When I read the latest Star Tribune article on the Minnesota Orchestra crisis, one quote in particular struck me as being so patently absurd, and so directly opposed to everything that had come before it, I felt like I’d wandered into a new upside-down dimension. Either Michael Henson is going off the rails, or I’m becoming dangerously entrenched and reading much too deeply into a couple of sentences, and I’m not sure which it is. If you could convince me I’m crazy, I’d appreciate it. Thanks.
Here’s the portion of the article that made me feel as though a Rod Serling sighting was imminent:
Michael Henson, president and CEO of the orchestra, said on Friday that no immediate financial crisis exists, but he likened the investment funds that help fund each season to a retirement account.
“You can’t spend 90 percent of it in the first four years of retirement,” Henson said. “You need to make it last.”
He indicated the orchestra would like to draw no more than 5 percent annually from the funds; the draw rate has averaged nearly 10 percent over the past 10 years, he said.
Before I begin, I’m going to assume that Henson was quoted accurately, and that his words weren’t manipulated or misrepresented in any way. We should hear within the next couple of days if he objects as to how his comments were portrayed.
With that assumption out of the way, let’s try to unpack this “no immediate crisis” remark.
First, I’d like to say a few words on the nature of crisis.
If you are on track to spend ninety percent of your income in your first four years of retirement, then you are in IMMEDIATE CRISIS.
If you’ve staked the long-term fiscal health of your organization on overly “optimistic economic assumptions and the hope of limitless benefactor generosity,” then you are in IMMEDIATE CRISIS.
If you say on your website that “if the Orchestra continues to operate at its current rate of spending, our endowment will be depleted by 2018“, you are not only in IMMEDIATE CRISIS, you’ve been in IMMEDIATE CRISIS for years.
If your only hope of creating a “fiscally responsible” organization means cutting musicians’ pay somewhere between 25-50%, then you are in IMMEDIATE CRISIS.
If you knew you wouldn’t be able to work for the next few years, and knew your only income would be your life savings, and you knew you’d run out of that savings by 2018, then you would be in IMMEDIATE CRISIS.
If you knew that all American resources would, at the current rate of spending, be depleted by 2018, then newsflash: we would all be in one hell of an IMMEDIATE CRISIS.
Call this what it is:
AN. IMMEDIATE. CRISIS.
Financial crises don’t start when your checks start bouncing. Crises start when you make the calculations and realize that all resources will be depleted by a particular point in time (say, 2018) if you don’t make major unprecedented changes (“significant departure[s] from the traditions of the past,” according to management) that run the risk of changing the face of your organization. The risk of such a thing happening is, in and of itself, a crisis. A huge one. Period.
I’m racking my brains and I can only come up with three explanations for this bizarre statement. Leave a note in the comments if you can think of another.
1) The orchestra is truly IN IMMEDIATE CRISIS!!!ZOMG111!!!1!ELEVENTY!!!1!…but Michael Henson either A) lied or B) accidentally said it isn’t. That means that Michael Henson is either A) a liar or B) incompetent.
2) The orchestra is not in immediate crisis, and management is misrepresenting what’s actually in the endowment in order to get a sharply concessionary contract.
3) Henson didn’t actually use those exact words, and didn’t mean to insinuate that the Orchestra isn’t in crisis right now, but he made a statement that led Graydon Royce to feel comfortable risking his and his paper’s reputation by interpreting it in that way. I have no reason not to trust Mr. Royce. (And like I said, we’ll see in the next few days if any statements emerge from Henson disputing how his remarks were interpreted…) If this is true, then that means Michael Henson is communicating poorly at a moment in time when he needs to communicating with crystal clarity. It also suggests that he hasn’t thought enough about how to explain the Orchestra’s problems coherently and persuasively. If you need unprecedented concessions from your musicians because if you don’t get them, the organization as you know it will no longer be able to “survive”…then for God’s sake, run with that. Yes, Campbell and Davis made some pretty damaging PR mistakes within the last few weeks, and that sucks. But Campbell and Davis have s*** to do. Those guys were probably sneaking a five-minute phone call into the Star Tribune in between eating caviar, approving billion dollar mergers, and telephoning Tim Pawlenty to ask if he’d be interested in being CEO of the Financial Services Roundtable (where Davis is a director, FYI). But this is Henson’s full-time job. For which he is being paid $400,000+ this year alone. He should be fully capable of handling a simple newspaper interview without mucking up his message.
Some additional questions…
If there isn’t an immediate crisis, why tamper with working conditions? How much would the changes in working conditions save the orchestra? Have they run the calculations on that? Why haven’t they made those calculations publicly available with their proposed contract? They’ve got an awesome shiny website with which to disseminate such information…
Also: why not agree to an independent financial analysis?
I’d like to take a moment to discuss the current musicians’ contract, which management is saying doomed all prospects of fiscal sustainability. This shamefully irresponsible contract was signed in October 2007, according to this Playbill article. Michael Henson came aboard in September 2007, so I’m not sure if he had any say in negotiating or ratifying that.
But even if he didn’t, dude was super-proud of how things were going financially at the Minnesota Orchestra as late as July 2010…almost three years into that irresponsible five-year contract. In retrospect, this is a hilarious article to read. [Edit 10/15: This article has since been removed from the Minnesota Orchestra website. Feel free to draw your own conclusions as to what that means. There has been no explanation so far. You can take a peek at the screenshots I took here.] For a bit of perspective, let’s remember that the much ballyhooed Strategic Plan was published in November 2011. In the introduction we read that “the ideas in this plan have been developed, tested, and honed over the last 18 months.” So that means management started working on the ideas contained within the Strategic Plan in the spring of 2010. Insinuation: they were seeing “significant financial issues and unsustainable fiscal practices the organization must resolve to ensure a sound future” before the spring of 2010. (This meshes with the claims of the Open Letter, which claims, “This is a journey that began several years ago, when the Board of Directors of the Minnesota Orchestra recognized that the organization could no longer survive [my bold] based on optimistic economic assumptions and the hope of limitless benefactor generosity.”) So, having established that, I’d like to let Michael Henson from July of 2010 say a few things. Remember that during this time, he had not only been seeing “significant financial issues and unsustainable fiscal practices” within his orchestra for at least the last few months, if not the last couple of years, he was also, behind closed doors, writing a plan to address those financial issues and unsustainable fiscal practices.
Take it away, Michael Henson of July 2010!
The former Bournemouth Symphony head is strategising his way through the recession – and winning. [my bold]
“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. It’s planning a European tour in August (its second in two years), expanding its online content and starting a large-scale renovation project at its home venue – having recently announced the end of a highly successful fundraising scheme. “I would say the support we get from the community is unique,” Henson boasts.
“Minnesotans are highly educated and committed to education,” he goes on, “and with a community this size – around 5m people in the region – we have a wide range of arts organisations, and a collective desire from individuals and corporations to support them.” In 2008-09, contributions accounted for 44 per cent of the orchestra’s $32.5m income. “On top of that, we’ve made some concessions at various points, there’ve been some layoffs and pay cuts in administration,” Henson notes; in August 2009, he took a seven per cent pay cut himself [heh], while Osmo Vänskä, music director since 2003, took 10 per cent [the organization’s fiscal leader took a smaller pay-cut percentage-wise than the music director? classy]. At the same time, Henson negotiated modifications to the musicians’ contract, resulting in around $4.2m in cost savings up to 2012 – mostly through salary and pension reductions, and a wage freeze in FY2010. The orchestra currently numbers 95 contracted players, with six positions open; delaying filling those positions could save up to $1.8m in the long term. [Why are these concessions not mentioned on management’s website? Have they slipped Henson’s mind? Pity, because he seemed awfully proud of them in 2010…]
The orchestra announced in June 2009 that it had raised $14m of its $40m goal for the renovations. One year later, thanks to a last-minute $5m donation from the Target department store chain, it announced it was up to $43m. “The extra will mean we have enough to do it right – to improve chair Y as well as chair X,” says Henson. It also bodes well for the orchestra’s more long-term fundraising programme, “Building for the Future”, which aims to supplement its endowment by $30m, and provide a further $30m for artistic and educational endeavours. Including the renovation funding, the campaign has raised $82m of its $100m target. “Even though we’re in a recession, we have to keep up the commitment to the long-term vision,” Henson continues. “The board agreed to take the risk on this.”
This year, Minnesota will be the only US orchestra represented at the Proms, a fact with added significance for Henson. “We have already made six live broadcasts this season on the BBC,” he notes (another echo of his Bournemouth days). “Our appearances at the Proms, the world’s greatest music festival, have grown from our close relationship with the BBC and will contribute to the process of increasing our visibility.” Its 2010 tour will also take it to the Edinburgh Festival and the Concertgebouw Amsterdam. “We have to keep up our international presence,” Henson says, indicating again his multi-stranded approach to building up the orchestra’s standing. “It’s all about keeping the key priorities in mind.”
This does not sound like a man (or a board) who has been seeing “significant financial issues and unsustainable fiscal practices” for months or years. Nor does it sound like a man (or a board) who is thinking very deeply about those significant financial issues and unsustainable fiscal practices and writing a Strategic Guide of how to address them. And this surely does not sound like a man (or a board) who is anticipating the necessity of a sharply concessionary contract – a “significant departure[s] from the traditions of the past” – a mere two years later, in September 2012. So of course one has to wonder: was Michael Henson being disingenuous to this reporter, or is he being disingenuous to us now?
In case you were thinking this was just a bad interview…may I present to you the Michael Henson of December 2009…
Henson says the last fiscal year was also one of artistic success for the orchestra both at home and abroad.
“We are quietly pleased with the results,” he said. “We are in control of a difficult situation and I think we are looking forward to the future with a similar amount of control, mindful of the economy we face.”
He says the coming year will continue to present economic challenges but he is confident the orchestra is keeping a careful handle on the situation.
That’s nice. But if you were drawing out of the endowment at an average of 10% during this time, then you were (by the parameters you set forth in the Star Tribune yesterday!) not in control of a difficult situation. You were not keeping a careful handle on it, and you had no right to be pleased – quietly or otherwise – with how things were going. Yes, I know that when non-profits are struggling, there is a reluctance to admit how bad things are for fear of scaring away donors and fostering death-spirals. But if things are bad, and you sugarcoat them, when the chickens come home to roost, you can’t treat the public like clueless idiots for asking why your tune has changed. You can’t be in a house, smelling smoke, feeling heat, and hearing smoke alarms, while simultaneously telling people you’re totally in control of any fire that may be forming on the property…and then, when the flames start coming out the windows, scold the public – who wasn’t even in your damn house – by saying, “Guys, I’ve been talking about this raging inferno for years. Help me put it out!”
Of course that leads me to wonder: maybe the fire wasn’t actually burning yet?
Here’s another article from December 2008:
As was the case last year, the orchestra drew only 6 percent from its endowment to help address the budget. The $191 million endowment was down 11 percent because of stock-market performance. The board is allowed to draw up to 7 percent, but spokeswoman Gwen Pappas said the organization has been very firm about avoiding that method.
Okay, so… Based on that 2008 article, let’s try to figure out what’s been happening with the endowment draw rate. I’m using an average of 7% for pre-2007 years, even though Ms. Pappas said the organization had been avoiding that percentage, and it may well have been lower…
2002 – 7% or less
2003 – 7% or less
2004 – 7% or less
2005 – 7% or less
2006 – 7% or less
2007 – 6%
2008 – 6%
I obviously don’t have all the numbers, but based on the ones I do, I don’t think it’s particularly outrageous to assume that, if Henson’s “ten percent over the past ten years” statement is actually true, then in 2009, 2010, and 2011, the board must have increased the draw rate to an annual average percentage of 17%+. This seems frankly unbelievable, especially since Richard Davis went on record in December 2010 as saying, “This was a season characterized by disciplined budget management and significant expense cuts, which kept our operations stable in an unpredictable environment.” I don’t know if anyone would call a 17% annual draw “disciplined budget management” (especially not the Richard Davis of 2012), but…okay. I’d be curious to know what all happened in 2009 that necessitated such a dramatic climb in the draw rate. Yes, the crashing economy no doubt had a lot to do with it…but does that explain all of it? (Or, is Michael Henson lying about the draw rate?)
Also, since the post-2009 draw rates were clearly such dramatic outliers, regardless of exact percentages, why didn’t Henson say something like “over the last three years, our draw has increased to an average of 17%+, but before the recession began, it was no higher than 7%”? Were ulterior motives at play? Did he want to make it look like the huge draws were an indication of systemic failure, rather than merely a result of the recession? (This meshes with management’s insinuation that problems have been in place “for many years.”) Did he want to keep the public from placing the blame on him? Did he just pull that number out of nowhere, forgetting that a quick Google search is all it takes to check his statements against Star Tribune articles?
[Important Edit 10/29: More information on draw rates here.]
And why isn’t Henson willing to clearly discuss everything that happened in his tenure, positive or negative? It smacks of a rather desperate insecurity. He was proud to say in December 2009 that he was in control of a difficult situation, and that he was pleased with how things were going. In July 2010 the Minnesota Orchestra felt comfortable posting an article on their website saying, “The former Bournemouth Symphony head is strategising his way through the recession – and winning.” Implication: management thought they were strategising their way through the recession, and winning. But now we’re being told that, “Whoops; our bad; we didn’t actually mean ‘winning’; we meant ‘veering ever-closer toward an inevitable fiscal Armageddon.'” Then why didn’t you tell us then???
Binds like this don’t happen overnight. If the Orchestra’s only options truly are to deplete their endowment by 2018 or impose 25-50% wage cuts, there is an immediate crisis, no matter what Mr. Henson says. Obviously someone, somewhere, screwed up. Badly. And even if part of the blame rests on the musicians’ 2007-12 contract, not all of it lies there. If the problems really were this serious back in July of 2010, and December of 2009, and December of 2008, then Michael Henson knew about them. And he had a duty to say something. Or at least email whoever was in charge of the website and say, “Guys, you might want to take down that ‘Michael Henson is winning’ article…it will come back to bite us in the a** in 2012 when we’re forced to reveal how hopelessly f***ed we are…”
Michael Henson is either misrepresenting the facts now, or he was misrepresenting the facts then. Period.
(Also, I have a funny little factoid for y’all: when you Google “Michael Henson Minnesota Orchestra”, my Hundred Questions are on the first page. So every time Michael Henson does a Google search on himself and his employer, he’s going to be reminded of me. Aww.)
Like I said, convince me I’m crazy. Please. Because this just seems too wild to be true. As always, the comments section is open to everybody.
Update, 9/26.According to the musicians’ blog, at their most recent negotiating meeting, the musicians asked management questions about “inconsistencies found within the Board and Management’s financial information.” I’m assuming at least some of those questions were similar in nature to the ones asked above…? “The meeting proceeded with an assurance from the Board and Management that the Musicians would receive answers to these questions later…” Interesting. Feel free to speculate as to what that means… If I hear or read anything from management addressing what I wrote above, I’ll add it to this entry. If you hear anything, post it below.