A Worthwhile Concessionary Agreement Part 2

Part 1 in this set of articles examined the concept of board atrophy, a general deterioration of board stewardship, and how it is impacting an orchestra’s fundraising performance amidst the economic downturn. For the most part, this is every bit as serious a threat to the future of orchestras as the actual economic downturn. Today’s installment is going to examine a recent concessionary agreement at the Utah Symphony & Opera (US&O) that contains provisions designed to combat board atrophy…

Today’s Concessionary Environment

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Past practice of good relationships and successful institutional performance typically require less language in concessionary agreements.

Although the vast majority of recently ratified concessionary bargaining agreements contain cuts that address current financial shortfalls, a scant few contain provisions to ensure the organization has formed and will implement a capable business plan. This is neither universally good nor bad but it does indicate the need to examine stakeholder relationships as defined by historic board and administrative performance.

On one hand, an executive administrative team paired with a board that have successfully managed previous economic challenges are less of concern if their recent concessionary agreement does not contain detailed provisions designed to ensure accountability, institutional stability, and recovery. It is far more likely that these groups have developed a minimum threshold of trust among the institution’s stakeholders that all parties are comfortable enough moving forward with nothing more than prescribed concessions.

On the flip side, organizations with administrative and board leaders that have a history of underperforming should anticipate the need to develop measures within a concessionary agreement that ensure the organization won’t find itself in an even more difficult position due to a lack of institutional transparency, board oversight over administrative performance, and board atrophy.

In short, past practice of good relationships and successful institutional performance typically require less contractual language in concessionary agreements. Unfortunately, too many organizations that have recently enacted a concessionary bargaining agreement fall into the latter group. At the same time, how does an orchestra in that group make the leap to one benefiting from a level of earned trust? To date, the US&O’s concessionary agreement is a good place to start.

“Doveryai no Proveryai.” (trust but verify) Russian proverb

In the US&O’s situation, their recent history has been defined by a series of concessions that have failed to produce anticipated institutional stability. As a result, the organization was hard pressed to approach the current round of concessionary bargaining sessions with blind trust or a clean slate.

Approaching such a highly charged environment with stereotypical take it or leave it or hell no, we won’t go attitudes wasn’t likely to produce favorable results for any stakeholder. Consequently, the US&O stakeholders came up with an agreement that provides the organization with the sort of economic flexibility they need during a period when regional and national financial situation only increases the likelihood of board atrophy.

The Details

Stereotypical "take it or leave it" or "hell no, we won't go" attitudes don't always cut it.
Stereotypical "take it or leave it" or "hell no, we won't go" attitudes don't always cut it.

In the US&O agreement, the concessions are applied only if the association meets revenue targets that are clearly defined in the agreement’s side letter and implemented via a tiered scale of revenue performance as opposed to an all or nothing scenario. Furthermore, the revenue goals are not merely watered down versions of previous fundraising performance; in fact, according to one individual involved in the negotiations they are higher than targets from the past few seasons. This indicates a willingness on the part of the board to accept a new level of commitment with regard to maximizing fundraising potential within their community. Here are the key components from the agreement:

The Concessions

The musicians will donate $1.3 million in salary and benefits, forgo a contractually obligated five percent salary increase for the 2009/10 season, and give up four weeks’ salary along with continuing a provisional 50 percent cut in matching pension contributions. According to the new agreement “The waived weeks shall not be consecutive and shall be chosen jointly by the Symphony and the Orchestra Committee. The wage and benefit reductions for the waived weeks shall be prorated over the pay periods of October 1, 2009, through August 31, 2010.”

The Verification

In order to verify that revenue targets are being met, all parties agreed to the following transparency measures:

Commencing October 31, 2009, the Symphony shall deliver to the Musicians a monthly written report which shall include the following:

  1. The status of the Endowment campaign. This will include money donated, asks made, and the results of those asks. If the asks are sensitive, the names of potential donors may be left out.
  2. The status of other fund raising, including fund raising for the cash reserves, moneys from the legislature and other donors, grants applied for and their status, money raised for education, special projects, sponsorships, tours, opera performances, workshops, etc.
  3. Any cost savings made as a result of renegotiating artists’ fees, savings made through judicious use of substitutes, revising programming, additional concerts scheduled, residencies planned, etc.

The Trust

Robert Frost penned Good fences make good neighbors and to that end, good contracts make good relationships. One of the most compelling components of the US&O agreement is the level of detail used to define revenue targets and performance benchmarks that trigger each tier of concessions. As you can see in the excerpts below, the details are straightforward yet precise:

Hard Triggers. The Symphony’s revenue and income statement shall be examined on February 28, 2010, May 31, 2010, and August 31, 2010, to insure that the Symphony is meeting or exceeding its budget revenues of $11 million as described above.

  1. February 28, 2010. The target revenue for February 28, 2010 is $5.4 million. Should the Symphony’s actual revenue on said date be less than $4.1 million, the Symphony shall repay the Musicians any and all sums they have waived pursuant to paragraphs 6(a) and 6(b) above. Should the Symphony’s actual revenue on said date be greater than $4.1 million but less the $4.2 million, the Symphony shall repay the Musicians any and all sums they have waived pursuant to paragraph 6(a) above. Should the Symphony’s actual revenue on said date be greater than $4.2 million but less than $4.4 million, the Symphony shall repay the Musicians any and all sums they have waived for three (3) waived weeks pursuant to paragraph 6(a) above. Should the Symphony’s actual revenue on said date be greater than $4.4 million, but less than $4.8 million, the Symphony shall repay the Musicians any and all sums they have waived for two (2) waived weeks pursuant to paragraph 6(a) above. Should the Symphony’s actual revenue on said date be greater than $4.8 million but less than $5.4 million, the Symphony shall repay the Musicians any and all sums they have waived for one waived week pursuant to paragraph 6(a) above. Should the Symphony be required to repay any sums to the Musicians pursuant to this paragraph 6(c)(i), said sum shall be repaid on a prorated basis spread over the remaining paychecks due the Musicians between March 1, 2010 and August 31, 2010.

The language goes on to define similar measures for the two additional trigger dates and concludes with the following item of flexibility:

As described above, a forfeiture incurred may be undone by catching up the shortfall in revenues by the next target date. A forfeiture by the Symphony or a repayment by the Musicians at any target date shall not be re-imposed at a subsequent target date unless it has been restored by making up a shortfall, as provided above.

After reading the entire agreement from top to bottom a few times, it seemed there was a fundamental flaw in the way these concessions were offered. Specifically, it seems that if the association fails to meet the revenue targets, then they won’t be able to meet the expenses associated with waived concessions.

But then it struck me; this is the trust building element in the agreement. Musician stakeholders realize the potential for collapse if revenue targets aren’t met but they also know that previous concessions on their own haven’t been enough to maximize fundraising potential. The result has been a successive series of roller coaster style financial calamity. Sound familiar?

At the same time, all parties found enough reason at this point in time to believe in each other enough to agree to these provisions; and due to the transparency woven into the agreement, they know everyone will be watching along the way. Moreover, the trust coupled with contractual incentive provides board stakeholders with motivation to take an aggressive position against board atrophy and far greater interest in implementing their duties as stewards (fundraising and administrative accountability/oversight).

Consequently, all stakeholders are building trust through shared risk and verifying the process at regular intervals as opposed to burying their heads in the sand until they reach the deadline. By the end of the season, this sort of regulated institutional transparency has the potential to build a much stronger stakeholder relationship than has previously existed within the organization while simultaneously keeping board atrophy at bay.

Conclusion

The key is pairing concessions with accountability within a supportive environment of transparency.
The key is pairing concessions with accountability within a supportive environment of transparency.

Integral components of the US&O’s agreement are provisions that pair concessions with accountability within a supportive environment of transparency. The outcome of these efforts should produce positive results if all parties follow through with their respective responsibilities. Perhaps more importantly, it will serve as the foundation for a better working relationship and renewed trust. Certainly, the arrival of a new music director should help bring all stakeholders together around a single institutional vision, but that’s a unique (albeit it beneficial) happenstance for the US&O.

Should other orchestras consider adopting the measures in the US&O’s agreement when negotiating concessionary agreements? Perhaps, but not without first going through a process that takes into consideration past stakeholder relationships and an honest assessment as to where their organization falls within the current concessionary environment. After all, one man’s provision can be another man’s poison.

Looking ahead to the end of the season, if the US&O manages to meet their goals, it would be interesting to find out more about the process they used and where they intend to go in 2010/11.

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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