Tuesday, July 29, 2008

How Might You Benefit from PCO?

The philosophy of PCO (Pseudo Community Ownership) and its connection to reputation have been described in previous postings, but I wanted to say a bit more about some of the mechanics of PCO here.

A Quick Overview

We want to do everything we can to get this community up and going and to ensure that the members who contribute get something back if the site is ever sold. To that end, if Brainify is ever sold, we intend to distribute 30% of the proceeds of sale to Brainify community members in proportion to their reputation. See the links above if you want to understand better why we chose to do this or how reputation impacts it.

We Will Make Mistakes – I Am Sure

This initially seemed like a pretty straight-forward idea when it occurred to me, but on further reflection and after consultation with legal experts, this turns out to be somewhat complicated. In addition, we could find no precedent for it. Therefore we had to build the idea from scratch and make a lot of decisions without the benefit of some good history and experience to go on. What this says to me is that we are almost certain to make mistakes in the execution of PCO. When we discover those mistakes, I will endeavor to do what I think is most fair, and will try to rely on legal and ethics experts, where it is appropriate, to help us rectify those mistakes.

How Will We Calculate What You Get?

We intend for the basic calculation to be as follows:

Your Proceeds = Net Proceeds of Sale X 30% X (Your reputation Points / Total Reputation Points of All Members).

Costs of sale

Here are some additional details. First – net proceeds are net of all costs associated with the sale. Sale costs often include things like legal costs, accounting costs, etc. These normally come out of the proceeds due to shareholders, but in this case the community will also have to bear their fair share of those costs. So the 30% that we hope to distribute will be 30% of what all the shareholders would otherwise actually receive – not 30% of the actual sale price. Having said that, these costs of sale are not typically huge in relation to the sale price.

Costs of Distribution

Next, if this happens, there will be a cost associated with actually getting the money to the members. You can imagine what they are, but included are things like establishing contact with each member, collecting the necessary paperwork, doing the accounting, issuing cheques, mailing the cheques, etc. There are companies that do that work and the likely scenario is that we would hire such a company. This would give us the advantage of knowing the exact costs associated with distribution. Again – not necessarily huge costs, but they do exist and will have to come out of whatever amount the community members actually receive.

Some amounts May be Too Small

Depending on the distribution of reputation points and the proceeds of sale, there may be a number of community members whose proceeds are very small – perhaps close to, or smaller than the actual cost of getting the proceeds to them. Because of that, we intend to have a cutoff amount. If the calculated proceeds for a particular member are too small to justify sending them to that member, then we won’t send them. This may result in an unspent pool of money which will be donated to a charity. We can determine the mechanism for selecting the charity(s) if and when that happens, but I intend to make the process participatory, open and transparent.

Some People May be Impossible to Pay

It may also be the case that there are members who we feel should be paid, but for whatever reason we cannot pay them. Reason’s might include us being unable to reach them via their registered contact information, or perhaps they are living in a country which makes it impossible or administratively impractical to send them funds. In those cases they, too, are unlikely to be paid and the money that they would otherwise get will be added to the charitable pot mentioned above.

Other Issues

There are also situations which complicate sales such as, for example, the sale not being for cash but instead being for shares in another company. In that case we likely could not make a distribution until the shares are liquid (could be sold). Another example is a sale for cash where not all of the cash comes at the same time, or where a portion of the proceeds are dependant on future performance. Since the number and combination of potential scenarios make it impossible to make firm plans which address every possible outcome, it is impossible to promise anyone exactly what will happen in the event of a sale. But I can assure you that my intentions are clear: to distribute 30% of the cash the shareholders actually receive by way of sale as soon as practical after the sale - and that the company will do everything reasonably within our power to ensure that intention is carried out.

As Open as Possible

To that end, one other thing I intend to do in the event of a sale (assuming the size of the sale warrants it) is to have a trusted body – typically an accounting firm – oversee the process of calculating and distributing the proceeds to the community. The intent here is to make the process as open as possible without compromising the privacy of individuals. A trusted body will be able to make a public declaration that the calculations were done correctly and that the correct amounts were distributed.

Anyhow – all of these intentions are planned and considered as much as we reasonably could at this stage in the company. I know we will make mistakes and will encounter obstacles we had not planned for. But we will do our very best to stay true to the intent of PCO and will be asking the community for advice along the way – which you can contribute now if you have any, by posting a comment below.

Thanks so much and take care - Murray

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