Negotiation News From Columbus (OH)

This summer is unique in that it’s one of those odd years when a large percentage of orchestras across the country are negotiating new contracts simultaneously.  For the small portion of orchestras that aren’t negotiating, it’s a nice time to focus on matters at hand and look forward to the upcoming season…

But there’s one orchestra in the latter group which isn’t getting to enjoy sitting on the sideline: the Columbus (OH) Symphony.  Although they are currently entering the second year of a five year contract (which is an unusually long contract for this business) their board of directors and administration has asked them to reopen contract negotiations because the organization faced a $1.3 million dollar deficit at the end of fiscal 2003 and are projecting a loss of $768,000 for the end of fiscal 2004 (which concludes at the end of August, 2004).

And that’s about as “normal” as this situation is.

“Hang on tight; it’s going to be a bumpy ride.”

I contacted several people involved with the CSO situation to find out more about what was happening.

I spoke with Douglas Fisher, CSO 2nd bassoonist and president of AFM local 103.  Douglas said that the musicians were completely surprised when the management asked them to reopen contract negotiations.

“We didn’t have an accumulated deficit, which is much better than most other orchestras right now.  But then we learned that the CSO was facing a $1.3 million dollar deficit.

$700,000 of that was from a drop in ticket sales, reduced investment income, and loss of some grant money.  But $600,000 of that deficit was
due to voluntary “write-offs” and management accounting errors which included things like considering annual fund pledges as actual
donations and recording ticket revenue twice.”

I also talked with David Tanner, CSO violinist and chair of the orchestra negotiation committee.  He elaborated on the reasons behind such an enormous one year loss,

“Our new board president felt strongly about checking over the books, so he used a different auditor than usual.  That’s when they began to discover all of the mistakes.”

Losing $600,000 (or 6% of the CSO $10 million annual budget) of your positive cash value in one year is a big deal in this business, or any business for that matter.  It also brings up the issue of oversight the audit caught the problem, so who’s responsible?  You just can’t go off and blame “sinister forces” like Nixon did.

The first place I always look in a situation like this is toward the top, at the the executive director.  So I asked Douglas about the accountability issue to find out if the board had disclosed to the musicians why there was such a large one year loss related to management’s accounting errors.  Douglas said,

“Dan Hart [the CSO executive director] has been here for six years. During that time we’ve had 3 CFO’s responsible for our accounting
books.  We’ve also had a large dip in ticket sales”

To find out the other side of the story, I contacted Dan Hart the CSO’s (now former) executive director.  Dan said that the CSO’s current financial problems are due more to the overall sagging economy rather than write offs.  Dan said,

“I don’t think the write offs were due to any lapse of administrative mistakes on my part. $50,000 of those write offs were
for office renovations.”

But when I asked about the accounting errors such as double recording of concert revenue and misreporting pledges as received donations, Dan said he didn’t know anything about those.

Saving grace?

Just when things were looking really bad as the board was asking the musicians to take a $1.3 million dollar pay cut over the next two years and go to a year by year contract, a donor stepped to offer $1.5 million dollars.

At face value it would seem like the CSO’s problems would be solved, but in reality, they actually became worse.

The donation came with two distinct stipulations:

1. The CSO retain outgoing music director, Alessandro Siciliani, for another two years.
2. The CSO executive director, Dan Hart, must resign.

Now it’s nothing new or exceptional for donors to attach stipulations to their donations.  As a matter of fact, many of the other orchestras currently involved in negotiations have large donors only willing to give funds if the respective orchestras provide a balanced budget.

Orchestra boards typically accommodate such requests without much grumbling.  Many organizations even actively search for such offers. But the CSO board rejected the $1.5 million offer.

I asked Douglas Fisher about the donation and he said,

“The [$1.5 million] offer came with some stipulations that directly affected the musicians, so we discussed the matter and took a vote.
Although as a whole, our relationship with Alessandro is up and down we didn’t have any problems with having him stay on another two years.

I think it’s safe to say we like Dan Hart overall, but we also hold him responsible for the poorly maintained financial records and
accounting errors.  So in the end the vote to accept the donor’s offer passed by over 90% of our musicians.”

But even with the musician’s support behind the stipulations for the donation, the CSO board still refused to accept the funds.

David Tanner said,

“The board continues to stand by Dan, so much so that they are willing to turn down the $1.5 million offer.”

Douglas continued with that thought by saying,

“Dan did take a voluntary pay cut in 2003 when things started to look bad, and we all thought that was an appropriate thing to do.  But
Dan and Alessandro don’t get along very well and the board has its issues with Alessandro too.  But the musicians get along with
Alessandro well enough so we don’t understand why the board isn’t willing to work with the donor.”

I asked Dan Hart about the stipulation in the $1.5 million gift to remove him as executive director.  Dan said,

“I guess [the donor] considered me responsible for the CSO’s financial problems.  And I have to say that the board didn’t dismiss
the gift out of hand.  But in the end, the board didn’t feel it was appropriate for a donor to dictate terms like that to them.”

I then asked Dan about his relationship with Alessandro, he said,

“I think we worked well together.”

I inquired whether or not the CSO board had seriously considered keeping Alessandro for another two years and Dan answered with “No
comment” at first but then added,

“Look, the donor has said to us that he thinks of Alessandro like a son.  And as I said before, we didn’t feel it was appropriate to have a
donor to dictate terms like that to us.”

Dan went on to explain another reason why the donor’s gift was rejected,

“$500,000 of the gift was via a bequest and this donor looks pretty spry to me.  So that means the CSO wouldn’t have any net gain with the donor’s remaining gift of $1 million due to the added expense of keeping Alessandro around for two more years and the cost of replacing me.”

Although that’s just dead wrong in my opinion (I’ll cover that in detail at the end of the article) it’s also not very good reasoning. Just because 1/3 of the donor’s gift isn’t payable until his passing, that doesn’t mean the remaining funds are nearly enough to erase all but $300,000 of the current CSO debt.  So where’s the problem?

Just when you thought things couldn’t get more complicated

So there the CSO was, deadlocked.  The musicians were willing to accept the donor’s terms of reinstating Alessandro and having Dan leave, but the board wasn’t.

Then out of the blue, Dan Hart announces that he’s been offered and has accepted the position as the new executive director of the Buffalo Philharmonic.

So it would seem that with Dan leaving the picture on his own accord there shouldn’t be much standing in the way of accepting the donor’s offer.

But wait, there’s more to tell.  After Dan’s announcement regarding his imminent departure, the board officially appoints executive board member Mark Beeson as the acting interim executive director on July 29th, 2004.

This could be considered an odd choice when you consider that on June 30th, 2004, MSNBC reported Mr. Beesen was recently was ordered by the SEC to pay a civil penalty of $100,000 and barred from the mutual-fund industry for three years due to a violation of federal securities laws.

Then just yesterday on August 9th, 2004 Reuters Business News reported that Michael McMennamin, chairman of the CSO board of trustees, has
relinquished his position as Chief Financial Officer for Huntington Bancshares Inc. amid an ongoing federal investigation into the bank’s accounting methods over several years.

I attempted to interview board chairman McMennamin, but he was unavailable for comment.

Things at the CSO are now getting needlessly out of control.

So here’s what the CSO board should consider:

1. Take the Skestos offer, take it now.  Don’t worry about what they might say about you at the country club or at big social events.  If you want, you can give them my email and I’ll defend your actions for you.
2. Given the SEC investigation involving some of the current board leadership, those board members should quietly resign.  They obviously have more to worry about than just the orchestra right now. Once their situation is cleared up and they have the proper amount of time to allocate to the CSO board, then they can return.
3. To believe that it would cost significantly more to keep Alessandro on for two more years over the cost of hiring a series of guest conductors while simultaneously running a MD search is just incorrect.  By retaining Alessandro the CSO can extend the MD search for an additional year, therefore drawing the candidates out over that time. The cost of bringing those candidates in is not an appreciable
   amount over the cost of the regularly hired guest conductors throughout the CSO season. Bring Alessandro back for two more years.
4. Now that Dan Hart left on his own accord, you’re faced with the expense of replacing him which is exactly what Dan said you didn’t want.  So there are no more arguments against the donor’s offer to help pull the orchestra out of its current financial mess.