EA orgs' legal structure inhibits risk taking and information sharing on the margin

By Elizabeth @ 2023-11-05T04:07 (+107)

What is fiscal sponsorship?

It’s fairly common for EA orgs to provide fiscal sponsorship to other EA orgs.  Wait, no, that sentence is not quite right. The more accurate sentence is that there are very few EA organizations, in the legal sense; most of what you think of as orgs are projects that are legally hosted by a single org, and which governments therefore consider to be one legal entity. 

The king umbrella is Effective Ventures Foundation, which hosts CEA, 80k, Longview, EA Funds, Giving What We Can, Asterisk magazine, Centre for Governance of AI, Forethought Foundation, Non-Trivial, and BlueDot Impact. Posts on the castle also describe it as an EVF project, although it’s not listed on the website. Rethink Priorities has a program specifically to provide sponsorship to groups that need it. LessWrong/Lightcone is hosted by CFAR, and have sponsored at least one project themselves (source: me. It was my project).

Fiscal sponsorship has a number of advantages. It gets you the privileges of being a registered non-profit (501c3 in the US) without the time-consuming and expensive paperwork. That’s a big deal if the project is small, time-limited (like mine was) or is an experiment you might abandon if you don’t see results in four months.  Even for large projects/~orgs, sharing a formal legal structure makes it easier to share resources like HR departments and accountants. In the short term, forming a legally independent organization seems like a lot of money and effort for the privilege of doing more paperwork. 

The downsides of fiscal sponsorship

…are numerous, and grow as the projects involved do.

The public is rightly suspicious about projects that share a legal entity claiming to be independent, so bad PR for one risks splash damage for all. The government is very confident in its belief that you are the same legal entity, so legal risks are shared almost equally (iamnotalawyer). So sharing a legal structure automatically shares risk. That may be fixable, but the fix comes at its own cost.

The easiest thing to do is just take fewer risks. Don’t buy retreat centers that could be described as lavish. And absolutely, 100%, don’t voluntarily share any information about your interactions with FTX, especially if the benefits to doing so are intangible. So some amount of value is lost because the risk was worth it for an individual or small org, but not to the collective.

[it is killing me that I couldn’t follow the rule of three with that list, but it turns out there aren’t that many legible, publicly visible examples of decisions to not share information] 

And then there are the coordination costs. Even if everyone in the legal org is okay with a particular risk, you now have an obligation to check with them.The answer is often “it’s complicated”, which leads to negotiations eating a lot of attention over things no one cares that much about. Even if there is some action everyone is comfortable with, you may not find it because it’s too much work to negotiate between that many people (if you know anyone who lived in a group house during covid: remember how fun it was to negotiate safety rules between 6 people with different value functions and risk tolerances?). 

Chilling effects

A long, complicated (but nonetheless simplified)example

The original version of this story was one paragraph long. It went something like: A leader at an EVF-sponsored project wanted to share some thoughts on a controversial issue, informally but in public.The comments were not riskless, but this person would happily have taken the risk if it affected only themselves or their organization. Someone at EVF said no. Boo, grrr.

I sent that version to the source to check for accuracy. They gave me a new, more complicated story. Maybe it was good they never published those comments, because they were coming from an angry place. Maybe it was good they never published the initial version of those comments, but bad they didn’t publish a draft revised after a good night’s sleep. Maybe it’s not fair to blame EVF, since they (commenter) gave up pretty quickly and maybe EVF would have said yes if they’d kept pushing. Maybe that’s all an excuse, and those comments were great and it was a tragedy they were lost…

It became clear there was no way to portray the story with the level of nuance the source wanted, without giving enough details to totally blow their anonymity. I offered to let them write out the whole thing in their words with their name on it. They considered it but didn’t feel able to do so without checking with their colleagues, which would have further delayed things and eaten up multiple people’s time. Especially because it would probably not have been a quick yes or no, it would have been more rounds of negotiation between people, all of whom were busy and didn’t hold this as a priority…

I told them not to bother, because it was unnecessary. The fact that it is so difficult to share enough information to even figure out if the comments were net positive or negative, and how that would change if projects didn’t share fiscal sponsorship, is already on display. So I wrote up this story of trying to share the  original example. 

Other examples

As reported by Oliver Habryka: Will MacAskill has written up reflections on the SBF debacle, but EVF told him not to publish.

Luke Freeman, Executive Director at Giving What We Can, said that the EVF board ordered a cessation of the GWWC pledge drive in the wake of the FTX explosion, and explicitly ascribed this to the EVF board making a conservative rule and not having time to review exceptions.

I object to this way less than to the censorship; not fundraising in the immediate wake of FTX seems like a pretty reasonable decision. But I expect the factors he brings up in defense of this decision, risk to sister projects and bandwidth limitations, to be systemic.

Confusion tolerance

There’s another issue with fiscal sponsorship. I think it’s minor compared to the chilling effect on risk taking, but still worth mentioning. One side effect of sharing a legal structure is that people doing business with project P (e.g. 80k, or Longview) will receive checks, invoices, or other paperwork that uses the name of sponsoring organization O (e.g. EVF). This might look sketchy at first, but then someone explains fiscal sponsorship to you and you accept it.

Which is why it didn’t raise any alarm bells for me when my first check from “the FTX Future Fund (regrantor program)” came via CEA, and the second used the name North Dimensions.  I've gotten lots of checks that didn't match the organization's name, so I mumbled something about EA’s lack of professionalism and moved on with my day. What has come out since is that North Dimensions was a pre-existing company FTX bought in order to use its bank account, and that bank account was shared between FTX and Alameda in ways that have to have been inappropriate. 

[Note: I haven’t attempted to nail down the details of that bank account or my grants and may have gotten something wrong. I don’t think any individual error would contradict my claim that training people to accept misdirection creates cover for malfeasance. The fact that the situation breeds errors is the point.]

Conclusion

I think EA should grapple with the risk creation and risk aversion caused by fiscal sponsorship, especially umbrella orgs, and how those trade-off against the benefits. This is hard because the benefits of sponsorship are legible and predictable, and the costs are nebulous and erratic. But that makes it all the more important to deliberately investigate them. My guess is that this will show that having multiple large orgs share a legal structure is not worth it, but using sponsorship for short term projects or a launching pad will continue to make sense. Maybe I’m wrong though, we can’t know until we check.