Debt Is Only The Beginning

The 4/25/2012 edition of the Philadelphia Inquirer published an article by Peter Dobrin that reports the dispute between the Philadelphia Orchestra Association (POA) and the American Federation of Musicians and Employers’ Pension Fund (AFM-EPF) has officially come to a close. For those unaware, the AFM-EPF had been screaming bloody murder that the POA owed as much as $35 million for exiting from the fund. Consequently, it came as a bit of a surprise to learn that AFM-EFP ended up settling for $1.75 million.

piggy bankIt comes as no surprise that Dobrin’s article reports that the AFM-EPF declined to comment; from a PR perspective, the settlement is an unmitigated disaster.

But even though the Fund kept quiet to the Inquirer, they did publish a single page FAQ document on 4/28/2012 titled Questions and Answers for Participants, Contributing Employers and Local Unions about the Philadelphia Orchestra Association Settlement.

[ilink url=”http://adaptistration.com/wp-content/uploads/POA-FAQ.pdf” style=”download”]Download a copy of the AFM-EPF Q&A[/ilink]

Unfortunately, some might think that the document doesn’t do much to repair the PR damage when it offers up the following information (emphasis added).

Q&A 4: What about the prospect of other employers doing the same thing as the POA?
Participants and contributing employers that are concerned that they will be left “holding the bag” because of bankrupt employers should take comfort in the fact that the Fund’s actions in the POA bankruptcy have demonstrated that bankruptcy is not an easy way to get out of a pension obligation. It is expensive for a potential debtor, takes a very long time to resolve (more than a year in this case), and can result in the loss not only of donor confidence but of the very musicians that make orchestras possible.

Pardon the candor, but who are they trying to convince? Based on comments in Dobrin’s article from the POA’s bankruptcy lawyer, Lawrence G. McMichael, it seems clear that the association is thrilled with the settlement.

“Our objective was total peace,” said McMichael, “and spending $1.75 million was worth it to achieve total peace and a quick resolution of the bankruptcy…”

What do you think; does either group come out of this settlement on top? What do you think of the content from the AFM-EPF’s FAQ document? Will a settlement that provides for a five percent payout on a multi-million dollar claim encourage other contributors to follow the POA’s path?

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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0 thoughts on “Debt Is Only The Beginning

  1. $1.75 million? That’s an amazingly small number. But that’s what bankruptcy is about. This will make a fascinating case study for financial institutions classes and arts administration classes for years to come.

  2. Sorry to post twice. Reading the FAQ is a lot like one of the case studies we read in financial markets and institutions class. It’s all about rational expectations when multiple creditors are going after limited assets. It might as well have an executive summary that says, “This is how things work in the real world. Everything we said publicly was posturing–a negotiating position. Sorry if that confused our participants at any time.”

    • That certainly would have taken up much less space and I agree, it doesn’t paint a pretty picture for the organization and it will ultimately create more work and headaches for orch execs. I think I’ll expand on that point in tomorrow’s post.

  3. So amazing that orchestras with no money in the bank are now going to be paying the pensions for an orchestra that, at least pre-lawyers, had $140 million.

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