How the Ada Initiative works: Part 1: Governance

One of our frequently asked questions is, "How exactly does the Ada Initiative work, anyway?" We think this is a great question and want to blog about it for several reasons.

First, we want more people to start non-profits in this space – we'd throw a party if someone started a non-profit to improve racial diversity or LGBTQ rights in open tech/culture. Second, we went to a lot of effort to be a respectable, for-reals charity with a board and by-laws and everything, and we want people to know about it. Third, we're self-centered – we love our jobs and we want to talk about them, but people keep walking away from us at cocktail parties when we start talking about the U.S./Australia tax treaty.

So, here's our attempt to summarize how the Ada Initiative operates without sending you immediately to sleep. And if you're looking to start a non-profit in this space, don't be afraid to hit us up for advice.

Legal organization

We're legally incorporated in the U.S. state of Delaware as a 501(c)(3) charitable corporation. Why Delaware? Most companies incorporate in Delaware because they have the simplest laws and lowest fees. We have three corporate officers: President (Valerie Aurora), Secretary (Mary Gardiner), and Treasurer (also Mary).

Being incorporated as a 501(c)(3) means that basically under U.S. law, we have to behave the way you expect a charity to: All the money we bring in has to go towards furthering our charitable purpose, increasing the participation of women in open technology and culture. The IRS (Internal Revenue Service, the U.S. tax authority) has a long list of rules and guidelines about the way we can operate: If we spend too much on salaries or marketing or travel, they'll get all up in our business, audit us, and fine us – both as an organization and as individuals. They'll know we did this because we have to file a Form 990, "Return of Organization Exempt From Income Tax," every year, which shows how we spent our money in great detail. This form is publicly available within one year of its filing for all 501(c)(3) non-profits (and several other kinds of non-profits as well).

If we are granted tax-exempt status this year, we'd have to file Form 990 by April 15th, 2012 and it would be available through the IRS by April 15th, 2013, but we would aim to release it sooner than that. Some non-profits file for extensions which delaying filing and thus the release of their Form 990 by several more months, but we consider that a sign of poor planning at best.

Readers of our blog will already be familiar in nauseating detail with the fact that incorporating as a 501(c)(3) doesn't automatically grant you tax-exempt status. You have to file a Form 1023, "Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code," requesting that the IRS grant you this status. It took us about 6 months from incorporation to file this incredibly long and complicated form, which we're told is amazingly fast (you have 27 months to file – why do I know these things? Why?).

We hired an expert lawyer to help us prepare the application, since most amateur filings get rejected several times. With a turnaround time of several months, you want to get it right the first time. The 1023 approval is important not only for the tax advantages, but also because a lot of services are only available only to non-profits with tax-exempt status.

In addition to government scrutiny, some private organizations have sprung up to monitor and rate charitable organizations. Charity Navigator and GuideStar are two of them. Our goal is to achieve the highest rating from at least one of these organizations, but that will likely take several years to accomplish.

Corporate structure

When we incorporated, we also adopted a set of bylaws to govern the corporation, which describes how the board of directors works. We appointed a board of directors who have 100% control over the Ada Initiative. The board of directors elects new directors when their terms expire. We have 2-year terms with about half the terms expiring one year and half the next, so there isn't a complete turnover every election.

Our current board of directors is 6 people strong: Valerie Aurora, Mary Gardiner, Rachel Chalmers (Research Director, The 451 Group), Sue Gardner (Executive Director, Wikimedia Foundation), Denise Paolucci (Co-owner, Dreamwidth), and Matt Zimmerman (VP Engineering, Singly). We deliberately elected enough board members that they could outvote the officers of the organization. Board members have a lot of responsibility for little reward other than knowing you're doing a good thing (by law, they can't be paid for their work as board members). As Mary says, "Non-profit board membership: All of the work for… all of the work."

We have board meetings by conference call (something Delaware allows) and may start having them by IRC. Scheduling a board meeting got much easier when Matt moved back to California from London! Now we have only two time zones to deal with. We can also decide things over email, but then the vote has to be unanimous and the discussion is not as good, so we try to avoid it. After discussion, the board sometimes votes to delegate stuff so it doesn't have to meet every time we have to pay our hosting bill. Initially we met every month but now things have settled down enough that we meet only once a quarter.

We also have an advisory board, which doesn't have any legal standing but we listen to anyway just because it's the smart thing to do. We try to get advisors from a wide variety of projects and backgrounds, especially since most of our official leadership is white, Western, and software oriented – something we're actively working on changing. We hope to elect many of our board members out of the advisory board in the future.

Employees and contractors

The Ada Initiative was formed with the explicit goal of hiring full-time salaried employees, so that we could take on projects too big and involved for volunteer-only organizations to handle. So far, we have succeeded in hiring and paying one full-time employee (Valerie) and one part-time employee (Mary, 2 days a week). We hope to increase Mary's hours when she finishes her PhD work as well as hire at least one more person when we have the budget for it.

Valerie's title is Executive Director and Mary's is Director of Operations and Research. Mary and Valerie do a lot of the same thing: writing, speaking, research, fund-raising, accounting, etc. but Valerie tends to do more of the fund-raising, government applications, and interaction with other organizations, and Mary tends to do more of the budgeting, speaking, and research. Mary also does most of the software stuff – she's the (more) technical one in this partnership.

The IRS has very strict, specific rules about how non-profit employees are compensated. The IRS hates variable compensation (e.g., bonuses) and won't even allow hourly compensation in some cases. We followed the IRS's exact guidelines for setting our salaries, which basically meant that the rest of the board formed a compensation committee and Mary and I bit our nails while they met and debated without us for a month. We were lucky to have a veteran of the non-profit compensation process at a large non-profit on our compensation committee or it would have taken even longer!

Compensation in non-profits must be strongly based on several "comparables" – what similar organizations pay for similar work (easier to find out in the non-profit world because executive pay is in the public Form 990). In the end we were relieved when they voted to offer us just the right amount of money: just enough that we wouldn't start looking for other jobs, and not so much that we couldn't raise enough money to pay ourselves. In my opinion, for profit companies would be better off using the non-profit compensation process to pay their high-ranking executives – it makes it hard to justify ridiculous salaries and bonuses.

We contract with a lot of professional consultants: lawyer, accountants, graphic designer, event planner, and a few other things. We outsource whatever we're either incapable of doing or can afford to get done more efficiently by someone else. We also pay for services like payroll (ADP) and online accounting (Xero). We have a standard, IRS-recommended conflict of interest policy that governs how we outsource.

"How the Ada Initiative works, Part 2: Spending and raising money" is coming next!

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