On 12 February, Minnesota Orchestra CEO Michael Henson testified before the Legacy Committee of the Minnesota House of Representatives. About 75% of his testimony was word-for-word identical to the one he gave at the 23 January hearing of the Commerce and Consumer Protection Committee on the effects of lockouts, so I’d like to mention I discussed that January testimony in-depth in this two-part essay, if you’re interested in reading that.
Henson’s January performance was by no means strong, but his February performance was disastrous. As soon as he was asked to answer questions off-the-cuff, he had great difficulty expressing himself. There was incredulous giggling in the audience, as well as spontaneous applause when Rep. Alice Hausman expressed her concerns. Several legislators were clearly unsatisfied by the answers that Mr. Henson gave, saying things such as “That doesn’t answer my question” and “so you’re not sure.” So I wanted to review the questions that were asked, remind everyone exactly what Mr. Henson said, and then discuss why certain of his answers were so problematic…and, when I can, answer the questions more fully.
Rep. Phyllis Kahn (DFL) asked:
Did you give a dollar amount for the deficit?
Michael Henson responded:
It was six million dollars for last year’s operating budget.
Yes, the deficit was six million dollars this year.
I think it’s worth mentioning that this came as a surprise to nobody in the organization. Mr. Henson knew there would be a large deficit this year…(wait for it)…in February 2009, eleven months before he testified in front of the state legislature about balanced budgets and facing the future “with stability.” From the few Minnesota Orchestral Association (MOA) minutes that have been released to the public:
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. – February 2009
In September 2009, the Minnesota Orchestral Association made a conscious decision to postpone their deficits until 2011 and 2012 so that they could fundraise more easily. In the words of the September 2009 minutes: “It would be more easy to manage two years of deficit spending than four years in our communications to the public and donors.” Graydon Royce wrote about this in the Star Tribune in November 2012.
Rep. Mary Murphy (DFL) asked:
[Does] the six million dollars include the expenses of the lockout?
Michael Henson responded:
Um, the six million dollars referred – thank you, Representative, Madame Chair, Representative, for the question – uh, the six million dollars refers to the previous year before the lockout was instigated, so it’s last year’s full operating accounts, when we had a fully operating season.
First off, let’s clarify the timeline a bit here. The MOA’s fiscal year runs from 1 September of one year to 31 August of the next. So the last fiscal year ran from September 2011 to August 2012. The lockout began on 1 October 2012.
Second, what exactly would you consider expenses of the lockout to be? Legal counsel? PR firms? Personal security for Mr. Henson? I’d need more clarification to be able to answer with any authority.
Rep. Dean Urdahl (R) asked:
How much does [the lockout] cost the orchestra?
Michael Henson responded:
Uh, Madame Chair, Representative, thank you for the question. Um, we have three income streams which are, uh, contributed revenue, which we continue to fundraise for. Uh, we have earned revenue, which is box office revenue, which, uh, we quite clearly are not collecting at the moment, and we are refunding any tickets that we have sold. And we are still reliant on, ah, the investment income from, uh, the endowment. Um, first of all, I want to say that we want to get the orchestra back to work as soon as poss – we want to negotiate a contract that is sustainable for this community with its generosity, and I think the – it’s balanced on two equations, the money that we haven’t actually taken, so obviously box office, and then the money, uh, that we haven’t paid – unfortunately – because of the lockout. Uh, the reality is, uh, that we’re trying to scope the size of the organization to the amounts of generosity we have, and the unfortunate, um, uh, thing is, uh, that for each month we played beyond the old contract that we had, it would have cost us and we would have lost over $500,000 for each month we continued playing.
Mr. Henson didn’t answer.
If there’s a better example of a non-answer retort, I have yet to find it (note the laughing toward the end). In case you missed it, Henson never actually answered the question and rest assured it isn’t due to ignorance. Instead, providing a figure would give the locked out employees an advantage by knowing roughly how long the organization can hold out before the revenue falloff becomes serious enough that the MOA would have to consider liquidating.
Personally, I’m not sure if Mr. Henson didn’t answer the question because he didn’t want to…or because he didn’t actually know the numbers offhand. But Mr. McManus has much more experience in the field than I do, so I’ll defer to his judgment.
Rep. Dean Urdahl (R) asked:
Regarding negotiations, have you been having regular sessions? Has there been a time period now when you haven’t been meeting? What are the plans for future negotiations?
Michael Henson answered:
Um, um, we, um, had a meeting on the second of January, uh, where we, uh, presented to, um, uh, the negotiating committee from both sides our financial plans going forward for the following three years. Uh, we changed the mission statement, um, and, uh, we, uh, agreed to, uh, find common ground for joint financial analysis. Conversations have been going on for the last six or seven weeks in terms of how to reach agreement on that financial analysis, and so we are happy those conversations are going, we want to progress those as speedily as possible. Um, I feel the details of negotiations should probably be kept in the negotiating room, but we have every intent to try and move this forward as speedily as possible.
In August 2012, the musicians asked for the financial analysis. Mr. Henson didn’t accept until January 2013. Since August, he has turned down requests by musicians to address the full board; he has refused binding arbitration; he turned down a couple offers to play-and-talk; and six weeks before the MOA agreed to it, MOA spokesperson Doug Kelley dismissed further financial analysis on Almanac as a mere “frolic and detour.” Despite everything he says, Mr. Henson is clearly not interested in “mov[ing] this forward as speedily as possible.” If he truly was interested in moving forward as speedily as possible, he would have done many things over the course of this lockout very differently. That’s a fact.
Also, Mr. Henson is straight-out lying when he says that he believes that “the details of negotiations should probably be kept in the negotiating room.” In September, weeks before the musicians’ contract expired, he authorized the Minnesota Orchestral Association to go public with the entirety of the new proposed contract without the musicians’ knowledge, saying, “We’ve had a lot of questions externally, and we’ve felt that with a month to go, without having received a counter-proposal from the musicians, that we should share this information.” I know it sounds unbelievable, given what he said to legislators, but his quote is there in the Star Tribune. Read it yourself.
I also think it’s worth saying something about the mission statement, since Mr. Henson brought it up. In November 2011, management changed the mission statement of the Minnesota Orchestral Association, and in the process, removed the word “orchestra” from it. Details here. After months of outcry, Mr. Henson finally said in January that the mission statement will revert back to the old one, plus a new clause calling for fiscal sustainability. However, it has been over six weeks and we’re still waiting on the official new wording.
Rep. Dean Urdahl (R) asked:
How long has this been going on?
Mr. Henson responded:
Um. We locked out the orchestra on the first of October, so we are into the fifth month of this lockout. We realized this was going to be a complicated, um, negotiation, which is why we presented our first proposal on the twelfth of April, giving nearly six months for us to have conversations. Um, we are still waiting, um, to have our first counterproposal from the musicians. Um, we see by removing the barriers that are apparently were there in terms of what I say about the second of January but hopefully those removed and we can actually move to substantive negotiations as soon as possible.
The lockout began on October first, as Mr. Henson says. The first proposal was indeed presented in April, but multiple conversations over six months were clearly unproductive, and I can assure you it wasn’t because musicians didn’t have anything to say. Here is a comparison of the few differences between the two contracts the Minnesota Orchestral Association offered, one in April, and the other in September. Between April and September there were conversations. Nothing kept the MOA from altering their proposal to reflect those conversations. Suffice it to say, the two contracts they offered are nearly identical; there are maybe ten minor changes in a massive contract dozens of pages long. Also keep in mind a counterproposal is not legally required for conversation. And also that Mr. Henson consistently refused a financial analysis that would answer the musicians’ questions in August, September, October, November, and December.
Rep. Alice Hausman (DFL) asked:
It was a long time ago that you and I met, and I have lots of questions. Um, but the presentation still sounds very much the same after so much time, and, um, it sometimes feels to us as sort of a cold description of a balance sheet. And what I hear in the community and maybe what we represent, is this growing sense of urgency and loss and despair. This committee is about preservation of the arts, among other things, um, over and above what this community and this state usually did. That’s what people voted for when they voted for the amendment, and so those are the kinds of contributions we make. And I think this feels to so many in the community like the opposite of preservation of the arts, the destruction of the arts, by people who…who love the arts – by people who are devoted to it. But there is this sense of disbelief growing in the community as time passes by and nothing changes. The presentation doesn’t change. The words are still the same. And the one thing that haunts me in the words is as I think about this, the coincidence of timing of this lockout with the construction that feels sort of convenient. It’s a good time to have a lockout when there is construction. Especially when I heard you say we really save money with the lockout; if we were playing, we would be losing money every month. And so I think it’s – um, as we’ve heard these words, this troubling, troubling dimension to this – the timing of it, and we’ve heard some of the descriptions of, do we have a surplus that shows donors we are comfortable, or do we have a deficit that explains a lockout. So it’s this sense of loss and despair that the community feels – the sense of urgency – and yet it doesn’t feel as though that’s a shared feeling.
Michael Henson answered:
Madame Chair, Representatives. I thank you very much for the question. We are a performing arts company, a great orchestra. Uh, the board’s intent is to get the orchestra playing concerts, giving education work, um, as soon as possible, um, but we need to do that from a sustainable base. We’re 110 years old, and we have the duty to make sure that this orchestra continues for another 110 years. So we have a substantial financial challenge that needs to be overcome. We have to address that. But behind that is a passion for the arts, for music, that everybody on the board, everybody inside the company and the community feels that it’s in everybody’s interests to get the orchestra back onstage as soon as possible, but it has to be at a level that actually is sustainable, and it is at a level that this community is able to both afford and generously gives to.
Until now, this has gone largely unsaid, but what the heck; I’ll be the first in the blogosphere to make a big deal about it. I don’t want to make this into a personal attack, but I think it’s relevant, so here goes: Wells Fargo Executive VP Jon Campbell, the chair of the Minnesota Orchestra board of directors, doesn’t go to Minnesota Orchestra concerts. I know some board members go to concerts, and I thank those individuals. But how can the powerful board members who never – or even rarely – go to see the Minnesota Orchestra have a passion for great orchestral music, or feel a personal sense of urgency to bring the orchestra back to the stage?
Also, may I submit that we simply don’t know what Minneapolis can and cannot afford, because we were never told the truth about the Orchestra’s finances…until it was too late. As recently as mid-2010 Mr. Henson was bragging about the fiscal condition of the Minnesota Orchestra to the international press. In fact, an article from Gig Magazine including the following passage was uploaded to their website in the summer of 2010:
The former Bournemouth Symphony head is strategising his way through the recession – and winning.
There’s no single strategy to beating the downturn,’ Michael Henson asserts. ‘There has to be a whole series of strategies to maintain a focused approach. The priority is continuing the excellence in the artistic work.’ With orchestras across the US hard hit by the recession – and management strategies the number-one talking point at the League of American Orchestras’ conference in June – the Minnesota Orchestra stands out as a beacon institution among the bad news…
This remained on the Minnesota Orchestra’s website…until October, when I wrote about it. Then suddenly – mysteriously – it was taken down, with no explanation.
The public was never told that there was a crisis until after the board of directors had come up with a “solution” – in total secrecy – to gut musicians’ salaries and working conditions. Why is Mr. Henson qualified to say what we can and cannot afford? He never told us what was coming. Ever. He can’t say that we wouldn’t have stepped up to help. I think it’s pretty obvious that if we’d have been told the truth over the last few years, we would have.
Anyway. I agree, Rep. Hausman…the timing was convenient, wasn’t it? The Minnesota Orchestral Association not only saves millions on musician costs, but hundreds of thousands of dollars on rental for the Convention Center. Truth speaks louder than Henson.
Rep. Mike Freiberg (DFL) asked:
I’m wondering what the lockout is costing the average musician in the orchestra?
Mr. Henson answered:
Um, the, um… Madame Chair, Representatives. Um, the current, um, average salary, uh, that we had in the previous contract was $119,000. The current average salary that we had before negotiating any further is $89,000, um, with $30,000 on average in benefits. So we’re no longer obviously paying that salary and those benefits. That is the cost to – to the musicians. We are very aware of that – uh, we want to resolve this as speedily as possible, in terms of how we can get everybody back to actually creating music.
I think it’s most useful to look at base salary, as opposed to average, because the increased pay of principal players will skew the numbers. In August 2012, MPR placed the 2012 base salary of Minnesota Orchestra players at $111,500. That’s $2144.23 a week. The lockout has been going on for twenty weeks. The calculation is a simple one: a player earning base has so far lost roughly $42,884, plus their health insurance coverage. Of course others have lost more.
Despite this, Mr. Henson has said, multiple times, that he has “great empathy” for musicians.
Rep. Jean Wagenius (DFL) asked:
Mr. Henson said that there was a substantial financial challenge…and I was wondering if he was aware of this challenge when he asked for bonding money, and if he was aware of it, did he share it with the bonding committee?
Mr. Henson said:
Um, Madame Chair, Representatives. Um, when we applied for the money, the economy was in a turbulent position. We were using the endowment to stabilize the organization. We undertook a strategic planning exercise after we received the money and no one at that stage realized how volatile the economy was going to be and whether it would return quickly or slowly. Unfortunately it turned much more slowly than we expected, um, and we began our strategic planning after we had received notification of the funding in January 2010.
Rep. Wagenius was unsatisfied with that answer:
That’s not answering my question.
Mr. Henson tried again:
We, um, explained to the bonding committee at that time that we were operating on a stable financial basis, that we had presented three years of operating, um, uh, balances – uh, we had done that, and in the short term we were operating from a stable basis. Part of that stability was how do we manage the five-year contract that we have with our musicians through to 2012.
Of course the Minnesota Orchestral Association knew there was a substantial financial challenge in January 2010. What organization didn’t? Take a moment to read these seven pages of MOA minutes, and take special note of the following sentences:
Over the next several years we may need from $15 million to $20 million in cash. The question before us is whether to show operating losses or do special draws and achieve balance. – January 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. This is a serious liquidity issue, and the MOA already has $11 million in debt. – February 2009
Balances in 2009 and 2010 would support our State bonding aspirations and Guaranty Fund and BFF Campaign fundraising, while the deficits in 2011 and 2012 would demonstrate the need to reset the business model. – September 2009
Of course they knew. Don’t over-think this.
No one at that stage realized how volatile the economy was going to be…
Really? No one in January 2010 knew that the economy would be volatile over the next few years? Please. If nobody in management at the MOA knew the economy would be volatile, then they were guilty of criminal incompetence, and they have no business working at a non-profit, let alone the greatest orchestra in America. End of story.
You may also be interested in the fact that Mr. Henson is lying about the “strategic planning” only occurring after January 2010. In September 2012, he wrote in an open letter to the community that said the strategic planning to solve the orchestra’s deep-rooted financial problems began sometime in 2009. He’s quite clear about it. My bold:
Over the past three years we met regularly with our musicians and others with a stake in our future to share the clarity of our financial challenges and the road map forward outlined in the strategic plan.
I haven’t a clue if Mr. Henson shared the fact they were seeing massive financial problems with the materials he shared with the bonding committee. I’m going to go out on a limb and say he didn’t.
From Rep. Dean Urdahl (R):
What have ticket sales done?
Um, ticket sales last season continued to show a slight decline in classical sales. Uh, pops sales remain very stable. Um, it’s also important to remember in terms of the number of concerts that we give, uh, that in terms of Summerfest we actually saw an increase in our ticket sales as well.
You may be interested in reading local non-profit professional Mary Schaefle’s analysis of the Orchestra’s 990s: “What We Know About the Minnesota Orchestra’s Finances – And What We Don’t.” It’s a three-part series, but the portion in which she discusses ticket sales is part 2:
Management lists declining ticket sales as a significant financial challenge. It’s true ticket revenue declined 8.3% when you compare the season ending in 2009 with 2011 (990, page 9 available on Guidestar).
Let’s turn to the words of Orchestra management to learn why that happened. In 2011, the change was “due primarily to a reduction in the number of concerts”. This refrain was repeated in the 2010 report, when a reduction in ticket revenue was attributed to “16 fewer concerts, a dropoff of 9 percent.” Mr. Henson went on to say decreasing the number of concerts was part of their financial strategy to control costs. Sure, decreasing the number of concerts means lower costs for ushers, box office staff, concession staff and many other things. But it also means lower revenue. If your financial strategy is to decrease costs through fewer concerts, but that same strategy also means decreasing revenue, do you really come out ahead?
Orchestra concerts are not the only events at Orchestra Hall. Decreases in other earned revenue, things like the Jazz series and hall rentals, were more than double the drop in classical tickets, by more than $1.3 million or 18%. We don’t know why those things decreased (interestingly, concessions showed an increase). But it makes me nervous that the new business strategy plans tobroaden “program offerings to respond to customer interest.” If the plan does rely on income that has been dropping more rapidly than concert sales, major revisions are required.
I think that was more the type of answer Rep. Urdahl was shooting for.
Rep. John Ward (DFL) asked:
What percent of cuts and they suggested I ask you – what percent of cuts have you as a management level taken? I heard thirty, fifty percent from them. What have you taken percent-wise?
Mr. Henson answered:
Uh, Madame Chair, Representative. Um, first of all, we are in a stage of negotiations that whatever the cuts that we actually finally agree, we’ve not agreed, as part of that negotiation process with, uh, the musicians – uh, we uh, have effectively frozen salaries across the administration, uh, for the, uh, last five years while the musicians received a nineteen percent increase. We’ve cut pension contributions by forty percent; we’ve laid off twenty percent of, uh, of the management, and medical costs, uh, cost the staff twenty-five percent more than they currently cost the musicians.
Rep. Ward answered:
So you’re not sure. Okay, I’ll leave it at that.
It is impossible to know without additional context what exactly has been cut on the administration side, and how. Keep in mind, there were some cuts in personnel that were related to the Orchestral Association leaving Orchestra Hall for the year. According to Ms. Schaefle, the biggest cuts recently were in touring costs, fees-for-service, and advertising and marketing, respectively.
However, if you’re asking specifically about Mr. Henson’s compensation, here are some numbers you may be interested in. (Numbers taken from publicly available 990s.) In 1998, the CEO of the Minnesota Orchestra received $265,000 in compensation…in 2002, $321,995…in 2006, $337,974…and in 2011, $389,861. And, lockout or no lockout, Michael Henson continues to make that. In fact, if his 2011 compensation is any indication (and we have heard nothing from the MOA it isn’t), Mr. Henson takes home roughly $1100 in compensation every single day the lockout goes on: roughly $150,000 in donors’ money so far. The Minnesota Orchestral Association has not presented a single concert since October, but Mr. Henson continues to be paid in full.
So. I hope that helps to clear up some things. The MOA is welcome to dispute any of the claims above. They’ve ignored me for months, but maybe now they’ll start paying attention.
I’m planning on writing all of the legislators who took part in this hearing to share my viewpoint with them. I hope you’ll consider doing the same, as it seems likely that there will be more hearings at which Mr. Henson will be asked more questions, and I think the lawmakers deserve to have as many facts as possible at their disposal as they decide how exactly they want to move forward.