On governance: A quick assessment of Ushahidi and questions for its board
Ushahidi has been involved in a public sexual harassment scandal where an employee brought up a painstakingly-evidenced claim of harassment by its chief executive and inaction by its board. The executive has since been dismissed after immense pressure from the public and its funders but Ushahidi’s board remains on.
Ushahidi is a registered US 501c3 non-profit organization with its operations in Kenya. Ushahidi was founded in 2007 by Ory Okolloh, Erik Hersman, David Kobia and Juliana Rotich. Ory Okolloh stepped down from Ushahidi in 2010. Ushahidi has received funding from prominent organizations such as USAID, Omidyar Network, HIVOS and several others. In the last available Ushahidi IRS 990 filing (2015), Ushahidi’s revenue was approximately $4.53M, this from a combination of government funding, grants, and project revenues. You can view Ushahidi’s IRS filings and financial statements from 2015 on its website.
Governance matters can be difficult to manage for both for-profit and non-profit organizations. Boards are put in place to ensure that organizations and their executives adhere to duties that might otherwise lapse due to focus on day-to-day operations. These range from ethics and compliance matters such as in accounting, to harassment policies and fiduciary duties. Boards typically have committees within them to oversee each key area.
Let’s take a brief look at Ushahidi
What makes up an independent board?
As defined by the Financial Times, “an independent board is a corporate board that has a majority of outside directors who are not affiliated with the top executives of the firm and have minimal or no business dealings with the company to avoid potential conflicts of interests.”
In October 2015, Ushahidi’s board whittled down from ten directors to seven after three resignations. The board was previously made up of seven independent directors and three founders. By February 2016, it was down again to four with one independent director and three founders. Since then, the four board members — Erik Hersman, Juliana Rotich, David Kobia and Jenny Stefanotti — have remained.
Ushahidi does not have an independent board.
Conflict of Interest and Self-dealing
“A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, one of which could possibly corrupt the motivation or decision-making of that individual or organization.” (Wikipedia definition)
Self-dealing occurs when one or more directors engage their organization in a transaction with an entity in which the director(s) profits.
Ushahidi, BRCK and Gearbox
BRCK is a for-profit Nairobi-based company founded in October 2013 providing hardware-based connectivity products. BRCK was founded by Erik Hersman and three other gentlemen. Juliana Rotich and David Kobia are both founding directors at BRCK and have also held functional positions there.
Gearbox is a for-profit hardware prototyping lab used by companies such as BRCK.
It is not uncommon for organizations to spawn off entities that serve its needs. An eCommerce company may set up its own logistics firm, for example, to serve its delivery needs. The logistics firm should offer a greater benefit (for example, save it money) than a third party would. However, the IRS mandates that, for 501c3, “no part of an organization’s net earnings may inure to the benefit of an insider,” and that “if a public charity provides an economic benefit to any person who is in a position to exercise substantial influence over its affairs (that exceeds the value of any goods or services provided in consideration), the organization has engaged in an excess benefit transaction” which must be reported, may be subject to taxation, and might also jeopardize the organization’s exempt status. Furthermore, it is difficult to understand how either BRCK or Gearbox serves the mission of Ushahidi. The financial statement also makes a peculiar reference to a licensing agreement between BRCK and Ushahidi.
According to Ushahidi’s 2013 financial statement (prepared in 2015), Ushahidi provided $155,000 to BRCK for operations, incurred $171,000 in BRCK expenses, and purchased 20% of BRCK for $200. In 2015, the equity structure was revised to what might be a loan (it is unclear).
In 2014’s financial statement (also prepared in 2015), it is indicated that Ushahidi became a “fiscal sponsor” of Gearbox. It is also indicated that, as of December 31st 2015, Ushahidi owed Gearbox $430,542.
Many questions arise:
- Why is Ushahidi’s board not independent, particularly given the amount of local and international public and foundation funding it receives?
- Has Ushahidi disclosed to its donors and the IRS the conflict of interest its directors face as directors and senior staff at the for-profit institutions it has loaned money or provided significant sponsorship to? Do the transactions fall under self-dealing per the IRS guidelines for 501c3 organizations?
- Has Ushahidi disclosed to the IRS that it is engaged in transactions with commercial entities?
- When performing due diligence, have its donors looked through BRCK and Gearbox financial statements to ensure that the appropriation is above board and beneficial to the activities of Ushahidi?
- Why is Ushahidi covering BRCK’s expenses? What are the itemized expenses?
- Why does Ushahidi owe Gearbox money?
- What are the positions of BRCK’s and Gearbox’s investors?
- What are the details of the Technology Licencing Agreement between Ushahidi and BRCK given that the technologies of the two companies are divergent?
- Have Ushahidi’s donors (private or public) allowed the application of their funds to transactions such as those of BRCK or are they dedicated only to Ushahidi’s mapping-related activities?
- Have opportunities for fraud conveyance been eliminated?
Ushahidi is an organization that was formed to give the voiceless a voice. A testament. We hope that Ushahidi can clean up and go back to its roots.