Why a clusterduct?

Andrew Taylor at The Artful Manager blog suggested that my reaction to
the Flanagan report might be better characterized by putting in into
the Clusterf*cks category than by the relatively measured tone of
what I actually wrote about it. And he’s right; I found the whole thing
enraging.

The Flanagan report, and the process that brought it about, is a
classic example of how not to make our field a better place. It should
never have happened in the first place. So why did it?

Flanagan was not the first such document in the history of our business. There was one
dating from the early 80s (done, I think, by the Stanford Research
Institute). I have seen a copy of a Depression-era magazine in which
appears a doom-and-gloom article almost identical in tone. But the most
recent, and the most famous, was “The Financial Condition of Symphony
Orchestras,” commissioned in 1990 by the ASOL, and known to one and all
as the Wolf Report.

There seem to have been three major reactions to the Wolf Report.
The first, and most correct, was that of Peter Pastreich, then CEO of
the San Francisco Symphony and probably the most successful orchestra
manager of his generation, who said:

We do have a
critical financial problem. The orchestras are spending more than they
are taking in, and if they don’t stop doing that soon there will be
some disrupted seasons and lowered living standards for musicians and
administrators. But the situation is not critical, not serious, and
music will survive. What we don’t need to do is to allow the financial
problems which have developed from over optimism, poor management, and
admirable generosity to drive us to “solutions” which are worse than
the problem. What we do need to do is balance our budgets: take in more
money and spend less. And continue to be an innovative, living force in
the American cultural scene.

The second, and less
correct, was that of Deborah Borda, who at the time was CEO of the New
York Philharmonic (and ironically a protégé of Pastreich’s):

The
“Holy Deadlock” that exists today between most boards, orchestras, and
staffs must be broken. If we can’t find a more productive way of
working together toward genuine change, we will eventually drive off
that cliff. For any of the valid issues and questions posed by Wolf to
be addressed so as to create meaningful change in our industry, we must
begin to consider some fundamental changes in our governance functions.
We must create a new protocol.

The last (and least
correct) analysis was the one that featured prominently in the popular
press, and which could best be summarized by cartoons of dinosaurs
being slaughtered en masse by meteors.

In the late 1990s, the Andrew W. Mellon Foundation, under the
leadership of Catherine Wichterman, Mellon Program Officer at the time
for giving away lots of money to the orchestra industry, weighed in on
the side of governance issues being paramount. They started something
that became known as The Orchestra Forum and
invited a number of orchestras to apply. Many orchestras did so; some
because the prospect of studying governance issues was attractive to
them; others because they would receive a lot of money by
participating, regardless of what they actually thought about
governance being the key problem to be resolved.

As a result of this process, Mellon gave millions to orchestras. It
may well have been the single biggest focused donation in our field
since the Ford Foundation grants of the 1960s. And there were some
results. The Electronic Media Forum, from which sprung the Internet
Agreement of 2000, was funded by Mellon. The radical restructuring of
the governance structure of the Saint Paul Chamber Orchestra a few
years ago was due in some part at least to their participation in the
Orchestra Forum. Not everyone agrees that either of these were positive
results, by the way – but they were results.

But, on the whole, the program produced very little real change in
the field. This came as no surprise to those traditionalists who
believed that the main problem that American orchestras have with
governance is in the quality of their boards, rather than the amount of
musician participation therein. And it remains true that most of the
largest and most successful orchestras adhere to the traditional model,
with strong boards composed of community leaders and musician “input”
limited to a small subset of important decisions – something that has
changed not at all since the Wolf Report.

One other result of Mellon’s Orchestra Program was the Elephant Task Force:

The
so-called Elephant Task Force (“ETF”), a cross-constituent group of
musicians, managers, and trustees grew out of one such discussion in
late spring 2003–a time when a significant number of orchestras were
facing financial challenges.  The economy was still reeling from the
bursting of the stock market bubble and the direct aftereffects of
9-11, and national resources were being reallocated away from the
arts.  Orchestras, both major and regional, had reported significant
financial deficits the prior season.  All of the Forum orchestras
admitted to projected deficits that year ranging from five to fifteen
percent of revenue.

From the outset, one key issue for the ETF was the question of
whether fiscal problems were structural or cyclical.  This question
loomed large, for the organizational implications of it being one or
the other are significant.  A verdict in favor of “cyclical” would
imply that the status quo is fundamentally sustainable, and the key
financial challenge for orchestras would be to gain greater ability to
withstand the inevitable ebbs and flows of the economy.  A verdict that
the problem was structural would carry with it far greater implications
for the long-term management of the organization.

In March 2006, the Mellon Foundation on behalf of the ETF
commissioned Stanford University Professor Robert Flanagan to conduct
an analysis of the economic health of orchestras, with the objective of
assessing the cyclical and structural influences thereon.

Unfortunately
Mellon made some bad choices. One, I suspect, was Flanagan himself. His
webpage at the Graduate School of Business at Stanford University says:

His
research interests have included the economics of discrimination, labor
union behavior, and the impact of national incomes policies and
collective bargaining institutions on wages, inflation, and other
measures of macroeconomic performance. Most of his research focuses on
the effects of international differences in labor market institutions
and practices on employment outcomes. His most recent book analyzes the
effects of globalization on working conditions and labor rights around
the world. Currently, he is studying the role of competition between
performing arts organizations on their financial balance.

To
me, this does not sound like the ideal intellectual portfolio for
someone commissioned to do a study about whether or not an industry is
overly impacted by economic cycles. And any expectations that he
wouldn’t look at the issue of the cost of unionized labor with a gimlet
eye would have been pretty clearly unfounded.

I don’t know Professor Flanagan, and I don’t know a lot about his
field. I would guess, however, that those who labor in those vineyards
develop strong feelings about labor unions, whether for or against.
Flanagan appears to be “against,” at least when it comes to the union’s
role in the financial condition of the industry. He wrote an earlier
paper, based on an earlier version of his Mellon report:

The
unionization of major orchestras is complete, but the roots of union
power are somewhat mysterious. Unions do not limit the supply of new
classical musicians, and that supply is huge relative to the number of
positions available. For much of the history of symphony orchestras in
the United States, the American Federation of Musicians did little to
advance the wages and employment security of symphony musicians. While
musicians have some inherent bargaining power, flowing from the limited
possibilities for consumer or producer substitution for their services,
that power was not effectively exploited.

Instead, the income and employment security gains eventually
accorded symphony musicians appear to flow from inherent bargaining
weaknesses of the management of not-for-profit organizations and a
striking historical intervention by a major foundation, which for a
limited time provided resources that further reduced management’s
bargaining resistance. Management weakness is traceable in part to the
considerable ambiguity over the identity of their principals. The Ford
Foundation grants, which were intended in part to support long-run
financial stability in orchestras by building up endowments, further
undermined management bargaining resistance at the cost of diverting
some potential endowment funds to achieve short-run labor objectives.
The story of symphony orchestras and symphony musicians provide an
intriguing example of how an isolated historical event (the foundation
intervention in this case) can have long-lasting and sometimes
unintended effects.

In the wake of this historical event, the industry was left with
collective bargaining agreements that specify both the wage and the
labor input, limiting the ability of orchestras to adjust labor costs
in the face of financial challenges. With the labor input more or less
fixed, collective bargaining focuses on wage determination, but there
is little incentive to shape wages to standard measures of
organizational performance. Since the late 1980s, the wages of symphony
musicians increased more rapidly than the wages of most other workers
and were not strongly correlated with either the performance income gap
or the overall financial balance in orchestras. Instead, musicians’
wages are strongly positively correlated with private contributions to
orchestras. The availability of private and public support effectively
creates significant ambiguity about the true economic constraints faced
by an orchestra. That a wage policy that ignores measures of
organizational economic strength has serious consequences is clear from
the large number of orchestra bankruptcies over the past 15 years.
There are few instances of wage or guaranteed weeks concessions in
advance of the bankruptcies. In cases in which failed symphonies
eventually reopen, musicians’ wages and annual guaranteed weeks
invariably have declined relative to conditions in other symphony
orchestras.

Not only is a fair amount of this wrong, (almost every
instance of orchestral bankruptcy was preceded by concessions – often
mid-term – by musicians)  but I’d like to think that calling boards
weak and musicians greedy was not exactly what Mellon had in mind when
they hired Flanagan. But that’s what they got.

Mellon’s mistake went deeper than hiring the wrong researcher,
though. They failed to insist on any control at all over how the work
was going to be used, which just seems dumb. Most industries don’t put
their consultants’ work on the web for all to see, and for good reason.
In fact, the release of the report by Flanagan apparently came as a
total surprise to Mellon; hence the scrambling to put up a newsblog
on the Orchestra Forum site which contains, to date, precisely one
posting: their decidedly lukewarm response to the report they
commissioned.

Mellon’s fundamental mistake was in commissioning a report about the
wrong topic. The fact is that such reports as this one, and its earlier
siblings, are simply not very useful to the field. Successful
orchestras know they’re succeeding; unsuccessful ones generally know
they’re not. A report on the finances of the industry as a whole says
nothing about what a particular orchestra should do to continue
succeeding – or stop failing.  The single most telling line about the
Flangan report appears on the Stanford site on which the report appeared:

Flanagan said the study’s scope did not try to identify similarities among the 17 symphonies that usually did have surpluses.

Would it have spoiled Flanagan’s academic cred to have discovered something that might actually help?

If the Wolf Report proved anything at all, it’s that predictions are
very hard to make – especially about the fuure. Even if Wolf’s
predictions (or Flanagan’s implied predictions) were/are accurate, they
would still be no help to anyone actually trying to make the field
better. If Mellon was trying to help the field with this research, they
failed. And the kind of failure that could well end up with more
cartoons of meteors falling on dinosaurs is beyond inexcusable.

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