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In Minnesota, The Game Is Afoot

The Minneapolis Star Tribune published an article on 11/26/2012 by Graydon Royce that may very well be one of the most influential examinations of the ongoing labor dispute between the Minnesota Orchestra Association (MOA) and their musicians. Of particular note, Royce reports that the MOA intentionally obfuscated financial troubles in 2009 and 2010 with the intent of exacerbating conditions in 2011 in order to increase negotiation leverage in 2012.

searchRoyce’s apparently uncovered this information following his review of MOA executive committee notes where he uncovered the following item.

“Balances in 2009 and 2010 would support our state bonding aspirations,” Bryan Ebensteiner, vice president of finance, told the orchestra’s executive committee in September 2009, “while the deficits in 2011 and 2012 would demonstrate the need to reset the business model.” His comments are included in minutes of the finance and executive committees obtained by the Star Tribune.

When presented with this information, MOA leadership did not appear to be concerned. Rocye’s article includes comments from Board Chairman Jon Campbell and President and CEO Michael Henson and neither gentleman expressed much concern over Royce’s revelations.

“If it was a cover-up, would we have been that transparent in the minutes?” said Campbell. “We spent countless hours with attorneys to make sure we understood the state law about how endowments work, and the accountants had to agree with our approach to give us an unqualified audit.”

“However you want to present the argument, the reality is we have got to change the business model, because our endowment is being spent down,” [Henson] said.

Campbell went on to deny that any attempt on the part of the MOA to downplay reckless and/or negligent stewardship following the decision to hire a public relations firm in 2011 to help determine how much of a deficit to report in advance of the collective bargaining negotiations.

The need to manage public perception and simultaneously make a case for musician pay cuts animated discussions at finance and executive committee meetings over the next two years. In 2011, after choosing to balance its budget the previous two years, the board retained the public-relations firm Padilla Speer Beardsley to determine “what size of deficit to report publicly, between $2.9 million and $4.3 milion [sic].”

The MOA website currently lists the PR firm, Padilla Speer Beardsley Inc., as a donor in the $5,000 – $9,999 level.

Royce’s article goes a long way toward demonstrating just how far shadows can reach during labor disputes. Likewise, it provides added clarity behind why this stakeholder fight isn’t as clear cut as dollars and cents; instead, Royce’s article demonstrates that it is just as much about ethics, leadership, public trust, and accountability.

In the end, if history has any bearing on the outcome of this dispute then one variable worth keeping an eye on is large donor and general public opinion. If the MOA leadership finds itself on the defensive and loses the benefit of the doubt among those segments, then we may witness something unique in the Season of Discontent: a complete collapse of an executive leadership tier.

20 Responses to In Minnesota, The Game Is Afoot

  1. Thomas Klaber November 27, 2012 at 6:19 am #

    What I have trouble understanding is why these organizations feel they are in a position to lie to both their employees and the public. This looks like madness to me. The musicians and the public are both very important, yet management treats both with obvious disdain. These notes are the smoking gun that proves this was a calculated take down, not driven by any urgent need.
    Also, it’s clear that this was in the works for at least two years before the “crisis” was rolled out. I wonder what good works and great ideas were passed on while MOA was obsessed with gutting the rest of the organization.

  2. Mary Schaefle November 27, 2012 at 7:44 am #

    Campbell (Board Chair) “the accountants had to agree with our approach to give us an unqualified audit.”
    That is not what unqualified opinion means. Unqualified means the organization followed accepted accounting principles (GAAP) and the financial statements reflect what the organization did (free of material misstatements). It is not an opinion on the organization’s approach, their business decisions, or anything else related to the management of the orchestra.

    You nailed it. This is about public trust and the opinions of large donors. A nonprofit’s most precious asset is trust of the community and donors that they are doing the right thing.

    • Sarah November 27, 2012 at 7:52 pm #

      This is EXACTLY why they will not submit to an independent financial audit of the organization’s “soundness”.

  3. Peggy Michel November 27, 2012 at 8:37 am #

    Wow…forgive my ignorance. But is this legal? It is clearly unethical, but it seems to me that it also should be illegal.

    • Drew McManus November 27, 2012 at 9:46 am #

      I don’t see where there would be anything potentially illegal since what appears to be the issue here is how annual debt figures were masked until a point in time when the executive committee decided to release them. In light of the discovery that the timing for those efforts appears to be motivated by the desire to aid renovation fundraising while simultaneously creating increased negotiation leverage is more of an ethical matter and as guardians of the public trust, the orchestra’s supporters will need to make their voices heard on the matter if they care enough to do so.

  4. Anonymous November 27, 2012 at 9:06 am #

    It still seems to me that the MOA has been in financial difficulty, if they were drawing more of their endowment than was sustainable. It sounds like they may have been making the finances look better, in an unsustainable way, in previous years to get tax advantaged public bond financing.

    Based on this limited info, it seems that financial statements have been massaged, but I think if anybody has been “lied to,” it is more likely the state bonding authorities and whoever contributed to or helped finance the lobby campaign. They probably couldn’t afford it.

    That doesn’t mean that they can afford the orchestra at past compensation rates or trends, by the way. But stretching the endowment draw in past years to look better has to have made that worse.

    The trust between musicians and management is nonexistent at this point. It is hard to see how they could possibly survive this.

    • Drew McManus November 27, 2012 at 9:50 am #

      I would also add that provided everything in Royce’s article is accurate, the public trust is likely damaged beyond repair at this point as well. It’s difficult to separate the accounting decisions vis-a-vis the public bond funding and the corresponding decision to then reverse the policy for the purpose of artificially exacerbated negotiation leverage.

      As the situation unfolds, it is depicting an increasingly sad state of affairs for an organization that once held one of the highest reputations in the field.

      • Anonymous November 27, 2012 at 10:04 am #

        I wouldn’t jump to the conclusion that they’ve “artificially” exacerbated their negative financial situation. It sounds like they may have quite pragmatically and effectively exacerbated their financial situation, by drawing more then they should have done in past years.

        I do believe this is unethical, but it’s not just a matter of shifting money around on paper to look good one year and bad the next. If they actually drew down and spent that money in past years to balance the budget, it was more like taking thatch off the roof to feed the fire in the house. The end result is still grim.

        • Drew McManus November 27, 2012 at 10:40 am #

          I think you’ve hit one of the very concrete issues here in the form of the actual money on hand and revenue projections. Ideally, the MOA should have addressed the changes to their pre-2008 projections the same way most other orchestras did by way of a contract reopener. Unfortunately, it looks less and less likely that those issues can be addressed in any productive way with the current individuals involved.

      • Sarah November 29, 2012 at 7:46 am #

        The Strib’s publisher is on the MOA board. I imagine that every letter in that article had a background check.

        BTW the upcoming two concerts have been sold out for awhile.

  5. John Pendley November 27, 2012 at 10:32 am #

    Well, Drew, as your last response indicates, you’re slowly moving along the right track. But, as I’m sure you’re aware, Robert Levine ended his post on the Star-Tribune article this way:

    “The people that run the Minnesota Orchestra are a disgrace to [the Twin Cities’ philanthropic and non-profit] culture. The board should resign and the new board should make its first order of business to fire Michael Henson. Maybe then the orchestra can be run by people with ethical standards above those of the bottom 20% of used car dealerships. The Twin Cities, and the Minnesota Orchestra, deserve better.” http://www.polyphonic.org/2012/11/26/cooking-the-books/

    He’s dead right. Every impartial observer should add their voice to his. At this point the musicians would be foolish to trust this bunch to tell them truthfully what day of the week it is.

    So stop hedging. Royce has been on this story like white on rice. Do you have any reason to suspect “everything in Royce’s article” is NOT accurate? He’s quoting board minutes, after all. You noted yourself in the main post that the board and president don’t take issue with the facts of the article, but seek to justify their actions. “Public trust is LIKELY damaged beyond repair at this point?” (emphasis supplied.) Is there any way it could possibly not be?

    • Drew McManus November 27, 2012 at 11:02 am #

      My apologies John but I appreciate you taking the time to send in your comment. However, I don’t equate hedging with making observations based on known information. I’m not sure how you came away with any indication that I suggested anything in Royce’s article is inaccurate; quite the contrary. So allow me to expand by pointing out the importance of realizing there may be even more information to be discovered and that information could be more profound and influential than what is currently known.

      I’ll gladly leave colorful hyperbole to those who feel comfortable using it; and in the case of most orchestra labor disputes there’s no shortage of that sort of content. But the one thing in short supply is impassive analysis.

      I think the excerpt you included is an ideal example, allow me a moment to explain. The use of the adjective “likely” is a critical distinction between expressing a quantified outcome and a theory. I have not conducted any empirical study on public trust surrounding these issues nor do I know of any such study or poll to exist (although please feel free to point one out, I’d love to see it).

      Consequently, making a conclusive statement along the lines of “public trust is damaged beyond repair” without corroborating data is not only sloppy but it damages my credibility.

      However, working from the advantage of 20 years of experience, it is appropriate to propose likely outcomes based on available information. At this juncture it is not prudent to make categorical assertions that the best solution is to immediately remove all members of the executive board and instate a new cadre of leaders who will immediately terminate the current CEO.

      That may be the most productive course of action but given the revelations included in Royce’s article, it seems far more prudent to continue uncovering information in order to suggest the best course of action. Because in the end, those sorts of actions do not transpire without a great deal of effort and the potential for expending that effort while blind to other issues that may require equal attention is not only rash, but counterproductive.

      Perhaps it will help to think of it this way, you rarely win at chess by only thinking one move ahead. I hope that helps provide a better perspective.

  6. Anonymous November 27, 2012 at 10:44 am #

    But wouldn’t the board need to reduce the draw on the endowment anyway in order to secure further endowment gifts? Wouldn’t major donors turn away from endowment giving if they thought their gifts would only end up in operations? This is a tough one.

    • Drew McManus November 27, 2012 at 11:05 am #

      It’s a tough one indeed and it doesn’t have a clear-cut right or wrong answer. However, this is typical in the sense that any nonprofit board must take into consideration a host of variables unique to their respective donor environment. the larger the group, the more variables involved along with the need to be flexible and make changes as a result of dynamic consequences.

    • Sarah November 27, 2012 at 7:56 pm #

      Had I been a major donor to the endowment, or to the renovation, I would NOT be happy with a Board which removed “orchestra” from its mission statement. How many donors gave thinking that it would help ensure the future of the MINNESOTA ORCHESTRA instead of a “society” which would be booking gigs at that new hall?

  7. Mary Schaefle November 27, 2012 at 1:24 pm #

    Many (most?) nonprofits took larger-than-prudent draws from their endowment in 2008-2009. There is nothing unethical about that. It’s what they did to survive the economic downturn.

    I agree with Drew that there is more to learn, and we can’t make any final judgements now. The Executive Committee is 26 members (if I counted right on their website) so firing that entire group isn’t reasonable either. Continuity on the Board is needed to keep the organization going.

    They are in financial trouble, and now they are also in “reputation” or “trustworthiness” trouble. Both are critical and need to be addressed with whatever changes happen, including potential leadership changes.

  8. Emmanuelle Boisvert November 27, 2012 at 9:26 pm #

    Tragic, and unfortunately has been done and continue to be the case in some places.
    Recently, uncorroborated sources in Detroit have been sharing with me that possibly the (smaller) executive board voted to approve, APPROVE?? a 4mil budget deficit for y2013. That (if true we will never know) may not be known by the board at large and would be on top of the already accumulated deficit (shadowy figure), a sharply reduced endowment due to paying off most of the construction loans to four of the five consortium of banks-one bank still remaining with yearly payments. Detroit is currently in its second year of a three year contract.

  9. Emmanuelle Boisvert November 27, 2012 at 9:30 pm #

    Let’s hope I’m wrong.
    Consequences are too dire.

Trackbacks/Pingbacks

  1. Mr. Henson Goes to St. Paul, Part 2 | Song of the Lark - November 29, 2012

    […] does not recover easily, from such drastic cuts, if ever.” And Drew McManus recently wrote in the comment section of his blog: I would also add that provided everything in Royce’s article is accurate, the public trust is […]

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