consulting firm. Dr. Niehaus will be spending half his time in New York and hopes to take leave from his academic position, and Dr. Faye will now be working full-time out of the same office. Dr. Niehaus’s co-location with the rest of GiveDirectly staff will likely improve his ability to manage other staff. Dr. Faye’s co-location with Dr. Niehaus and other GiveDirectly staff may also increase his contribution to GiveDirectly. (Dr. Faye has told us that the time he has spent on GiveDirectly has increased since he took leave of absence from his job.)
  • Mr. Hughes intends to significantly increase his work on advocating for cash transfers. This should benefit both Segovia and GiveDirectly.

What additional issues could arise in the future, particularly potential conflicts of interests between Segovia and GiveDirectly?

There may be cases where GiveDirectly has to consider actions that would maximize its impact but might harm Segovia’s interests. GiveDirectly board members (Paul Niehaus, Michael Faye, and Chris Hughes) will hold equity stakes in Segovia, so their financial interests could come into conflict with their roles as Directors of GiveDirectly. We see the following possible conflicts of interest:

  • GiveDirectly’s board members’ financial interest in Segovia could lead them to use GiveDirectly as a means to promote Segovia. This could be via using Segovia’s software even if it’s not well suited to GiveDirecty’s needs, or otherwise using contacts/meetings that might take place due to GiveDirectly (e.g., government, academic or media contacts) to promote Segovia’s offering.
  • Segovia will also have (a) investors and (b) staff who hold significant financial stakes in Segovia, which could lead to conflicts between maximizing profit and maximizing impact.
  • If Segovia were bidding on a contract with a particular government, would GiveDirectly avoid offering its service in the same area/to the same government so that Segovia would have an easier path to a sale?

We have spent significant time with Paul Niehaus and some time with Michael Faye and Chris Hughes over the past few years, and we believe they have good intentions.

In addition, Dr. Niehaus, Dr. Faye, and Mr. Hughes hope to identify investors whose primary motivation is social impact, and believe that choosing investors wisely is a priority. They have also told us that they plan to expand GiveDirectly’s board to 6-7 directors, 3-4 of whom have no overlap with Segovia. Dr. Niehaus told us that overlapping directors would recuse themselves from votes that involve conflicts.

Why have Dr. Niehaus, Dr. Faye, and Mr. Hughes decided to serve developing country governments and why are they using a for-profit-company structure?

Dr. Niehaus and Dr. Faye believe that Segovia’s product is one that governments will want to purchase, and the product will have significant social impact. They have had a long-standing interest in working directly with governments.

Dr. Niehaus and Dr. Faye told us of their hope that GiveDirectly would work with government-run cash transfer programs in November 2013. We discuss this possibility in our review of GiveDirectly, relying on a summary of a conversation we had with them at the time.

Dr. Niehaus and Dr. Faye told us recently that they had initially hoped governments would transfer funds directly to/through GiveDirectly. The developing-country governments that GiveDirectly spoke with preferred technology to fully outsourcing implementation, saying that they already had a significant number of individuals employed to implement their cash transfer programs. Instead, governments asked for software that could improve their operations, which Segovia now aims to provide.

GiveDirectly still believes it will have opportunities to implement government programs, but Dr. Niehaus and Dr. Faye have come to the conclusion that there will be many more cases where governments want technology alone.

Dr. Niehaus and Dr. Faye pointed us to a World Economic Forum report estimating that developing-country governments distribute $400 billion in transfers each year. Dr. Niehaus and Dr. Faye have also told us that data showing rates of leakage of 50% or more are not uncommon in large public-sector transfer programs (i.e., the amount that never reaches the intended recipients). (More information about these sources in this footnote.) They believe that governments will see that purchasing Segovia’s product will save them money by allowing them to transfer more money to recipients at lower overall cost.

We find the above explanation of Segovia’s potential impact plausible but have not tried to vet it as we don’t think our take on it has direct relevance to GiveDirectly or the donors who use our research.

We have the impression that the belief that Segovia could have great social impact is the primary driver of Dr. Niehaus’s, Dr. Faye’s, and Mr. Hughes’ desire to start Segovia.

Why has GiveDirectly settled on this corporate structure as opposed to another structure?

Dr. Niehaus, Dr. Faye, and Mr. Hughes had initially expected to undertake this project as part of GiveDirectly’s existing non-profit structure but told us that they decided on the structure of a for-profit, independent company for three reasons:

  1. Recruiting. We spoke with the recruiting firm that GiveDirectly retained for this search, and the person who led the search told us that recruiting top technology talent was slow. In some cases, the engineers GiveDirectly contacted were not interested in working for a non-profit. Even when GiveDirectly offered compensation packages competitive with for-profit companies, some engineers balked when they saw the negative attention that the media and donors give to high salaries in the non-profit sector. Dr. Niehaus, Dr. Faye, and Mr. Hughes place high priority on recruiting the very best possible talent, so while they feel they could have reasonable success recruiting as a non-profit, they see the improved recruiting prospects associated with a for-profit to be a major consideration.
  2. Investment. GiveDirectly told us that there are investors who would support Segovia as a for-profit entity but would not be interested in supporting GiveDirectly, the non-profit.
  3. Legal advice. GiveDirectly received legal advice that an independent for-profit company is the most straightforward way to avoid jeopardizing GiveDirectly’s tax exempt status.

What effect will this have on our recommendation of GiveDirectly?

We do not expect the existence of Segovia to change our recommendation of GiveDirectly. We expect GiveDirectly to continue to successfully distribute cash to very poor individuals in the developing world, and believe that the issues and risks described above are smaller than, or at worst similar in importance to, those that exist with all of our other recommended charities.

We will continue to follow GiveDirectly closely and report on its progress.

We have written previously about the “upside” we saw in GiveDirectly. We think that Segovia may be one example of that “upside” — Dr. Niehaus and Dr. Faye, partly through their work on GiveDirectly, saw an opportunity for significant social impact and are now pursuing it. However, we think the attention they will now pay to Segovia likely diminishes the upside of future donations to GiveDirectly.


Footnote: On the World Economic Forum report described above, Dr. Niehaus wrote, “I have some questions about the methodology but believe the basic message that it is big and has problems.” On the leakage rates, he wrote, “India’s two largest social programs are the employment scheme (NREGS) and ration scheme (TPDS). For NREGS, the best nationally representative leakage estimate is by Imbert and Papp (published in R. Khera, editor, The battle for employment guarantee. Oxford University Press, 2011) who estimate that between 44% and 58% of participation reported in official figures is fictitious. This likely understates leakage in dollar figures since people who do work are often underpaid, but nationally representative data on earnings are not to the best of my knowledge available. For TPDS, the most recent nationally representative figures I know of are from the 2004-2005 NSS and are discussed in work by Svedberg in EPW who reports a national average estimate of 54% leakage of grains intended for the poor.”

Comments

Update on GiveDirectly — 20 Comments

  1. I consider this a disturbing development. While I agree Segovia offers a small chance of lot of upside, its existence casts a shadow on the integrity of the people involved and the research generated by GiveDirectly.
    Here’s why I’m concerned:

    1) The reasons for going with the for-profit structure seem lame. These all appear to be speed bumps, not show-stoppers, and speed bumps worth getting over in order to avoid the appearance of impropriety and the conflicts of interest. Khan Academy seems to have attracted top talent without offering equity options, and it hasn’t needed to raise venture capital from profit-seeking investors to fund its large software development effort.
    It seems to me the number one reason for launching a for-profit entity is the trio want to the option to become rich while doing good. If it were all about helping GiveDirectly, Niehaus, Faye and Hughes would donate their entire equity stakes to the organization.

    2) How can we trust research generated by GiveDirectly if it stands to gain from a certain result? Or, more disturbingly, how should we view GiveDirectly’s past results in light of its founders and board members trying to monetize its work?

    3) How can we expect workers with roles in GiveDirectly and Segovia to forsake their interests and do what’s right for the charity when it conflicts with what’s right for the company? Self-monitoring and promises are not enough. Good intentions are not enough. Humans are master rationalizers.

  2. Sam, I share some of your worries, but overall I think GiveWell is equipped to handle them.

    - Khan Academy is a much, much more prestigious product than Segovia (and made many of its key hires a while ago in a less competitive climate). Segovia may have underestimated their available talent pool somewhat,

    - Also, the investment and legal issues do not seem like just speedbumps to me. I can think of many, many for-profits that got as large as their vision for of Segovia, and zero non-profits–I would guess this is because venture capitalists have a much higher risk tolerance than philanthropists. (If Segovia outperforms expectations by 10x, the VC gets 10x as much money, but the philanthropist doesn’t get 10x as many warm fuzzies.)

    - I do think this makes GiveDirectly’s research and autonomy somewhat more suspect, but that’s what we have GiveWell for, isn’t it? If GiveDirectly is harmed by a conflict of interest with Segovia, I think we can very likely rely on the intense scrutiny of GiveWell to suss it out.

  3. This is exciting! However, I wonder if this is a good decision by GiveDirectly seeing that there is a lot of competition already – take for instance companies like Skotkonung who offer even more with their cash transfer and voucher solution which has been purchased by various governments. Their solution goes even farther by enabling mobile devices to do biometric identification, which is often important to government programs. Segovia might have to go through a long learning cycle before it can compete with some of these established systems. It’s definitely worth a try seeing that they bring efficiency and transparency to implementation – the big question is do governments want to reduce inefficiency in cash transfer programs? Do the savings outweigh the benefits that people in the government derive from corruption and program leakage? If Segovia can identify the right government allies, the impact could be significant.

  4. I am not a lawyer (and I’d be interested to hear from a knowledgeable lawyer on this), but the third reason — protecting the non-profit tax exempt (501c3) status of GiveDirectly — doesn’t make sense to me.

    Running a for-profit business from the same address with many of the same people in a business that would likely benefit from the actions of the 501c3 sounds like aggressive pushing of the legal envelope with respect to maintaining the 501c3 tax exempt status. If on the other hand, GiveDirectly ran the Segovia business they might (or might not, I don’t know) have to pay the Unrelated Business Income tax, but I don’t think that would jeopardize their 501c3 status as claimed. An alternative structure would be to run it as a social enterprise, like e.g. Newman’s Own, where there is a business (Segovia) that donates its profits to charity (in this case GiveWell).

  5. One more potential conflict of interest, not discussed above, is that Segovia shareholders may reap private benefits from intangibles (experience, contacts, visibility, and so forth) that were developed by GiveDirectly, using funds donated to GiveDirectly, with the purpose of furthering GiveDirectly’s (not Segovia’s) mission. That concern is mitigated by the fact that GiveDirectly owns a share of Segovia. It would be interesting to know what that share is, and if it adequately compensates GiveDirectly for these intangibles.

  6. Ben, good points about Khan Academy’s hires.

    I disagree about non-profits failing to achieve visions as large as that achieved by for-profits. Non-profits almost by definition try to maximize things that aren’t return on capital. This means their impacts are often hard to measure and not visibly branded. What’s the dollar impact of the most successful lobbying groups? I don’t think we can know for sure, but I’m confident it’s huge.

    There aren’t any technology non-profits that have achieved Google- or Microsoft-scale results, but then again there aren’t many technology non-profits. There are plenty of examples of non-profits achieving grand visions—research conducted by universities, aid organizations responsible for the relative efficiency of the current global aid enterprise, etc. If we expand our definition of non-profit to encompass government and social movements, then the list of non-profits that have achieved grand visions becomes even bigger.

    I do think the profit motive greatly speeds up innovation and time to market. But a lot of our best research on social and economic issues is conducted by people not motivated by profit. There are likely good reasons why this is the case. It would be a shame if one of our best efforts to learn about unconditional cash transfers becomes tainted by conflicts of interest or at least their appearance.

    I’m not sure we can rely on GiveWell or any third party to reliably detect bias, which can creep in through many routes. Raw data has to be wrangled into usable form. Models have to be specified. Researchers often can choose whether to disclose their results. There’s a lot of leeway in empirical studies to massage the results. Empirical research in the social sciences and medicine is notorious for false positives and exaggerated results. The only evidence that’s truly satisfactory is independent replication by skeptical third parties using a gold standard methodology.

    Of course, GiveDirectly admirably got around a lot these issues by pre-registering their study. Still, I’m inclined to put ever-so-slightly less weight on their previous results. I’d be surprised if their results to date were contradicted by subsequent research given the strong evidence supporting cash transfers. However, I’m inclined to be more skeptical of any future claims by GiveDirectly that show results significantly more positive than what current research shows. This is a shame.

    I think it’s interesting GiveDirectly has not publicly disclosed its relationship with Segovia. I can’t find a single mention on their website or their social media accounts. I hope this is a temporary oversight.

  7. Thanks all for the very thoughtful comments. I agree with many of the points you’ve made, though I stand behind the bottom line of the post, that “we think these issues and risks … are noteworthy but ultimately similar in magnitude to, or smaller than, similar risks that exist for our other present and past recommended charities. We plan to continue recommending GiveDirectly as a top charity and continue to see it as an outstanding giving opportunity.”

    Responses to some of the specifics below:

    Sam: I agree that the reasons for starting a for-profit company, “all appear to be speed bumps, not show-stoppers,” but I disagree that they are “speed bumps worth getting over in order to avoid the appearance of impropriety and the conflicts of interest.”

    Just regarding the recruiting issues, starting a new venture is extremely difficult, and having talked to both GiveDirectly and the recruiting firm that led its search and having spent a large amount of my own time at GiveWell over the past few years recruiting, evaluating and managing employees, I understand GiveDirectly’s decision to maximize its ability to recruit the best talent it can by removing obstacles preventing it from doing so.

    I agree with your comment that GiveDirectly should have disclosed the connection publicly. I’ve emailed Paul and Michael about this comment thread and highlighted that point, specifically.

    Segovia raises additional conflicts for GiveDirectly research, but I don’t think this constitutes a substantive change. Before Segovia, GiveDirectly staff had a strong incentive for research to show that cash transfers, in general, and its approach, in particular, are highly effective. Pre-Segovia, I think this incentive was already large enough for concerned parties to question the independence of research conducted by GiveDirectly. And post-Segovia, I still don’t see this as a much bigger issue for GiveDirectly than for other charities that do self-assessments.

    Svetha: I agree with you that a key question about Segovia’s long-term success hinges on whether “governments want to reduce inefficiency in cash transfer programs.” For the reasons outlined in the post, we haven’t tried to answer this question.

    Colin: I don’t have a satisfying answer to the substance of your comment. I raised your question with GiveDirectly ,and they told us that their lawyer had advised them in the way I described in the post. It rings true to me that a lawyer may have advised them that starting a separate for-profit company was the most straightforward way to not jeopardize GiveDirectly’s non-profit status, and given (a) their other reasons for starting a for-profit and (b) the fact that the recruiting story checked out when I vetted it, we decided not to pursue the details of the legal case further.

  8. Hi all, just wanted to respond on this point: “If it were all about helping GiveDirectly, Niehaus, Faye and Hughes would donate their entire equity stakes to the organization.”

    I believe that when someone tries to have a positive impact on the world in a way that allows them to capture and profit from some of the value created, they shouldn’t be judged negatively for doing so. There is already an imbalance between for-profit and nonprofit work in terms of the financial incentives and rewards; to start applying a general norm that “people involved in a nonprofit should abstain from all profit-making opportunities they come across in their work” would worsen this imbalance and add further to the list of reasons to be hesitant about starting a nonprofit.

    I can agree with the literal claim that if it were all about the social impact, there would be no reason to take personal equity stakes. But very few people start ventures only for social impact; they expect personal rewards of various types as well. In this case, I think it remains the case the social impact is the primary driver of the decision to start Segovia, and I think it’s normal and reasonable (and aligns incentives well) that the individuals involved are taking some equity stake.

  9. There have been a number of entities that I believe are backed by/organized as non-profits that have had a major impact in technology related fields:

    Khan Academy
    Wikipedia/Wikimedia
    GNU/Linux and its web of related/interacting entities

    That said, in all 3 cases, the end product has strong appeal to first world/techie sensibilities, to an extent that Segovia likely will not, and thus probably have an easier time attracting high quality tech talent.

    While there may be various rationales for why the folks involved thought a for-profit structure was best, I think for those with casual interest in the area, the structure may raise serious red flags. Even for those with deeper interest and knowledge of the situation, I suspect many will not support this development.

  10. We appreciate the mix of support and questions and wanted to share our thinking on a few of the latter.

    On our motives, we frankly hope Segovia is both impactful and highly profitable; we recognize that tradeoffs will arise at times but in general don’t see the two objectives as at odds. If Segovia is profitable it will be because it succeeds in helping its clients cut administrative costs and reduce theft from programs that serve the poor. Profitability will also enable us personally to do more good. We accept that some will be skeptical of this, but have also heard support from donors who have done the same themselves, earning money in order to good with it. To the specific question about donating all equity to GiveDirectly, a term sheet like that would of course preclude attracting much of the expertise, network, and capital we’re looking for from investors.

    On the credibility of research, we’ve always held the view that there need to be checks in places given the potential conflicts of interest facing nonprofit leaders even if not involved in any related for-profit work. Our policy whenever we do evaluation that compares cash transfers to a control group is to (a) pre-announce the study and variables to be measured, (b) include on the research team independent principle investigators with academic reputations to protect and no role at GiveDirectly, and (c) engage independent research organizations to measure the outcomes. These hold true for IPA’s earlier evaluation of our work as well as for evaluation we’re currently planning. For example, upcoming work on the macroeconomic impacts of cash transfers will be led by Ted Miguel, who leads the Berkeley Initiative for Transparency in the Social Sciences and is a leading proponent of pre-registration and the use of pre-analysis plans. We’d also point out that the $400B G2P market Segovia aims to serve existed long before GiveDirectly came along and cannot be attributed to any research we’ve done.

    On legal structure, we examined alternatives for several months with guidance from multiple top nonprofit legal practices. The short answer to Colin’s question is that 501c3s receiving a substantial portion of revenue as unrelated business income risk not only paying tax on that income but losing their tax-exempt status entirely. The IRS does not provide a bright-line rule as to how much is “too much,” though in light of case law some advisors cite 20% as a threshold to avoid, nor does the IRS provide guidance in advance as to whether a given revenue stream would be considered unrelated. (See more discussion here, for example.) Given the ambiguity here and the enormous discretionary power held by the IRS, both our legal counsel as well as peer organizations with whom we spoke recommended a conservative approach.

    Finally and briefly, on communications around this announcement: we wanted the initial release of the story to come via channels other than GiveDirectly as we’re very sensitive to the legal implications of using GD resources to promote Segovia. We’ll be posting on our blog shortly, however, with responses to questions we’ve been hearing.

    All the best,
    ~ Chris, Michael, Paul

  11. The first reaction I had was that the EV to the world’s poor of Segovia’s work is probably much higher than the EV of GiveDirectly, even if we account for the impact of GiveDirectly’s research on work in the cash transfer sector more generally. I can easily imagine Segovia signing contracts in Brazil and India (for example) and helping hundreds of millions more dollars reach the poor within a few years, while it’s hard to imagine GiveDirectly scaling that quickly.

    Considerations of the morality of profit, or even GiveWell appearing slightly slimy in the eyes of some potential donors, seem minor compared to the magnitude of impact that Segovia (and “fast followers” inspired by the Segovia model) might achieve.

    This is a first-glance view, though, and I’d be interested to hear arguments that the morality/reputation/trust issues here outweigh the possible financial/impact upside of Segovia’s work.

  12. Agreed with above. This is concerning. Why for profit? Why are GiveDirectly and GiveWell team members so close? Integrity is key in this line of work…

  13. Chris, see above for discussion of the reasons GiveDirectly chose a for-profit structure.

    Can you elaborate on what you mean by “why are GiveDirectly and GiveWell team members so close?”

  14. Dear Dr. Niehaus, Dr. Faye, and Mr. Hughes,
    (via the awesome Givewell forum),

    PLEASE allow the littler people, like those who ahem, might be enjoying food transfer benefits in the U.S., (& whose family have been recipients for three generations) to micro-invest in Segovia. I want to move on up, lol. You have REALLY forward-thinking people, and credible supporters in your experience with GiveDirectly. I would be honored to take a chance on you.

    Thanks for considering.

  15. Having thought about this issue for a while, I feel that at this time I cannot continue to support GiveDirectly. I give based on evidence and not “good intentions”. It is not that I don’t believe Segovia might bring great benefit to the world’s poor; it is not that have any reason not to trust its founders; and I have nothing against profit making. However, the conflict of interest here is too big. The founders will have to prove they can run GiveDierctly without (unreasonable) bias before I can continue to support them.
    One of my biggest concerns is that donors were not informed of this move earlier. We should not have been kept in the dark. I am subscribed to GiveDirectly’s newsletter and RSS feed, but never heard about this.
    Elie, can you give an example or two for this statement: “We think these issues and risks (discussed further below) are noteworthy but ultimately similar in magnitude to, or smaller than, similar risks that exist for our other present and past recommended charities.” It worries me, and makes it difficult to donate to any of GiveWell’s top charities. On the other hand, illuminating examples might help me put this matter in its proper perspective, and change my mind.

  16. Following up on our earlier note, GiveDirectly’s discussion is up at http://www.givedirectly.org/blog_post.php?id=1154660016922550986

    Uri, to your question on publicity, we made a conscious decision to let Segovia make its announcement first and let GD discuss that news second, as we wanted to avoid a situation in which GD might appear to be promoting the launch. We certainly would not have considered concealing the news altogether.

    All the best,
    ~ Chris, Michael, Paul

  17. Ellie, thank you for your reply. When I first read the examples you provided, they worried me less than the current situation, but considering the matter more carefully I could not come up with a good reason for this difference. If anything, it seems plausible that when the scientific evidence supporting a charity is undermined, the risks associated with continued donation are higher.
    Givewell’s approach to giving as a high risk investment seems sensible enough. I guess it is something the average donor like myself should remind himself again and again, because we naturally tend to treat giving as consumption (well, I do anyway). Until reading your reply, I did not consider the current development in GD through the eyes of an investor. As an investor I find that continuing to support GD is the right thing to do, if only for the opportunity of seeing what for-profits and non-for-profits can achieve when working together. I never claimed to have good reasons to doubt the founders of Segovia and their intentions, but I was looking for a high level of certainty. That may not be the best way to achieve the greatest impact with my charitable donations.
    In any case, best of luck to you Faye, Hughes & Niehaus. May you can achieve great things.

  18. As a techie and a GiveWell follower, it sounds as if Segovia’s plans have a basis in reality: offline data collection seems useful to programs that will reach rural places; it’s plausible that automated systems can spot some fraud; and almost tautologically, part of how a transfer program keeps money from going unaccounted for is a strong accounting system, and it’s not crazy to think you could write software to help with that.

    At the same time, cleaning up a program where much of the cash is going missing is a heck of a challenge, and not only a technological one. Whoever actually distributes cash in the end–what’s the process for handling complaints that they’re not paying out? What if not all of those complaints are from people with mobile phones and service? (I guess you need other roving independent folks checking on the honesty of the operation.) Are the officials meant to put the plan in place going to do it, or are they either too weak or in with/captured by folks benefiting from corruption now?

    Related to those questions is whether Segovia would work with a country that wanted its software but didn’t seem to have a plan robust enough to actually clean up their cash transfer program. I lean that the right answer’s usually “yes, make the tools available”–better tools won’t hurt even a weak reform effort, and Segovia’s software is not such a bargaining chip that they can really influence policy by withholding it. But it does mean they could get in awkward situations, providing technical help to programs that may still remain fairly broken.

    Still, this is interesting to think about, both the specific case and how it may relate more generally to the promise and trickiness of tech to help relieve poverty.

  19. Chris, Michael, Paul, thanks for the explanation. You’re right — I hadn’t realized this — getting too much unrelated business income can threaten the 501c3 status.

    What do you think of the social enterprise model, followed most notably by Newman’s Own? In that model Segovia would donate its profits after taxes to GiveDirectly. (Or retain some for growth. But the point is profits would ultimately be directed to charity not to paying dividends.) Segovia would still have to pay corporate income tax (as I understand it, corporations can only deduct charitable donations up to 10% of profits), but I think GiveDirectly’s 501c3 status would be secure. (Again, I am not a lawyer so I may well be off base again. It does occur to me that Newman’s Own donates to many charities rather a single one; I don’t see why that would be germane, but perhaps it is.)