Why a clusterduct?

Andrew Taylor at The Artful Manager blog suggested that my reaction to the Flanagan report might be better characterized by putting in into the Clusterf*cks category than by the relatively measured tone of what I actually wrote about it. And he’s right; I found the whole thing enraging.

The Flanagan report, and the process that brought it about, is a classic example of how not to make our field a better place. It should never have happened in the first place. So why did it?

Andrew Taylor at The Artful Manager blog suggested that my reaction to the Flanagan report might be better characterized by putting in into the Clusterf*cks category than by the relatively measured tone of what I actually wrote about it. And he’s right; I found the whole thing enraging.

The Flanagan report, and the process that brought it about, is a classic example of how not to make our field a better place. It should never have happened in the first place. So why did it?

Flanagan was not the first such document in the history of our business. There was one dating from the early 80s (done, I think, by the Stanford Research Institute). I have seen a copy of a Depression-era magazine in which appears a doom-and-gloom article almost identical in tone. But the most recent, and the most famous, was “The Financial Condition of Symphony Orchestras,” commissioned in 1990 by the ASOL, and known to one and all as the Wolf Report.

There seem to have been three major reactions to the Wolf Report. The first, and most correct, was that of Peter Pastreich, then CEO of the San Francisco Symphony and probably the most successful orchestra manager of his generation, who said:

We do have a critical financial problem. The orchestras are spending more than they are taking in, and if they don’t stop doing that soon there will be some disrupted seasons and lowered living standards for musicians and administrators. But the situation is not critical, not serious, and music will survive. What we don’t need to do is to allow the financial problems which have developed from over optimism, poor management, and admirable generosity to drive us to “solutions” which are worse than the problem. What we do need to do is balance our budgets: take in more money and spend less. And continue to be an innovative, living force in the American cultural scene.

The second, and less correct, was that of Deborah Borda, who at the time was CEO of the New York Philharmonic (and ironically a protégé of Pastreich’s):

The “Holy Deadlock” that exists today between most boards, orchestras, and staffs must be broken. If we can’t find a more productive way of working together toward genuine change, we will eventually drive off that cliff. For any of the valid issues and questions posed by Wolf to be addressed so as to create meaningful change in our industry, we must begin to consider some fundamental changes in our governance functions. We must create a new protocol.

The last (and least correct) analysis was the one that featured prominently in the popular press, and which could best be summarized by cartoons of dinosaurs being slaughtered en masse by meteors.

In the late 1990s, the Andrew W. Mellon Foundation, under the leadership of Catherine Wichterman, Mellon Program Officer at the time for giving away lots of money to the orchestra industry, weighed in on the side of governance issues being paramount. They started something that became known as The Orchestra Forum and invited a number of orchestras to apply. Many orchestras did so; some because the prospect of studying governance issues was attractive to them; others because they would receive a lot of money by participating, regardless of what they actually thought about governance being the key problem to be resolved.

As a result of this process, Mellon gave millions to orchestras. It may well have been the single biggest focused donation in our field since the Ford Foundation grants of the 1960s. And there were some results. The Electronic Media Forum, from which sprung the Internet Agreement of 2000, was funded by Mellon. The radical restructuring of the governance structure of the Saint Paul Chamber Orchestra a few years ago was due in some part at least to their participation in the Orchestra Forum. Not everyone agrees that either of these were positive results, by the way - but they were results.

But, on the whole, the program produced very little real change in the field. This came as no surprise to those traditionalists who believed that the main problem that American orchestras have with governance is in the quality of their boards, rather than the amount of musician participation therein. And it remains true that most of the largest and most successful orchestras adhere to the traditional model, with strong boards composed of community leaders and musician “input” limited to a small subset of important decisions - something that has changed not at all since the Wolf Report.

One other result of Mellon’s Orchestra Program was the Elephant Task Force:

The so-called Elephant Task Force (“ETF”), a cross-constituent group of musicians, managers, and trustees grew out of one such discussion in late spring 2003–a time when a significant number of orchestras were facing financial challenges.  The economy was still reeling from the bursting of the stock market bubble and the direct aftereffects of 9-11, and national resources were being reallocated away from the arts.  Orchestras, both major and regional, had reported significant financial deficits the prior season.  All of the Forum orchestras admitted to projected deficits that year ranging from five to fifteen percent of revenue.

From the outset, one key issue for the ETF was the question of whether fiscal problems were structural or cyclical.  This question loomed large, for the organizational implications of it being one or the other are significant.  A verdict in favor of “cyclical” would imply that the status quo is fundamentally sustainable, and the key financial challenge for orchestras would be to gain greater ability to withstand the inevitable ebbs and flows of the economy.  A verdict that the problem was structural would carry with it far greater implications for the long-term management of the organization.

In March 2006, the Mellon Foundation on behalf of the ETF commissioned Stanford University Professor Robert Flanagan to conduct an analysis of the economic health of orchestras, with the objective of assessing the cyclical and structural influences thereon.

Unfortunately Mellon made some bad choices. One, I suspect, was Flanagan himself. His webpage at the Graduate School of Business at Stanford University says:

His research interests have included the economics of discrimination, labor union behavior, and the impact of national incomes policies and collective bargaining institutions on wages, inflation, and other measures of macroeconomic performance. Most of his research focuses on the effects of international differences in labor market institutions and practices on employment outcomes. His most recent book analyzes the effects of globalization on working conditions and labor rights around the world. Currently, he is studying the role of competition between performing arts organizations on their financial balance.

To me, this does not sound like the ideal intellectual portfolio for someone commissioned to do a study about whether or not an industry is overly impacted by economic cycles. And any expectations that he wouldn't look at the issue of the cost of unionized labor with a gimlet eye would have been pretty clearly unfounded.

I don’t know Professor Flanagan, and I don’t know a lot about his field. I would guess, however, that those who labor in those vineyards develop strong feelings about labor unions, whether for or against. Flanagan appears to be “against,” at least when it comes to the union’s role in the financial condition of the industry. He wrote an earlier paper, based on an earlier version of his Mellon report:

The unionization of major orchestras is complete, but the roots of union power are somewhat mysterious. Unions do not limit the supply of new classical musicians, and that supply is huge relative to the number of positions available. For much of the history of symphony orchestras in the United States, the American Federation of Musicians did little to advance the wages and employment security of symphony musicians. While musicians have some inherent bargaining power, flowing from the limited possibilities for consumer or producer substitution for their services, that power was not effectively exploited.

Instead, the income and employment security gains eventually accorded symphony musicians appear to flow from inherent bargaining weaknesses of the management of not-for-profit organizations and a striking historical intervention by a major foundation, which for a limited time provided resources that further reduced management’s bargaining resistance. Management weakness is traceable in part to the considerable ambiguity over the identity of their principals. The Ford Foundation grants, which were intended in part to support long-run financial stability in orchestras by building up endowments, further undermined management bargaining resistance at the cost of diverting some potential endowment funds to achieve short-run labor objectives. The story of symphony orchestras and symphony musicians provide an intriguing example of how an isolated historical event (the foundation intervention in this case) can have long-lasting and sometimes unintended effects.

In the wake of this historical event, the industry was left with collective bargaining agreements that specify both the wage and the labor input, limiting the ability of orchestras to adjust labor costs in the face of financial challenges. With the labor input more or less fixed, collective bargaining focuses on wage determination, but there is little incentive to shape wages to standard measures of organizational performance. Since the late 1980s, the wages of symphony musicians increased more rapidly than the wages of most other workers and were not strongly correlated with either the performance income gap or the overall financial balance in orchestras. Instead, musicians’ wages are strongly positively correlated with private contributions to orchestras. The availability of private and public support effectively creates significant ambiguity about the true economic constraints faced by an orchestra. That a wage policy that ignores measures of organizational economic strength has serious consequences is clear from the large number of orchestra bankruptcies over the past 15 years. There are few instances of wage or guaranteed weeks concessions in advance of the bankruptcies. In cases in which failed symphonies eventually reopen, musicians’ wages and annual guaranteed weeks invariably have declined relative to conditions in other symphony orchestras.

Not only is a fair amount of this wrong, (almost every instance of orchestral bankruptcy was preceded by concessions - often mid-term - by musicians)  but I’d like to think that calling boards weak and musicians greedy was not exactly what Mellon had in mind when they hired Flanagan. But that’s what they got.

Mellon’s mistake went deeper than hiring the wrong researcher, though. They failed to insist on any control at all over how the work was going to be used, which just seems dumb. Most industries don’t put their consultants’ work on the web for all to see, and for good reason. In fact, the release of the report by Flanagan apparently came as a total surprise to Mellon; hence the scrambling to put up a newsblog on the Orchestra Forum site which contains, to date, precisely one posting: their decidedly lukewarm response to the report they commissioned.

Mellon's fundamental mistake was in commissioning a report about the wrong topic. The fact is that such reports as this one, and its earlier siblings, are simply not very useful to the field. Successful orchestras know they’re succeeding; unsuccessful ones generally know they’re not. A report on the finances of the industry as a whole says nothing about what a particular orchestra should do to continue succeeding – or stop failing.  The single most telling line about the Flangan report appears on the Stanford site on which the report appeared:

Flanagan said the study’s scope did not try to identify similarities among the 17 symphonies that usually did have surpluses.

Would it have spoiled Flanagan's academic cred to have discovered something that might actually help?

If the Wolf Report proved anything at all, it’s that predictions are very hard to make – especially about the fuure. Even if Wolf’s predictions (or Flanagan’s implied predictions) were/are accurate, they would still be no help to anyone actually trying to make the field better. If Mellon was trying to help the field with this research, they failed. And the kind of failure that could well end up with more cartoons of meteors falling on dinosaurs is beyond inexcusable.

There seem to have been three major reactions to the Wolf Report. The first, and most correct, was that of Peter Pastreich, then CEO of the San Francisco Symphony and probably the most successful orchestra manager of his generation, who said:

We do have a critical financial problem. The orchestras are spending more than they are taking in, and if they don’t stop doing that soon there will be some disrupted seasons and lowered living standards for musicians and administrators. But the situation is not critical, not serious, and music will survive. What we don’t need to do is to allow the financial problems which have developed from over optimism, poor management, and admirable generosity to drive us to “solutions” which are worse than the problem. What we do need to do is balance our budgets: take in more money and spend less. And continue to be an innovative, living force in the American cultural scene.

The second, and less correct, was that of Deborah Borda, who at the time was CEO of the New York Philharmonic (and ironically a protégé of Pastreich’s):

The “Holy Deadlock” that exists today between most boards, orchestras, and staffs must be broken. If we can’t find a more productive way of working together toward genuine change, we will eventually drive off that cliff. For any of the valid issues and questions posed by Wolf to be addressed so as to create meaningful change in our industry, we must begin to consider some fundamental changes in our governance functions. We must create a new protocol.

The last (and least correct) analysis was the one that featured prominently in the popular press, and which could best be summarized by cartoons of dinosaurs being slaughtered en masse by meteors.

In the late 1990s, the Andrew W. Mellon Foundation, under the leadership of Catherine Wichterman, Mellon Program Officer at the time for giving away lots of money to the orchestra industry, weighed in on the side of governance issues being paramount. They started something that became known as The Orchestra Forum and invited a number of orchestras to apply. Many orchestras did so; some because the prospect of studying governance issues was attractive to them; others because they would receive a lot of money by participating, regardless of what they actually thought about governance being the key problem to be resolved.

As a result of this process, Mellon gave millions to orchestras. It may well have been the single biggest focused donation in our field since the Ford Foundation grants of the 1960s. And there were some results. The Electronic Media Forum, from which sprung the Internet Agreement of 2000, was funded by Mellon. The radical restructuring of the governance structure of the Saint Paul Chamber Orchestra a few years ago was due in some part at least to their participation in the Orchestra Forum. Not everyone agrees that either of these were positive results, by the way - but they were results.

But, on the whole, the program produced very little real change in the field. This came as no surprise to those traditionalists who believed that the main problem that American orchestras have with governance is in the quality of their boards, rather than the amount of musician participation therein. And it remains true that most of the largest and most successful orchestras adhere to the traditional model, with strong boards composed of community leaders and musician “input” limited to a small subset of important decisions - something that has changed not at all since the Wolf Report.

One other result of Mellon’s Orchestra Program was the Elephant Task Force:

The so-called Elephant Task Force (“ETF”), a cross-constituent group of musicians, managers, and trustees grew out of one such discussion in late spring 2003–a time when a significant number of orchestras were facing financial challenges.  The economy was still reeling from the bursting of the stock market bubble and the direct aftereffects of 9-11, and national resources were being reallocated away from the arts.  Orchestras, both major and regional, had reported significant financial deficits the prior season.  All of the Forum orchestras admitted to projected deficits that year ranging from five to fifteen percent of revenue.

From the outset, one key issue for the ETF was the question of whether fiscal problems were structural or cyclical.  This question loomed large, for the organizational implications of it being one or the other are significant.  A verdict in favor of “cyclical” would imply that the status quo is fundamentally sustainable, and the key financial challenge for orchestras would be to gain greater ability to withstand the inevitable ebbs and flows of the economy.  A verdict that the problem was structural would carry with it far greater implications for the long-term management of the organization.

In March 2006, the Mellon Foundation on behalf of the ETF commissioned Stanford University Professor Robert Flanagan to conduct an analysis of the economic health of orchestras, with the objective of assessing the cyclical and structural influences thereon.

Unfortunately Mellon made some bad choices. One, I suspect, was Flanagan himself. His webpage at the Graduate School of Business at Stanford University says:

His research interests have included the economics of discrimination, labor union behavior, and the impact of national incomes policies and collective bargaining institutions on wages, inflation, and other measures of macroeconomic performance. Most of his research focuses on the effects of international differences in labor market institutions and practices on employment outcomes. His most recent book analyzes the effects of globalization on working conditions and labor rights around the world. Currently, he is studying the role of competition between performing arts organizations on their financial balance.

To me, this does not sound like the ideal intellectual portfolio for someone commissioned to do a study about whether or not an industry is overly impacted by economic cycles. And any expectations that he wouldn't look at the issue of the cost of unionized labor with a gimlet eye would have been pretty clearly unfounded.

I don’t know Professor Flanagan, and I don’t know a lot about his field. I would guess, however, that those who labor in those vineyards develop strong feelings about labor unions, whether for or against. Flanagan appears to be “against,” at least when it comes to the union’s role in the financial condition of the industry. He wrote an earlier paper, based on an earlier version of his Mellon report:

The unionization of major orchestras is complete, but the roots of union power are somewhat mysterious. Unions do not limit the supply of new classical musicians, and that supply is huge relative to the number of positions available. For much of the history of symphony orchestras in the United States, the American Federation of Musicians did little to advance the wages and employment security of symphony musicians. While musicians have some inherent bargaining power, flowing from the limited possibilities for consumer or producer substitution for their services, that power was not effectively exploited.

Instead, the income and employment security gains eventually accorded symphony musicians appear to flow from inherent bargaining weaknesses of the management of not-for-profit organizations and a striking historical intervention by a major foundation, which for a limited time provided resources that further reduced management’s bargaining resistance. Management weakness is traceable in part to the considerable ambiguity over the identity of their principals. The Ford Foundation grants, which were intended in part to support long-run financial stability in orchestras by building up endowments, further undermined management bargaining resistance at the cost of diverting some potential endowment funds to achieve short-run labor objectives. The story of symphony orchestras and symphony musicians provide an intriguing example of how an isolated historical event (the foundation intervention in this case) can have long-lasting and sometimes unintended effects.

In the wake of this historical event, the industry was left with collective bargaining agreements that specify both the wage and the labor input, limiting the ability of orchestras to adjust labor costs in the face of financial challenges. With the labor input more or less fixed, collective bargaining focuses on wage determination, but there is little incentive to shape wages to standard measures of organizational performance. Since the late 1980s, the wages of symphony musicians increased more rapidly than the wages of most other workers and were not strongly correlated with either the performance income gap or the overall financial balance in orchestras. Instead, musicians’ wages are strongly positively correlated with private contributions to orchestras. The availability of private and public support effectively creates significant ambiguity about the true economic constraints faced by an orchestra. That a wage policy that ignores measures of organizational economic strength has serious consequences is clear from the large number of orchestra bankruptcies over the past 15 years. There are few instances of wage or guaranteed weeks concessions in advance of the bankruptcies. In cases in which failed symphonies eventually reopen, musicians’ wages and annual guaranteed weeks invariably have declined relative to conditions in other symphony orchestras.

Not only is a fair amount of this wrong, (almost every instance of orchestral bankruptcy was preceded by concessions - often mid-term - by musicians)  but I’d like to think that calling boards weak and musicians greedy was not exactly what Mellon had in mind when they hired Flanagan. But that’s what they got.

Mellon’s mistake went deeper than hiring the wrong researcher, though. They failed to insist on any control at all over how the work was going to be used, which just seems dumb. Most industries don’t put their consultants’ work on the web for all to see, and for good reason. In fact, the release of the report by Flanagan apparently came as a total surprise to Mellon; hence the scrambling to put up a newsblog on the Orchestra Forum site which contains, to date, precisely one posting: their decidedly lukewarm response to the report they commissioned.

Mellon's fundamental mistake was in commissioning a report about the wrong topic. The fact is that such reports as this one, and its earlier siblings, are simply not very useful to the field. Successful orchestras know they’re succeeding; unsuccessful ones generally know they’re not. A report on the finances of the industry as a whole says nothing about what a particular orchestra should do to continue succeeding – or stop failing.  The single most telling line about the Flangan report appears on the Stanford site on which the report appeared:

Flanagan said the study’s scope did not try to identify similarities among the 17 symphonies that usually did have surpluses.

Would it have spoiled Flanagan's academic cred to have discovered something that might actually help?

If the Wolf Report proved anything at all, it’s that predictions are very hard to make – especially about the fuure. Even if Wolf’s predictions (or Flanagan’s implied predictions) were/are accurate, they would still be no help to anyone actually trying to make the field better. If Mellon was trying to help the field with this research, they failed. And the kind of failure that could well end up with more cartoons of meteors falling on dinosaurs is beyond inexcusable.