An Infuriating Development

Yesterday I began a deep analysis of the Minnesota Orchestra’s strategic plan, looking both at the data it contained as well as the reasoning that informed it.  Given the size, amount of information, and importance of this document, I had planned on releasing my analysis in sections—there was simply too much for a single blog entry.

Although the analysis is complete, I’ve elected to put it on hiatus for a bit.  As it turns out, today the Orchestra’s management has released its “independent financial analysis.” I haven’t looked over the document, but the data it contains can and most likely will color my own analysis, and I want to be sure of what I’m saying before I continue.

But I have to say, today’s turn of events raises some serious red flags for me, and I think it’s important to lay out my concerns.

First, let me say a bit about this analysis and why it’s important.

The story begins over a year ago in April of 2012.  As part of the ongoing contract negotiations, the Orchestra management put forth their “final offer” to the musicians, insisting on a 40% pay cut and numerous contractual changes; the rationale for these demands was the Orchestra was teetering on financial ruin.

The musicians were taken aback.  For months previously, President Michael Henson had been giving media interviews to domestic and international news organizations promoting the financial health of the organization, and showing how it was riding out the recession from a position of strength.  He had also testified before the state legislature regarding the financial health of the Orchestra, which allowed him to secure state bonds for the reconstruction of Orchestra Hall’s lobby.

Why the complete about face?  How did projections go from “rosy” to “catastrophic” in less than a year?

The musicians subsequently stated that they would only submit a formal counterproposal if they could see an independent financial analysis of the Orchestra.  This only made sense—if they were going to agree to sacrificial cuts, they wanted to be 100% sure these cuts were warranted.  Many outside observers remarked that this request was logical and understandable, and urged the management to comply.

Management refused, arguing in effect that the musicians should disregard previous statements of financial health, and agree to the various concessions on faith alone.

Subsequently, there were renewed questions about the true state of the Orchestra’s finances. Board minutes revealed that there was a plan to take extra draws from the endowment, which would mask the Orchestra’s budgetary woes while management was seeking state funding. Later, management could use the fact that these extra draws were necessary to prove that its finances were in bad shape.  (A complete timeline has been put together by the citizen advocacy group, Save Our Symphony Minnesota)

These and other revelations sparked further questions into the finances, and ultimately the state government joined the calls for an independent review.  Under pressure, the management agreed to a review, but ultimately walked out of a deal with the musicians and declared they would conduct their own “independent” financial analysis, and share their findings with the musicians.  The analysis was completed in June, and it is being shared now.

With that background in mind, let me share my red flags.

1.  It is no surprise that this “independent” review supports the management’s position—it is entirely beholden to them.  What else would it say?  The management hired the firm, dictated the scope of the work, determined which areas should or should not be examined, and provided all the data.  For example, when the firm states the Orchestra can’t fundraise it’s way out of this position, is that because they did their own fundraising capacity study interviewing donors and surveying other institutions… or because you told them it was impossible and gave them no other option to examine? There was no system of checks and balances, no chance to look into hidden areas, no chance to challenge assumptions, no independent verification.   I don’t doubt the firm went about its job with complete professionalism; but given the tightly constrained situation it was thrown into, it’s hard to believe it was able to produce document that is anything but a rubber stamp on management’s previously-stated position.

2. It doesn’t get to the heart of the matter—a question of trust.  The reason the musicians (plus nearly every other person observing the situation, from the state legislators to the state’s largest newspaper) asked for an independent analysis was there were too many questions about the managements’ accounting practices, plus a vast disconnect between management’s grim offer and its public statements of financial health.  It doesn’t mean that anything illegal was happening, but there were legitimate questions that needed answers.  Management can never answer these questions by itself… again, if the problem is people no longer completely trust its statements, then there has to be a mechanism to verify these statements independently.  They must be evaluated by outside authorities whose neutrality  and credentials are unimpeachable.  The financial analysis management has presented does not, and cannot meet these standards; therefore, it cannot assuage the doubts and concerns of the broader community or work to restore trust in the managements statements—or actions. This is unfortunate, because the whole reason for doing this analysis was to build trust.

3. The timing is… problematic.  I’m trying to be polite.  I find it infuriating that a document that was requested—for good reasons—over a year ago came out today.  It is doubly infuriating to know that the document in question was completed months ago, but is still only coming out today.  It is beyond infuriating that, as the Star Tribune reports, “management said it withheld release because of the possibility of pending mediation.”  You withheld vital information that the musicians had asked for months previously… because you didn’t want to interfere with the negotiations? The information contained in this report gets to the heart of what negotiations were all about! Were you ever going to release the report? To be blunt, I find this outrageous.  Moreover, I can’t help but believe the only reason it made its way into public now was that you’ve hit a wave of bad publicity and are trying to change the subject, and to latch onto something that you think will support your chosen narrative.  In honesty, I can’t fathom why you’re releasing this now.  Not to be flip, but I shudder to think that the PR you’ve been getting recently been so bad that you hoped this would be an improvement. Again, this doesn’t help your trustworthiness, and is making you less and less credible.

4. Financial incompetence.  As I mentioned, I have not read the document, but the points that have been made public are beginning to make my hair stand on end.  Your analysis, using your hand-chosen data points, suggest serious—if not existential—threats to the organization.  How on earth did you let things deteriorate to this state?  If these facts are true, how could you in good conscience fundraise for a new lobby when the organization was in such dire straits?  Where were your priorities?  But also, if things were this galactically bad in 2012, they were certainly not good in 2009-2010 when you were painting such a rosy picture for the press… as well as donors, lawmakers and audience members. I hope the information isn’t as bad as the Star Tribune suggests; but if it is, I’d say the ongoing labor dispute is the least of your problems.

All of this tells me that this document, released now, can offer very little to the conversation.  But it absolutely confirms that the musicians (as well as most observers) were absolutely right to demand more financial information.  I’m still not sure we have what we need.  More to the point, this document does nothing to help establish the management’s overall credibility—as partners in negotiation, arts managers or as fiscal stewards for the Orchestra I so dearly love.

Xochipilli

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8 thoughts on “An Infuriating Development

  1. I, like you Scott, have tried very hard to temper my comments on the MOA. As a former staff member, I have not wanted to offend anyone and I have a deep appreciation for the difficult position of administrative staff. However, this latest manuever is absolutely stunning! I have not had the opportunity to study this latest report but be assured I will. But it appears on its face to be questionable for a number of reasons.

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  2. What I don’t understand is why management feels this financial situation must be solved fully and immediately. As a modestly successful small business owner I have learned that that A) you cannot cost cut your way to success and B) huge changes caused by knee jerk reactions are never a good idea.

    The MOA is sitting on one of the largest endowments in the American Orchestra world. This ‘looming financial crisis” is not looming very quickly under any circumstances. Why not come to a REASONABLE contract with the musicians that makes some cost cutting moves, get the organizations functioning again, repair the damage done to both the orchestra and the relationships between all parties, and then work together to find a path toward financial stability.?

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    • Amen and Amen! How in the world can we get the board to listen to the ordinary people like me who want to hear the music we love and who would be willing to give more financial support if we had ever been aske. Such arrogance on the part of the board is absolutely appalling.

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  3. Has anyone considered that Michael Henson’s goal upon arriving in Minneapolis was the opposite of what he was hired to do? Nothing he, Davis and Campbell have done since 2009 has been rational if the goal was to continue to build a world-class orchestra. Their strategy has been to build fear, break morale, not play by any rules or follow through on any publicly-announced agreement.

    Since the union held it’s ground, publicly embarrassing the trio of Henson, Campbell and Davis, it is now about power, control and pride. They must win at all costs or be seen as failures. However, they have failed and it will follow them wherever they go. The trio of Henson, Campbell and Davis built a legacy called, “I killed a world-class orchestra.”

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  4. In response to Mr. Assemany above: why is there no move toward a reasonable, adult solution? It’s just not in the DNA of the powers controlling the organization. What motivates people such as that is power, and even more significantly, ego. To alter course so completely after everything that has been revealed over the past year would be a huge blow to the egos of those responsible for this debacle. They just can’t do it, because they just can’t imagine how they could ever be wrong. So the disconnect is profound, and the gulf between them and reality cannot be bridged.

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  5. There is fury enough to aim at the management/board and at the musicians, but the mess is beyond infuriating. You really should read this Financial Review in its entirety before commenting further: http://www.scribd.com/doc/165281621/Minnesota-Orchestra-Financial-Review-June-10-2013

    Whatever its provenance and regardless of who paid for its composition, this is a remarkably damning tale of chronic financial mismanagement of an organization running off the rails for at least 10 years with no effective oversight or intervention.

    While I fault the author for not having examined audits prior to 2007, he at least acknowledges “The Minnesota Orchestra has suffered from serious difficult financial challenges for at least the past decade.” The review says the orchestra incurred chronic operating budget deficits during 2002-2007, a period it calls a generally favorable climate. Re-read that last sentence and ponder what it says about competence and mind-set. How did it deal? It made repeated fundraising initiatives and “exceptional draws” on its endowment. In other words, exceptional draws did not start with the Great Recession of 2008.

    How does one describe the management and governance of an era that had a favorable climate whose chronic deficits required exceptional draws on the endowment? Whatever its thinking, this organization’s behavior in that era of serious and difficult challenge was to give the musicians a 26% pay increase in 2007. That was a great deal for the musicians; but if this financial review is true, the deal was struck by administrators and board who were asleep at the switch. It is possible the musicians also were asleep about the state of the organization but were only too happy to accept the good fortune that was bestowed on them. I have seen no comment by board or musicians about these antecedents to the recent crisis, let alone any acknowledgement of responsibility.

    If this financial review is true, it reflects a failure to respond meaningfully to the changed and evolving environment created by the body slam of 9/11. If true, omissions and errors compounded over the years.

    If true, even the orchestra’s much-self-touted and maligned strategic plan is too little, too late, glossing over – as it does – significantly underfunded pension plans, significant taxable and nontaxable bond payments coming due, and no contingency for unplanned adversity. These omissions from the strategic plan – most of us just learned of them yesterday – only add to concerns about competence and credibility.

    If this financial review is true, the game is over for the Minnesota Orchestra as we have known it.

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  6. Gary, your analysis of this debacle is sound. My heart goes out to the musicians and to the many patrons and supporters, young and old. And, the impact to future generations of musical talent will be devastating. It will be a tragedy of monumental proportions should we lose our orchestra.

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