Who Owns A Symphony Orchestra?

Earlier this week, Paul Alter submitted a comment and asked “Who owns a symphony orchestra?” Although the simplistic answer to that question is “no one” perhaps a more complete answer is to look at ownership from the perspective of control. Within that context, Paul’s question is much easier to answer…

Fortunately, Paul’s question touches on each of the primary stakeholders in an orchestral ensemble:

Who owns a symphony orchestra?

-The boards of directors seem to think they do.
-Some managers act as if they do.
-The cities obviously do not, even though they brag on the local orchestra when touting their civic virtues.
-The people who contribute money do not, even though they keep the orchestras alive.
-The audience members do not — they are just a necessary evil as far as management is concerned.
-The musicians, with some notable exceptions — LSO, VPO, BPO, do not.

If a [Symphony Orchestra] folds, who gets the money? Would it be
possible to rig it so that somebody benefits financially from it?

Let’s look at each one of Paul’s points one at a time:

“The boards of directors seem to think they do.”

Out of all the stakeholders, the board of directors is the only constituent granted the legal authority for all aspects related to governance. In short, whatever decisions they make are binding. That doesn’t mean they run the day-to-day operations, instead, they hire managers to do those things on behalf of the organization. In turn, the board oversees those efforts and ensures the organization complies with Federal, State, and Local laws. In this regard, the board of directors has the greatest level of direct, legitimized, control.

“Some managers act as if they do.”

Although managers don’t retain any direct control over an orchestra in the same legal sense that the board of directors do, they can certainly display a considerable amount of indirect influence over the board of directors. This is accomplished by shaping how board members think and controlling the frame of reference for strategic decisions. Managers have an even greater level of influence on the day-to-day operations and all of the best strategic planning and oversight in the world is only as good as its implementation. When
examined from this perspective, managers do have a great deal of control although when push comes to shove, the board makes the final decision.

“The cities obviously do not, even though they brag on the local orchestra when touting their civic virtues.”

No argument there and the degree to which local governments are involved in helping their respective orchestra grow and prosper vary wildly from one city to the next.

“The people who contribute money do not, even though they keep the orchestras alive.”

I suppose this depends on the size of the donor. The other “Golden Rule” (he who has the gold, makes the rules) appears to be a universal truth on some level and orchestras are no exception. This level of control is compounded by the fact that many large donors are also members of the board of directors, thereby providing them with a degree of legitimate authority.

“The audience members do not — they are just a necessary evil as far as management is concerned.”

Yes and no. Although audience members, frequent and infrequent, have no real authority over an organization, collectively there are some areas where they can exude a great deal of control. For example, if an orchestra makes a significant change to their programming most managers will not react much if a few complaints come in. However, if they receive 70 irate messages from patrons all threatening to cancel
subscriptions or stop buying single tickets, you can bet that this issue will be addressed ASAP in the next Artistic Planning meeting. At the same time, in a collective sense once again, audience members ultimately decide the fate of an ensemble by their overall buying trends. If an orchestra can’t sell more than 30 percent of a house, you can bet bad things are in store for the organization’s future.

“The musicians, with some notable exceptions — LSO, VPO, BPO, do not.”

Even in the examples Paul uses, I would say that those musicians have no more or less control than musicians in any other professional orchestra. Ultimately, the musicians have no legitimate level of control beyond what they influence via collective bargaining. It is through the collective bargaining agreement, which the board of directors is legally obligated to uphold, where musicians are able to
influence the artistic and strategic direction for an organization. This document singlehandedly defines the operational and strategic environment for the managers and board of directors.

“If a [Symphony Orchestra] folds, who gets the money? Would it be
possible to rig it so that somebody benefits financially from it?”

If an orchestra files for bankruptcy and has to liquidate their assets, this procedure is implemented via the terms approved by the respective bankruptcy court. In this process, a judge must approve a plan for repayment over time of all or a percentage of the debts owed to creditors. In this case, everything an orchestra owns as an asset will be liquidated and the proceeds will be distributed to the creditors. As for whether or not someone can manipulate a system to benefit from an orchestra filing bankruptcy, that would have to be examined on a case-by-case basis. Nevertheless, it is probably good to remember that no system is foolproof when it comes to abuse which is why institutional transparency is a must for any nonprofit organization, especially orchestras.

To learn more about orchestras and the role of each stakeholder, I composed a series of essays which examine each of those components in much greater detail than above. All six of those essays can be accessed here.

About Drew McManus

"I hear that every time you show up to work with an orchestra, people get fired." Those were the first words out of an executive's mouth after her board chair introduced us. That executive is now a dear colleague and friend but the day that consulting contract began with her orchestra, she was convinced I was a hatchet-man brought in by the board to clean house.

I understand where the trepidation comes from as a great deal of my consulting and technology provider work for arts organizations involves due diligence, separating fact from fiction, interpreting spin, as well as performance review and oversight. So yes, sometimes that work results in one or two individuals "aggressively embracing career change" but far more often than not, it reinforces and clarifies exactly what works and why.

In short, it doesn't matter if you know where all the bodies are buried if you can't keep your own clients out of the ground, and I'm fortunate enough to say that for more than 15 years, I've done exactly that for groups of all budget size from Qatar to Kathmandu.

For fun, I write a daily blog about the orchestra business, provide a platform for arts insiders to speak their mind, keep track of what people in this business get paid, help write a satirical cartoon about orchestra life, hack the arts, and love a good coffee drink.

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9 thoughts on “Who Owns A Symphony Orchestra?

  1. Drew,

    Your answer to the last question made me curious about the repercussions of nonprofits dissolving for non-financial reasons. Doesn’t the Jacksonville Symphony Orchestra have a sizable endowment that the board has stated is off-limits with regard to subsidizing its annual operating budget? It’s conceivable (but hopefully not probable) that the acrimonious negotiation process happing there could lead to the organization closing its doors permanently. In a case like this, what would happen to said endowment money?

    Good question Jared and I wish I has a straightforward answer to that one. In Jacksonville’s case, they actually have two endowments, one manged by the organization and one by a third party group of trustees. I’ll see if I can find a simple answer to that situation but let’s hope it’s nothing more than an academic exercise. ~ Drew McManus

  2. As a manager-type it has never crossed my mind to consider the audience as a “necessary evil.” On the contrary, I can’t imagine anything more depressing than a concert with no audience… why would I work so hard (50+ hrs/wk.) for no one to enjoy the events?

    The highlight of my year so far this season was the third night in a row of a huge audience breaking out in literally a “ROAR” and applause at the conclusion of the Rach 2 Piano Concerto. You live for those moments! I’ll happily take 50 calls personally from upset patrons if it means experiencing moments such as that!

    I would be pretty surprised to discover that any orchestra would get complaints over programming Rachmoninof 2, that’s usually quite popular with traditional core ticket buyers. but I know too many groups that after receiving complaints from core audience members (as little as 20) over changes to long running programming – such as mixing warhorses with something contemporary – respond by altering future programs.

    Perhaps more common is for groups to back down from non-programming related changes such as starting concerts at an earlier hour. ~ Drew McManus

  3. A couple of quick thoughts to add to this.

    Legally, a symphony is a public benefit corporation. The Directors are in fact trustees serving the public, who are the true owners of the assets of a symphony or any other public benefit corporation. The Trustees are trusted to serve in the public’s interest when it comes to governing the affairs of the symphony. This means that they are obliged by law to serve the fundamental mission, not of the musicians, or the managers, or the audience, but the greater public need as defined by their articles of incorporation.

    Very few examples exist of challenges to the authority of Trustees to govern in ther public interest but there was an interesting case about 20 years ago in SF when the Ballet fired the long standing Artistic Director and the community rose up and challenged their authority. That case had many complications but it speaks to the base topic.

    As for any residual assets that might exist after a public benefit corporation ceased to operate. Those are clearly defined by law as being passed to the next most likely provider of a similar service. Many times this occurs with foundations when their leadership dies without an heir being named. Then the stated purpose of the foundation is redirected to the next most applicable recipient. For example a symphony endowment might be transferred to another musical producer in the region or to the local community foundation with the stipulation that they find uses for the revenues that are consistent with the first purpose.

    In the case of Jacksonville where it is stated there are two endowments, one would have to know if those are separately incorporated or are they housed within the parent organization.

    If housed within the parent organization, the resources would be collapsed into the asset pool of the symphony for distribution in any manner consistent with their mission and the bankruptcy judge’s rulings.

    If housed separately then those assets would continue beyond the life of the symphony and be applied either by the sitting endowment board or by whatever new group is assigned to govern those assets. The second case is what happened in San Jose where the endowment was its own public benefit corporation and they redirected the remaining resources to support the two offspring ventures: our own symphony receives a sizable gift from them each year and the local youth symphony is also supported with an annual grant.

  4. Here’s a good summary on the requirements for dissolving a 501(c)3: http://www.icnl.org/JOURNAL/vol2iss2/ig_simonfinal.htm

    The short version is that the assets of the organization have to remain as charitable assets to be used for the purpose they were raised for, so those assets have to be given to other charitable organizations or to the government to be used for programs that are consistent with the dissolving organization’s mission. I believe that this also means that restricted funds must be given to similarly restricted purposes, although the article I’ve linked doesn’t cover it. This would mean that if you have an endowment dedicated, say, to commissioning new works, those resources must continue to be used only for commissioning new works at what ever organization or organizations they’re given to. Note that the restrictions that count here are the ones imposed by donors, not by the organization itself. If the new music endowment is really just an earmarked portion of an unrestricted endowment it doesn’t have to stay restricted to new music, but if when the funds were raised it was done in a way that implied restrictions then those restrictions apply. Presumably the Board gets to decide whom to distribute the assets to, within the confines of the law.

    The usual caveats of how I’m not a lawyer apply to all of this, of course.

    I think Galen is a better resource to have around than Google. 🙂 ~ Drew McManus

  5. Not wanting to disagree with Galen, but having gone thru a bankruptcy with the Florida Philharmonic, all I can say is that our instruments and our building among other things were sold in order to pay off our creditors. Our endowment, which wasn’t as large as Jacksonville’s was also used to deal with creditors. Our music library however was placed in a trust with the hope and stipulation that a new orchestra would form in South Florida and they would have access to this library.

    I would also like to point out while things are not good in Jacksonville, but to even speak of closing the doors is quite premature. I am not saying it can’t happen, merely that there is a long way to go.

    One other thing to point out is that isn’t mentioned too often is when the Florida Philharmonic closed its doors, not only were 81 musicians out of a job, but approximately 40 of us on staff also lost our jobs. Like the musicians, many of us on staff have never gotten back to what we would like to be doing.

    Don’t overlook the support staff for the musicians! We live for their performances.

    This is a good example reaching back to my first comment reply that each bankruptcy situation is very different. Thanks for the details Doug. ~ Drew McManus

  6. Much useful information for which I am grateful!

    Aside to Michael: I know there are many dedicated manager types who love music, love their orchs, and do good work. But I also know there are managers who are arrogant, venial, heavy-handed, and out for their own good; for example, managers who tyrannize their musicians as part of contract negotiations (I refer to such actions as locking the musicians out of the hall and cancelling health benefits because they would not roll over and play dead upon receiving the first contract offer).

    Even though the rules seem sensible, are they practicable? According to Andrew Bales, trustees are bound to serve the public good. How do they define that and, more to the point, how do they determine that? What mechanism exists so that “the public” can present its views to the board? How should the board members judge the validity of such views (for example, the matter of repertoire has been, is, and forever will be a bone of contention)?

    I also think it is important to know whether board members are paid for their work.

    Paul

  7. Paul, I am not aware of any situation with any orchestra that I have worked for where a Board member was paid. They are strictly volunteers giving their time. I could be wrong, but as I said, I have never heard of one.

    Although very rare, there are times when a board member will be paid. For instance, when a board member serves in an interim role as Executive Director. Again, it’s very unusual and in the instances I’m aware of, each group approached the situation differently. ~ Drew McManus

  8. Paul~

    There are morons in every camp… I think drawing “battle lines” is the easy, uncreative way out of working through problems. It’s easy to just characterize someone or some group as the “other side” and then just fight, rather than work on (or admit there are) common goals, and try to align the strategies to achieve them. It’s also very difficult to refrain from doing that when the “other side” has taken that position. If any one of these groups defined in this article starts to become “arrogant, venial, heavy-handed, and out for their own good,” as you described, how are other groups within the organization supposed to keep from putting up their defenses?

    That’s one reason why anytime there is an opportunity to learn, discuss and share opinions about issues (such as Adaptistration) it is a service to everyone.

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