Rebuttal to Michael Henson’s Testimony, Part 1/2

Well, it took months, but we’ve finally heard more than a sentence or two from Minnesota Orchestra CEO Michael Henson.

On 23 January 2013 Mr. Henson testified in front of the Commerce and Consumer Protection Committee of the Minnesota House of Representatives in a hearing dedicated to exploring the impact of lockouts on communities.

And as you can imagine… I have some things to say.

Before I begin, I ask that you read everyone else’s testimony. Here is Rep. Atkins’s introduction to the hearing – here is the Minnesota Orchestra musicians’ testimony – here is Orchestrate Excellence’s – here is the SPCO musicians’ and Save Our SPCO’s. Please read them all before continuing, because I will likely reference them during my commentary, and I feel it is vitally important to view Mr. Henson’s words in the broader context of the day’s testimonies.

Onward.

I am Michael Henson, the President and CEO of the Minnesota Orchestra. I am very proud to be here to represent the Minnesota Orchestra, which is an exceptional organization that enjoys such an acclaimed history in this state.

First question and we’re only two sentences in… Why would a man be “very proud” to represent a lockout-friendly management in front of a committee that is contemplating legislation to “prevent or disincentivize the probability of lockouts” (Star Tribune, 24 January)? Continuing with Rep. Atkins’s “lockout as epidemic” metaphor, Mr. Henson’s words strike me as similar to a virus going into a doctor’s office and saying, “I am proud to be here to represent influenza.” It just seems…odd, and tone-deaf.

Our board is made up of citizen volunteers who are generous contributors to the orchestra. Speaking on behalf of the board and myself, we feel it is our responsibility and our great privilege to ensure that the 110-year legacy of this organization continues long into the future, benefiting new generations of Minnesotans for years to come.

Here’s an intellectually lazy insinuation if I’ve ever seen one: if you are a volunteer, and give a lot of money, you are therefore an expert in orchestral management. This assertion from the MOA continually bewilders me. Nobody in their right mind would hire a bunch of volunteers from the music world to make a bunch of decisions at the state’s largest financial institution, so why expect the Minnesota Orchestra Board of Directors – largely made up of lawyers, bankers, and businessmen – to make informed calls on what will sustain artistic quality? Has it crossed anyone’s minds at the MOA that emphasizing the volunteer nature of the board might be a liability? Volunteers are not guaranteed to be experts in things, no matter how well-intentioned they are. Traditionally people have to pay for expertise.

Let’s take a look at what professionals have said about the Minnesota Orchestral Association’s tactics:

It’s hard to imagine that the orchestra’s finances really justify such cuts, especially with the success the management has had raising money for the renovation of the hall. – Robert Levine, board member of the League of American Orchestras, 10/17

[On management’s proposals to abolish seniority pay] Traditionally, the diminuation of artistic quality produces an equal decline in ticket buyer and donor interest, which in turn could initiate an unavoidable spiral of decline resulting in exacerbated financial crisis. In short the cure stands a high degree of probability for killing the patient. – Drew McManus, arts consultant, 11/19

The orchestra I knew, and have loved, is being dismantled in front of my very eyes and ears. – Bill Eddins, former Assistant Conductor of the Minnesota Orchestra, 12/15

And there are more damaging words where those come from, trust me. Those are just the first three quotes to come to mind.

Another question: why would volunteers who don’t earn their livings at the Minnesota Orchestra be more interested in its fiscal solvency than the employees who do?

On to Mr. Henson’s next paragraph. (Yes, it’s going to take me a while to work through all this. To be fair, I have a lot of material…)

As a non-for-profit, our orchestra has three sources of income. First, ticket sales from our concerts and our events. Secondly, contributions from generous community members, corporations, foundations, and of course the state of Minnesota. And thirdly, our endowment earnings. Over the years, generous donors have contributed to our endowment and each year we are able to draw a percentage of those earnings to help us sustain our operations.

As an arts organization, we are not immune from the economic challenges facing the rest of the world, and during the recession each of our revenue streams were negatively impacted, particularly our contributions and our investments.

Let’s take one leg of the revenue stool at a time…

“Ticket sales from concerts and events.” According to local non-profit professional Mary Schaefle, who wrote a series of guest blogs for me on the Minnesota Orchestra’s finances, ticket revenues decreased a total of 8.3% from the 2008-2009 season to the 2010-2011 season. However, it is a matter of public record that Mr. Henson deliberately pursued this strategy as a cost-cutting measure. In that context, it strikes me as being unfair to complain. He can’t have his cake and eat it, too.

Have any other orchestras been successful in increasing ticket sales? Let’s look at a smaller poorer metro that is less-educated than Minneapolis: Cleveland. We should be able to out-perform them, right? Surprisingly, both ticket sales and revenue from ticket sales are up there. Read this fascinating story. (Ironically, the increase is due largely to engaged students and young people, a demographic whose needs and interests Mr. Henson has consistently refused to address throughout this entire debacle.)

“Contributions from generous community members, corporations, foundations, and of course the state of Minnesota.” Once again, let’s look at Ms. Schaefle’s work. As she says, it is important to differentiate between unrestricted donations that can be used for operating expenses such as salaries, and money that was raised for the Building for the Future campaign. During the course of fundraising for Building for the Future, unrestricted giving did indeed decrease. Was it because of the recession? Fundraising for the hall? Both? Neither? We have no way of knowing. However, Ms. Schaefle said, “I wondered whether focusing on the campaign would have a dampening effect on general, or annual, contributions. We can’t say for certain, but it’s tempting to think that the same effort for the Orchestra as a whole would have eased or erased the deficit.” This is an especially interesting question to ponder when you consider that the Minnesota Orchestra’s extraordinary fiscal health was advertised internationally, and that Mr. Henson never gave a single hint in the press that the orchestra would be facing massive deficits in 2011 and 2012. (Indeed, despite this knowledge, as late as 2010, he was floating the idea of a $90 million hall renovation to the Star Tribune.) Why would Minneapolis citizens give to support operating expenses when the orchestra was doing so well that it could afford a massive renovation and brag about its fiscal health abroad?

And thirdly, our endowment earnings. Once again, let’s take a look at Mary Schaefle’s analysis. She mentions that whoever provided the Minnesota Orchestral Association with its fiscal projections was wildly off-base. One example: in the 2006-2007 season, the MOA projected that their endowment would be up to $192.4 million in the next fiscal year. In reality? It only ended up being $168.5 million, a difference of $24 million. And this was before the market tanked: remember, the markets didn’t plunge until September of 2008, which occurred in the MOA’s 2008-2009 fiscal year. So the incompetence goes way beyond an economic crisis no one saw coming. (According to the musicians, MOA board chair and Wells Fargo Vice President Jon Campbell once said to them that they “must be wondering ‘what he was smoking’.” Indeed.) And that’s not all the concerns that independent onlookers have with the manner in which the MOA endowment was handled. See Mary’s essay for more.

Given all that…I think it’s a fair question to ask: how much of the decreased revenue is due to the “economic challenges facing the rest of the world” – and how much of it is due to sheer incompetence within the Minnesota Orchestral Association?

We maintained stability within the organization through those volatile years by relying upon our endowment, which was appropriate and responsible action. But it is not a sustainable one. Today we face the reality that if we continue to draw down our endowment at the current rate, it will be depleted in five years’ time. We cannot allow that to happen in the future of this organization.

So there you have it. Mr. Henson believes that pre-planning deficits four years in advance so that your organization will be better positioned to secure millions in public and private money, as well as major concessions from musicians…without telling your stakeholders what you’re doing…while also raising tens of millions of dollars for a major campaign…is an “appropriate” and “responsible” way of maintaining “stability.”

Do you agree with him?

Last December we announced a six million dollar operating deficit for the orchestra. We know that this deficit will continue to grow until we address our financial issues directly, and we have developed a thoughtful strategic plan to do just that.

Hey, want to hear an interesting fact? Mr. Henson knew this deficit would continue to grow…all the way back in 2009. From the MOA minutes from February 2009:

If the deficit is between $3 million and $5 million in fiscal 2010, it will be of the same size range for the next two years of the musicians [sic] contract.

And yet, strangely, Mr. Henson never said a thing about it in 2009. Want to know why? Because he wanted to be well-positioned to secure $14 million in taxpayer money from the state of Minnesota in January 2010. That’s not me making an assumption: that’s in the minutes. My bold:

Under this scenario we would use a fixed dollar amount from the endowment to announce balances in Fiscal 2009 and 2010, and would announce deficits in the $1.5 million to $2 million range in Fiscal 2011 and 2012… Balances in 2009 and 2010 would support our State bonding aspirations…while the deficits in 2011 and 2012 would demonstrate the need to reset the business model. Negative outcomes would be that the gap between public announcement of balance and internal reality of deficits in 2009 and 2010 would need to be maneuvered carefully…

More from the testimony:

we have developed a thoughtful strategic plan to do just that.

I think it’s worth mentioning here that this thoughtful strategic plan was concocted entirely in secret without any community, patron, donor, government input. I repeat: all major stakeholders were shut out of the discussion. The “thoughtful plan” was thrust upon us, and we were expected to swallow it whole and without question, despite the fact that every independent observer has warned that it will negatively impact the quality of our orchestra.

This plan calls for a combination of revenue increases, including our board members increasing their already generous gifts to the organization by twenty percent, as well as significant cost reductions, which we’ve already undertaken on the management and the administrative side of the operation.

This then is the backdrop against which we are now trying to negotiate a new contract with our musicians. We understand that the impact of the lockout is felt throughout the community, and we have great empathy for those who have been impacted by this, including our musicians.

Question: how can Mr. Henson understand the impact of the lockout on the community when Mr. Henson has not once spoken to the community? When he has ignored letters and emails and phone-calls? When he has turned down every single request for an in-depth interview to discuss the subject?

And Mr. Henson has empathy for the musicians? In what world is an organization that refuses playing-and-talking and binding arbitration, stonewalls the delivery of requested financial information, and cuts off employees’ health insurance considered to be empathetic? Upside-Down World?

Seriously, though. I’d guess that the musicians want to be onstage more than the volunteer board…since the volunteer board isn’t going without pay and health insurance and desperately traveling the world to seek other work! If representatives of the MOA management equate the suffering of the musicians to the suffering of the board one more time…(as unbelievable as it is, they’ve done it before)…I will scream. And although I’m in Eau Claire, I guarantee that Mr. Henson will hear that scream all the way in Minneapolis.

Part 2 is here.