George Thorn, theater guru – interview in THE OREGONIAN

I had the great honor of being a student of George Thorn at Virginia Tech (I actually think I was his last graduating student).  George and his partner in Arts Actor Research, Nello McDaniel, continue to be among the wisest counselors for theater and dance in the country – we used to call them gurus and I think it still fits.  The books that were published by Arts Action Research still grace my bookshelves—and many of my friends. 

 

Interview: George Thorn on the ecology of the arts community

May 02, 2009 09:00AM. OregonLive.com

 

If you're a struggling arts organization, who would you call for 9-1-1 advice?

Probably George Thorn, the Portland-based independent arts consultant who's likely in the Rolodex of every arts organization in town.

Off and on for more than four decades, Thorn has advised arts nonprofits around the country to plan and strategize finances, programming, board development and administrative infrastructure. Never, it seems, has this expertise been in greater demand than now, during a recession that has forced most arts institutions to cut budgets in response to, and in anticipation of, a difficult year.

Born in Indiana, Thorn, 72, studied theater at Butler University in Indianapolis and also at Yale University. In 1959, Thorn moved to New York, where he began a career as a stage manager and then general manager of Broadway productions. After three years in Connecticut as the executive vice president of the Eugene O'Neill Theater Center, Thorn began to shift to consulting, eventually starting Arts Action Research with Nello McDaniel.

Thorn and his wife, Nancy, a former theater and television dancer, moved in 1996 to Portland, attracted to the city's modest scale and scrappy arts scene. Because of his partnership with McDaniel, Thorn spent much of his first 12 years in Portland traveling to New York for work. These days, Thorn spends most of his time in town, though he and McDaniel continue to work together.

Since 1996, Thorn has advised more than 75 Oregon arts and culture institutions of all sizes, disciplines and levels of success, including the Portland Art Museum, Portland Center Stage, Chamber Music Northwest, Northwest Children's Theater and the now closed Portland Art Center.

Last month, he was honored by The College of Fellows of the American Theatre, an organization based in Washington, D.C., that promotes professional theater.

Recently, Thorn talked with The Oregonian about the financial health of Portland's arts institutions, the state of fundraising here and other arts issues. The interview was edited for clarity and space.

Q: You were so immersed in New York's arts world. Why did you leave?
A: Nancy and I left New York in 1974 for a couple reasons. It was the time of New York City's first economic crisis. This great city was disintegrating. It was also the time of a great transition within professional theater. In the theater, professional producers used to be the ones who put the shows together. But at the time, there was this transition from professionals to people who weren't professionals but could raise money. I had another business partner back then and together we managed five different shows for one producer. That producer could raise money. But he had no sense of aesthetics. It was just time to move on.

Q: You've been an arts consultant during a time that spans the emergence and maturity of nonprofits. What's been the biggest development?
A: One difference is that there used to be this belief in an institutional model. Whether you were an orchestra, a small gallery or museum, you were supposed to fit into that model. People are now organizing in terms of the way they need to as opposed to the way they are supposed to.

Q: Is that good or bad?
A: It's a great thing because the idea that one model can serve a collective that is so wide-ranging is not healthy. Many small and midsized organizations tried to fit into a model when they shouldn't have.

Q: Having witnessed New York's economic collapse during the '70s, how bad is this current recession?
A: This is the most serious recession I've ever seen. It's not cyclical. When we come out of this, we will be different. I don't know how, but we'll be changed. There's little in our past experience to help with this.

Q: We've seen many arts organizations scale back costs because of the recession. But shouldn't we expect some to shutter entirely?
A: I would think so. The way I would describe it is this: If a nonprofit was relatively balanced before the crash and endowed with good leadership, then they'll find their way through this. But if a nonprofit was out of balance financially, then the stress will be a hundredfold.

Q: Nonprofits have made budget cuts. But given the cycle of budgets, isn't the worst ahead of us?
A: I think everyone is making cuts because income and endowments are down. So in December and January people began to rethink budgets and how to break even. But I think balancing budgets for 2009-10 will be much harder. When the crash happened in October, performance organizations, for example, already had subscriptions, and year-end giving was coming in.

But only now and into next year will we truly see the ramifications on ticket sales, fundraising and memberships. I suggest nonprofits conceptualize not only for the several months left in this year but also for the time carrying forward into next year and beyond. People need to be working on an 18-month cycle now.

Q: What other advice are you giving nonprofits?
A: Be income-driven as opposed to expense-driven. If you are expense-driven, you build an expense budget based on what you want or need to do. Then you create income budgets to balance that. But if you are income-driven, you will develop your expenses responsibly and in line with the money you have.

Q: What's the single biggest mistake nonprofits make?
A: Growing to a size and scale beyond the mission. That's when it loses its center, its mission, and tries to become something more than its resources indicate. Of course, it's easy to understand why this happens: Our society is based on growth. That's the primary criteria for success: Are we getting bigger, doing more programs? Groups thus feel this pressure to grow bigger. That's how nonprofits get a mile wide and an inch deep.

Q: Nonprofits talk a great deal about the shallow funding base. Do you think they're right?
A: Yes. Portland is the most difficult city to raise money that I've ever worked in. Portlanders surely appreciate what they have culturally. But what's missing, to a degree, is an understanding by them that an investment is necessary in order to keep what they have. They have to give money. Another reason is that there is a thin layer of support overall. What the city and the Regional Arts & Culture Council (the nonprofit devoted to arts funding for the Portland area) have done is important in terms of funding, but it can't compare to other cities. We also have a thin base of corporate funding because so many businesses are moving out. The foundations have been generous but that, too, is a small base.

Q: So it's difficult to raise money here, but do you think there is actually money to raise?
A: Overall, no. From individuals, yes. The corporations have been doing what they can. But again, that's a small base compared to other communities in other cities.

Q: You've talked in the past about a system of individual donors.
A: There is a window closing on the old system of donors here. The old system is composed of the families who long ago took responsibility for patronizing arts and culture and other sectors of the community -- Arlene and Harold Schnitzer, for example. As that generation passes, wealth is spread out across the next generation. But sometimes that next generation doesn't have the same interests and passions of their parents, though Jordan Schnitzer clearly does. Our large budget organizations, like the Portland Art Museum, will likely get through that closing window. But not others. What will replace that new system? We have some elements already -- RACC's Work for Art program, the Oregon Cultural Trust, maybe a dedicated funding stream down the road. In other words, there are a lot of individuals out there with money, but they aren't in the arts and culture system.

Q: In the visual arts word, there's been a dream to create a contemporary art center. There have been various attempts, but each has failed. Can it happen here?
A: I'm not sure there is a level of support for a center of the quality and size we desire. I think the first thing that would have to happen is that people would have to be prepared to commit a significant level of funding. Because if we are talking about a center with national, maybe international, reach and ongoing education programs, then that's a big price tag -- at least a $3 million or $4 million budget.

Q: Why isn't the support there?
A: I did a presentation about 18 months ago in Seattle. At the time, Seattle had just expanded its museum with a new outdoor sculpture garden. There was also a new great symphony hall and a new library designed by Rem Koolhaas. We just don't dream like that in Portland. It doesn't mean we don't dream. We just dream differently. We dream about light rail, sustainability, bicycles, green culture.

Q: Mayor Sam Adams recently introduced an idea to create a ballot measure for arts funding. What are the chances of such a measure passing?
A: It would happen only with a real educational effort to articulate why arts funding would add value to all of our lives. And we are a long way from that kind of understanding. On the other hand, if the arts community can rally all of its audiences, donors, members, workers and volunteers over one or two issues, then they won't be stopped.

Q: Don't you think the recession will affect people's willingness to give money?
A: Yes, but on the other hand, this is the best time to plan, to strategize, so that when we come out of this recession, we'll be prepared and ready.

Q: The ballot measure is really the mayor's idea. But he's been compromised politically because of the Beau Breedlove scandal. How will that affect any possible measure's chances?
A: I don't think the mayor will be that key. What's more important is whether a grass-roots movement develops. It will be a collective effort that won't be dependent on any one person.

Q: You and your wife, Nancy, could just enjoy a simple life in Portland after many years on the road and having accomplished so much professionally. Why bother with struggling organizations now?
A: It's simple. I get to work with terrific people and I love the work that I do.

NYTW – Great Twitter contest, even better customer service response.

New York Theater Workshop has a fun Twitter contest that captures email address and offer core followers discounts.  It started this morning with tweets for #TheatreThursday counting down to a ticket give-away (twitter category day where you are supposed to tweet followers you recommend).  Then came the tweet with a link to this:

 

 

 

Welcome Tweeters!

Here's how to enter and win
a free pair of TwitTix to
Things of Dry Hours

Email marketing@nytw.org

with the subject line:
First Thursday TwitTix!

Please include your
name, phone number and
email address.

The first email received will win a pair of free tickets to be used during one of the following performances:
May 22 @ 8pm, May 23 @ 8pm
or May 24 @ 7pm.
Winners will be contacted by 6pm Friday, May 15th.

Good Luck!

 

 

 

 

 

I wanted to see what happened, it looks like a great show, and I wouldn’t mind seeing my friends work (shout out to Ruben Santiago-Hudson and Roslyn Ruff).  So I emailed to see if I could win.  Here is the very smart email I got back:

Dear Jodi,

Thank you for following NYTW79 on Twitter and entering to win TwitTix. Unfortunately you were not the first to enter. The good news is that next Thursday from noon to 5pm NYTW will be giving away another pair of free TwitTix. 

For being an NYTW Twitter follower we would like to offer you a special discount for tickets to Things of Dry Hours. Purchase tickets by June 8 and tickets are just $32.50 each for performances on May 22 and 23 and $40 each for performances May 24 through June 28! (reg. $65). To purchase tickets, call (212) 947-8844 or visit www.broadwayoffers.com and use code DHTWR430.
*Offer expires June 8, 2009

Thanks again and continuing following NYTW79 for more free tickets and discount offers!

-Becky

Other Great Ways to Save at NYTW
CheapTix Sundays
All tickets for all Sunday evening performances at 7:00 PM are $20 (Limit 4 per customer and subject to availability). Tickets are available in advance but must be purchased at the NYTW box office on a cash-only basis. Student tickets ($20) are still available for these performances.

Student tickets
Full-time students with a valid student ID may purchase $20 tickets for all performances (subject to availability). Limit one ticket per ID. Tickets must be purchased in person and require an ID at the box office. For tickets, please visit or call the NYTW box office (212-460-5475). (full-time students only)

Rebekah Paine

Marketing Assistant

New York Theatre Workshop

79 East 4th Street

New York, New York  10003

P: 212.780.9037 X 114

F: 212.460.8996

rebekahp@nytw.org

Become a fan on Facebook

 

Here is why I am impressed:

First, it is personalized. It took a moment on the reply, but it was a nice touch. 

Second, it was from a real person with a real email address who will now be the person I reach out to for NYTW tickets (Rebekah, you may regret that). 

Third, I got a special offer as a twitter follower. 

Fourth, they gave me other options as well. 

Fifth, they captured my email address (and my cell number I just realized since it is in my signature) and reminded me to become a fan on Facebook (already am). 

And finally, the whole thing felt like NYTW – downtown, cool factor – check, personalized community feeling (check), and bold compelling graphic (check). 

 

Rebekah – I don’t know if this was your idea, but I will send this post to Billy Russo, if he can’t give you a raise he can tell you “job well done.”

Relationships between commercial and nonprofit theatre primer

Partnerships between commercial theatre producers and nonprofits are becoming more and more common across the United States. Each season, I end up consulting on several of these agreements.  For better or for worse the number of people who call themselves commercial theatre producers and shop/buy shows to/from nonprofits has increased significantly.  The partnerships are happening nationwide. 

Whether developing new work or creating a new interpretation of a classic, I think it is imperative that nonprofits take the position that as original producers of a show they are entitled to significant participation in the future productions.  The strength of the negotiation position is usually derived from whether the nonprofit holds the right to the production and brings the project to a commercial partner or whether the commercial partner holds the rights.  The former is always more beneficial in negotiations. 

It is key for a nonprofit not to get trapped in the idea that these partnerships are just financial transactions – they are so much more than that.  Here are some basics!

Simple definition of some key terms:

Enhancement: An individual, group or entity pays the nonprofit a certain amount to produce the show usually based on costs beyond the traditional budget of the nonprofit’s production of a similar show. There is usually a rights exchange between partners. This money is considered earned revenue and is not a donation. The nonprofit would most likely have future participation as original producer.

Non-recourse loan: An individual, group or entity “loans or guarantees” the funds or part of the funds to produce a show. The “loan” is repaid out of “net profits of the production.”  This framework is not used as often as enhancement.

Production/producing partnership: a relationship between nonprofit and commercial theatre where there is no financial transaction but rights are assigned (usually from the commercial producer to nonprofit), but participation in future production is contractual.

Producer: Raises funds for and “manages” commercial production. Participates in producer’s gross royalty and producer’s portion of the net (usually 50/50 split before deals), above the title billing.

Investor: someone who gives money for a commercial production and is eligible for repayment of investment and a share of profits.

Donor: someone who gives money to a nonprofit in exchange for tax deduction or donor benefits

Participation: can include several terms on a future production including but not limited to, royalty, net participation, the right to raise funds for a production, billing, artistic approvals, consultation, etc.  Participation does not necessary equal money.

Original producer’s royalty: Royalty varies, almost certainly includes gross participation (.5-2%) and can include net participation (2.5-10%). Level of participation usually depends on who has the rights and how “hot” the property is.

It is a myth that original producer can only have a role in the commercial production if they make a financial contribution. Defining future participation is key to any production agreement.  Three most important factors to a nonprofit for any partnership in a commercial production –  billing, who has the decision to close the show, and financial participation.  Other important issues are approvals and expense/marketing decisions. 

Billing is highly contested now. Most producers will now not agree to above the title billing without financial contribution to capitalization. The status of the theatre would certainly affect the deal they can make. 

The most important, difficult, and controversial decision in any production is when to close the show.  This is the decision that can ruin relationships between partners.  The factors are not as cut and dry as how well is the show selling.  There are many things to consider: sales, awards, artist relationships, investor relationships, subsidiary rights, and additional productions such as tours.  More often than not these factors are at odds with one another.

I encourage every nonprofit entering into an enhancement deal to make sure that they are allowed to serve as actual partners on a future production.  There are two basic models for acting as a Producer/investor in a commercial project if you are nonprofit theater – many organizations use both:

1. Form a for-profit subsidiary and raise funds or invest organizational funds (something I would advocate against).  In this model, the nonprofit would act as any other commercial producer or associate producer would with appropriate financial participation and role in production decisions. Risk – IRS could determine income as taxable (unrelated business income), although many precedents against.

2. Raise or invest organization funds as the organizations itself. In this model, the nonprofit would act as any other commercial producer or associate producer would with appropriate financial participation. Risk – non-profits and for-profit can not be on same level in LLC structure, so in this model the role in production decisions would have to be legally defined. It also must be very clear that investors are working with the LLC or other corporate structure they are not donors to the organization.

Risk in either model is that the nonprofit could be asked to waive original producer’s royalty and participation, which I would fight. It is an easier fight under the first model, but the second model (my favorite) is becoming more and more preferred by many non-profits.  I don’t think an organization should consider an enhancement agreement without the right to raise a significant portion of the capitalization.  It is a right to do it, that can always be waived.  But it is very important to have a choice as to whether to participate as a producer and participate in the producers financial portion of the commercial venture.

NOTE: There is no way for a commercial investment or enhancement to count as a donation.  If there is an exchange of rights, billing, repayment of the investment, or other benefit it is not a donation.  This is often confusing in the second instance above or with enhancement agreements.  You must know if the commercial corporation or partnership that is going to be formed is going to account for the enhancement in it’s capitalization – if it is it cannot be counted as a donation in any way.  Without question how funds are designated enhancement (which is earned revenue) or donations needs to be established up front and in writing and can’t be switched back and forth based on how a show does.

An issue a nonprofit should address before working with a commercial producer or transferring a show is whether Board of Trustees/Directors membership can be investors or producers in commercial productions:  If the nonprofit theatre does not benefit in financial participation (for example it is not the organization’s show or the organization doesn’t participate beyond original producer’s credit), its role in the production or in billing, investment in any commercial production is considered a potential conflict of interest that must be disclosed, but is not normally consider a problem. If the organization is producer or as associate producer how board members who are commercial producer or want to invest in a commercial production might be a part of a production: (1) Enhancement of a production; (2) separate investment in production in which theatre is participating in (beyond original producer’s credit); (3) the Board member can serve only as supporting investors or partners in a production not competitors (in other words any funds from board members count towards money raised by the organization as part of their producer's participation as seen in model two above).  Most theatres restrict the first two significantly.  Obviously the third is the most ideal for the nonprofit theatre.  Any participation in a commercial venture would require Board member to withdraw themselves from all votes and decisions regarding production or in some cases, a board will require a leave or absence.

Should note in terms of moving forward, a board traditionally would vote on the participation in the project but like all producing efforts the commercial participation in decisions and day to day operations would be limited to leadership staff.

Also it is important to say that this primer is exactly that.  If your organization doesn't have a strong history with these types of deals or a strong negotiator – hire one.  These deals can have a tremendous impact on an organization and you don’t want to be negotiating after the fact or regretting the deal you signed.  These contract are among the most complicated that a nonprofit can enter into and can if done incorrectly threaten the nonprofit status of an organization.  Make sure you negotiate smart and thoroughly.

If you are a commercial producer, rather than thinking you should just negotiate the opposite of all of the above, I encourage you to consider all that the nonprofit adds to the production and the fact that a good negotiation means that everyone walks away feeling good about the partnership.  Nonprofits also have board members and donors who may be part of your future investor pool – this is more common than most people realize.  It is also important to remember that theater folks tend to talk about relationships good and bad.  I have certainly heard about deals that haven’t worked out well or other stories about how great a partner someone has been.  Word travels fast in our community.  And as more and more of these deals happen and as expenses keep rising the commercial world needs the nonprofit world for a lot of project development.  This is one of the few situations where everyone can win if everyone works together with goodwill.

If you are reading this post via Facebook Notes, please click-thru to Off Stage Right and be counted (and keep reading other posts).

Interesting articles/blog posts from last week – in case you missed them!

Here is a round-up of what caught my eye over the last week.  Let me know if there is something interesting I should be reading!

Interesting argument - Text Me Later (Or: How Theater Isn't Baseball) http://u.nu/5zz3

Cultural Groups ask what to mount next. The Answer - losses? Washington Post http://u.nu/3zz3

To gala or not gala - Iu2019m Honored. No, Actually, I Canu2019t Afford It. NY TIMES. http://u.nu/6xz3

How Much Does Mayor Bloomberg Want to Cut from the Department of Cultural Affairs? Clyde Fitch Report - http://tinyurl.com/dhcugv

Anonymous Giving Gains in Popularity as the Recession Deepens - Philanthropy.com - http://tinyurl.com/d45sky

More Valuable - The Ticket Buyer Or The Donor? - diacritical - http://tinyurl.com/d8sbrg

Bad Behavior at the Theater: Reviving an Old Tradition « Clyde Fitch Report - http://tinyurl.com/d4vjw4

Celebrities Are Taking All the Jobs - http://tinyurl.com/cm3ur9

Equal Time For Planned Giving http://viigo.im/rFc

Fundraising suffered big drop in 2008 http://viigo.im/rii

99seats: Priorities, Part 1 - http://tinyurl.com/d4sn4v

Let's Get Practical! - Artistic Manager and Resident Companies http://tinyurl.com/cpbdse

Broadway, Off-Broadway, Theater : How to invest in a Broadway show. Part I - http://tinyurl.com/d5cgur

How to invest in a Broadway show. Part 2 http://tinyurl.com/dnzg4t

Reasons to be Pretty to Encourage Texting at the Theater - http://tinyurl.com/c5o864

Union Calls City Opera Strike ‘Likely’ Given Demands - Bloomberg.com - http://tinyurl.com/tra5t

Why Twitter Quitters don't Get It http://tinyurl.com/c4neyh

HarvardBusiness.org: The 24/7 Employee http://tinyurl.com/dcz8mu

The World of Celebrity Giving: http://www.looktothestars.org/

IRS provides a mini-course on the new 990 form for charities - http://tinyurl.com/cuo8wh

There are BO users and AO [Twitter] users: Before Opera/After Oprah' ( http://tinyurl.com/cojbdc )

Parabasis: No One Edits Poets. Pondering new play development and collaboration - read the comments too. http://u.nu/4463

ArtsBeat: Barlow-Hartman, Broadway Publicity Agency, to Close http://viigo.im/q2W

Is Your Social Network Cool Enough To Be A Tree House? http://viigo.im/pS6

Social Net Fundraising - All Hype? The Agitator. (Pretty sound advice) http://viigo.im/pQW

A Nonprofit New York Times? http://tinyurl.com/cskgs3

Theatre vs. Theatre Companies (The Playgoer) http://viigo.im/pln

Wall Street Journal Only Top 25 Newspaper To Report Circulation Increase http://viigo.im/pfw

Diacritical: Do we need institutions to create art? http://u.nu/5dp

Why don’t we treat ourselves better?

The other night I ran into a great friend who I hadn’t seen in a while.  We caught up briefly.  I was delighted to hear that she had reached out beyond theater to radio.  But what struck a chord was when she mentioned how working outside of theatre, made her realize how tired she was from a life lived constantly in tech rehearsals.  This made me think about how unhealthy our business can be.

Let’s start with the concept of tech.  AEA standards and what producers can afford comes in packages of 10/12 hour days.   Now let’s be honest on any given tech day very few people involved in the production work 10 out of 12 hours.  Crew, designers, stage managers, etc. are always called before the actors and stay after for production meetings.  Even the actors working under union rules usually work longer than the 10 hours, whether they are running lines, reviewing their blocking, etc, most actors during the tech period through opening are focused on the show they are doing more or less from the time they wake up until they go to bed.  The theory is that the higher the contract tier, the more ten out of twelve days you can do.  For example a Broadway show often does 10/12s from tech to press nights.  Off-Broadway shows may do a week of 10/12s and then rehearse up to 5 hours more each day.  It is exhausting.  And in most cases, designers live in this process the majority of their lives.  Even when a show is up and running there are understudy rehearsals, publicity events, put-ins, etc.  The point is there is a heck of a lot of work outside of rehearsals and performances that most people don’t really think of they just live it. 

The staffs of nonprofits, don’t escape the rigorous schedules.  In addition to regular office hours, many leaders and staff members attend tech, have early morning committee meetings and evening board meetings, must participate in a variety of social events, should see shows at other theatres, and must be at the curtain of a show most nights. 

In addition to the exhausting schedule, theatre folks spend the majority of their lives in building that are either so cold in the summer that you need a sweater or so hot in the winter that you can feel your throat dry the minute you walk in the door.  Many theatres are in older building that don’t have the best air circulation.  In tech or in nonprofit offices you can spend hours sitting in the same place, in the same position.  Or you can spend all day running from meeting to meeting, rehearsal hall to audition space, etc. always in transition in and out of the elements back indoors.

An exhausting schedule, cabin fever, lack of fresh oxygen are just the beginning.  For some reason, theater greenrooms, rehearsal halls and offices are usually filled junk food, snacks, endless supplies of caffeine, and tons of fast food or takeout.  Between short meal breaks, long rehearsal hours and too many cocktail parties and events, keeping a healthy eating schedule is more or less out of the question.

As a group we are not eating well, can barely keep our eyes open and our minds focused, and spend less time outdoors than vampires.  Then many theater folks are smokers.  Musicals can wreck havoc on the body without proper training.  Raked stages tear bodies apart (let’s just admit it – you try walking on a rake in high heels, I have had to do it too many times and I’m just short not an actor).  Haze fills their lungs – sorry it aggravates allergies and asthma.    And after a day filled with all of the above, who doesn’t want a drink.

Of course I have described the worst of it all.  There are plenty of folks who make frequent appearances at their gyms or yoga classes.  Many even train for advanced body conditioning.  There a lots who have unbelievable discipline in what they eat and treat their bodies like temples (at least reformed temples if not orthodox ones).  But as with many careers this takes a lot of hard work.  Yet when theatres are built (and goodness knows we have built or renovated a whole lot of them recently for good or for bad), staff and artist amenities are the first things cut.  What would happen if every theatre created a small gym and mediation room on site?  What would happen if changed the rules and schedules so people could get a little more sleep and a bit more fresh air?  What if we planned the entire tech process for each production rather than by industry standards?  I challenge that rather than making the process take longer it may actually make us work more efficiently and with much greater focus.  Who says you have to do 10/12s?  What if we said that production meetings couldn’t go into the wee hours of the night and finance committees weren’t allowed to demand 9am or worse 8am meetings?   What if we made all of our nonprofit staffs stop eating lunch at their desks?  Sure it would be a big change, but actually it would be pretty easy to test.  Of course there would still be people who don’t take of themselves, but maybe if we found a better balance more folks would take care of themselves, just a bit better and not have to take a break from working in theater to do so.

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Bring it to scale

Bridgespan has released a new report about bringing organizations to scale.   Organization replication and scale is something we tend to forget about when it comes to the arts.   But isn’t the first question we should ask - what is the “right-size” for an organization to accomplish its mission?

The Bridgespan report notes some key challenges for nonprofits in determining and fulfilling scale:

1. Distinguishing promising programs from proven ones is complicated, costly and essential.  Many social service organizations have little if any evidence of their programs’ efficacy. This doesn’t mean that they aren’t producing results. But it does mean we cannot say for certain that they do.
2. Scaling requires rethinking traditional patterns of funding. If we want to make a pervasive impact on our nation’s most difficult problems, we are talking about supporting fewer organizations with larger sums of money. Concentrating resources on a few organizations is rarely how money flows today.
3. Scaling a nonprofit’s programs without investing in its capacity is a recipe for failure. Building organizational and human capacity – putting in place the strategy, systems and, above all else, the right people in the right jobs to convert money into results – is as important a factor in bringing a program successfully to scale as the money itself.
4. Ongoing research, evaluation and performance measurement are imperative as an organization scales. Put simply, there is no other way to ensure that even a well-funded program with proven outcomes will be expanded and sustained. A good idea absent its execution is in fact not a good idea at all.

Last summer at Harvard Business School’s Strategic Perspectives for Nonprofit Managers, we spent a lot of time talking about scale.  This was the first time I really fully explored the concept in terms of the arts and in particular theatre.  In the post, I pointed out four strategies in terms of scale.

1. Get support for fixed costs (and maybe semi-variable costs), and have variable (and maybe or semi-variable) costs covered by earned income.
2. Franchise.
3. Engage in partnerships (or even possibly mergers).
4. Create a subsidiary of a commercial business.

Shouldn’t successful organizations and programs be replicated? What would bringing it to scale mean for theatre? Can we "franchise?" Aren’t co-productions, touring, or moving a show be a type of franchising in the theatre?  Certainly education programs are replicated – it happens naturally more often than not without a strategic plan, but why not plan to replicate and take certain ideas for programming to scale.  In a way the NEA Big Read program is doing exactly that. 

When talking about funding models and whether theatre’s should be saved, if we can talk replication, we have to take mergers under consideration.  For some reason in the arts, mergers are often interpreted as failures.  But consolidation, restructuring, and resource-sharing can be VERY effective for theatre organizations and individual productions, so why not out-right mergers?  Certainly in terms of scale it may make sense for organizations and the community.

We certainly are seeing a form of mergers in co-productions and new play development.   Adrian Ellis wrote in the Art Newspaper that this would be one of the three ways to compensate for the losses in philanthropic, endowment and visitor incomes for museums, “what museums accept they cannot do alone, they will explore doing together more thoroughly and earnestly than in the past: collection sharing, joint acquisitions, pooling conservation resources, and pooling curatorial appointments.”

Without question determining scale is difficult and requires significant examination, but it seems to be an essential step which we don’t take enough time to address and plan.

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Key Issues facing the nonprofit theatre industry (a top ten list)

Issue One: The business model is broken (if it ever worked).   We need a new definition of fiscal health and sustainability based on individual organizations needs.

Theaters across the US are acknowledging that the traditional nonprofit theatre model is broken (60% earned/40% contributed). For many structural deficits have become the norm rather than the exception.

Other Earned Income resources can be explored but must not pull the theatre off mission.  Enhancement income can be raised from aggressive new play development and active exploration within the industry. Although this is a somewhat unpredictable source of income when done under the right circumstances it can be very helpful in offsetting expenses.  When done for the wrong reasons (read – for the money) it can be devastating.  Co-Productions are another performance related income stream. Similar to enhancement income, the partnership is as important as the income source. Many Education Programs generate significant revenue through participant fees, vendor agreements with academic institutions, or corporate training programs. Real estate acquisition and utilization can be a revenue source for many organizations.

Rising Production costs must be reasonably contained, however, eventually many theatres might have to go through a certain amount of correction on their production expenses if they are “living beyond their means.”  Programming, fund-raising and administrative needs of companies need to be assessed regularly.

Theatres need to address contributed revenue across the board – annual campaigns, specialized campaigns, and reserves/endowment.  Alternatives to traditional endowments will need to be explored.  Working capital must be addressed. 

We must assess our governance structures and make sure there is balance between board, artistic and managing leadership.  Too often healthy discussions become tyrannical demands by one or two of the partners. 

Issue Two: Many of our mission statements have become interchangeable.

Writing missions by committee has watered down many theatres’ missions.  Consensus has become a compromise to mediocrity.  Organizational values are sometimes difficult to identify and in a few cases have been lost to the whim of leadership changes and egos.  We must return to missions that address a need.  Why do we have mission statements in the first place? We need a purpose.  We have to have an identity right? A uniqueness? A reason our community needs us? We have to use our resources and capabilities to fill some social need.  We need goals to measure our impact against!

Issue Three:  We have lost our relevancy within our communities.

The first two issues have created the most challenging and threatening issue of all.  Several organizations have veered away from their original mission and become increasingly irrelevant.  Theatre has become about making the safe choice.  We shy away from artistic risks over concerns for finances – just when we should be taking the greatest risks with our work.  We aren’t spending enough time getting to know our constituencies so aren’t picking work that matters to them. We must live up to the responsibilities we have to our community.

Issue Four: We aren’t investing enough in new kinds of theatre – the evolution of the form.

Theatre has a bad tendency of being behind the times, we must explore how we use new technologies, environmental theatre and challenge the definition of the theatre or new forms will evolve without us.

Issue Five: We should partner more often with other arts organizations or social service organizations.

We must identify mutually beneficial partnerships and eliminate those that drain resources.  Natural partnerships have formed with other theatres and some arts organizations, but we must actively pursue new bonds and relationships that allow us to share resources and fund our expenses.

Issue Six: We don’t do enough for families.

As members of a community, we must do more for families.  In a world where group experiences are becoming more and more virtual we must provide programming that  brings families together under our roof to experience live storytelling.  We must make theatre-goers.  If you haven’t experienced something you will never miss it.  We need to provide flexible services and scheduling to parents as well as provide the tools with which to explore theatre together with their children.  We need to have programming that reaches audiences of all ages focusing on the major transition periods.

Issue Seven: We need to make theater more accessible.

Programs that lower ticket prices must be created so that more people can see shows.  We have marginalized much of the theatre-going experience to the affluent.  Of course not all programming will be accessible to everyone (that is unfortunately inherent in the arts structure).  But we have reached a point of imbalance.  A correction is essential to remain relevant, to serve most missions, and to keep theatre alive.

Issue Eight: We need to build theater’s Audience Base.

We must create participatory experiences beyond productions.  Education programs, outreach programs, audience development programs – whatever you want to call them, must be at the center of the organization along with productions.  We cannot afford for them to remain or become satellites to production.  When all of the information in the world is available in a few keystrokes in a google search, we must feed the desire for deeper, more qualitative, more educational experiences. We have to listen to our audiences, create a dialogue, and create forums for ideas to be expressed.  We have to work as diligently on the relationship with the audience as we work on producing the work.  We must speak their language and use their communication tools.

Issue Nine: We need to build theater’s Donor Base.

We must work with the entire nonprofit community to stop complete marginalization of the arts.  We must finally create a multi-layer argument regarding the value of the arts.  We must stop the competition and aggression towards other arts organizations.  Again, we must listen to our donors and create loyalty and generosity that is based on something more than a rewards system for patrons.

Issues Ten: We must empower and invest in our staffs.

Without committed and seasoned staffs we will not achieve any of our goals. We need the staffs of organizations to drive programming and ALL activities of the of the organization in partnership with the board to achieve appropriate growth, long-term strategic goals and the necessary fund-raising to sustain the organization.  We need to invest in continuing education for our staffs.  We must break the cycle of short-term employment and increase staff retention.

As with any list about an entire industry, of course there are folks working on these issues.   Please share what you are doing!  Learning from one another and working together is the only way to address these issues industry-wide!

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Lose the department borders and territorialism! Assign tasks by expertise!

There are way too many walls in a nonprofit theatre office, and it is creating problems. It is time to break down some walls and blur the lines between what each department does. If you have a great staff they will work better together if we follow the way we handle shows for every major task we have.

Switching completely to project management mode might save your staff. And I mean save in the truest sense of the word. Theatre staffs are overworked, underpaid, and over-stressed. Changing a few simple things may save folks.

Internal collaboration is the correct business term – but I think the production process is exactly that. On a show everyone knows what they are responsible for but they also know that they must collaborate with everyone's department and help out when help is needed. The process is at its best when there is no territorialism – boundaries of course are respected, but it is a solid team effort.

If you have ever produced a gala, this is the only healthy way to do it – treat it like another production, give assignments out to people based on their expertise and you will have a successful process. When the development department tries to do it all on their own, it is a recipe for disaster. If there is a performance component or artists involved, why would you not have company management, production and the experts at your organization in charge of it? The communications and graphics should be coordinated through marketing. It is just another show.

Since many already know that about events let talk about something most people wouldn't think of first. Your annual audit is another production. What? That is the finance department's job right? No it is not. If everyone is aware of what goes into testing, every department can be working on the audit throughout the year. Usually every donation over $5,000 is subject to testing, can't the development department just make an auditors copy when a donation is processed and put it all in a notebook for auditors. All contracts over a certain amount are tested, can't each department create an auditors copy at the time it is done. Sample contracts, marketing materials, and many other testing materials don't change and won't change, so why not have each department tracking it throughout the year. Wouldn't this also foster a better understanding (and relationship) with the finances and finance department?

Marketing and Development department who work together will generate customers for each other. Let's extend that say to production vendors. What if each production vendor was treated as a potential donor? We did this with rental inquiries at one organization and converted many rentals into corporate sponsors who among other benefits received building usage – but for a much higher amount than the rental would have generated.

There are so many projects we do each year that if we forgot about whose department it belonged in and instead focused on who the best people were for the project and assigned them the responsibility we would be a lot more efficient and might just save our staffs especially when they keep getting smaller and smaller.

 

 

Better box office and front of house service keeps your customers coming back – almost as much as your programming

Several months ago, I wrote a post on market research for theatre – who to talk to, where audiences might come from, and initial methodology that I have been meaning to revisit for ages. My Harvard Business Publishing update reminded me of it but brought up some really important ideas that I wanted to address as well. Of course, since many don't have access to HBR website I pasted the post below.

Peter Merholz makes some really important points about staff right up front. I have had many conversations with other leaders about our box office staffs. They are usually the youngest and worst paid staff members. We work diligently to keep them up-to-date on programming, updated information, and institutional information, but many if not most are part-time and more often than not our work to keep them informed is subpar. And let's not face it customers are not always nice, so when you are young, underpaid, and unprepared, it is pretty easy to be short or even rude to customers. And for a large part of our constituencies this is not on the first contact that they have with our organizations but the majority of our audiences probably only meet or talk to the front of house staff. Many of our subscribers only ever interact with the front of house staff. This is more than our "front line." So how do we improve customer care?

Perhaps we should do some analysis on what we pay for part-time employees, telemarketing and other interactions and really explore the idea that the box office staff and house management staff should be experienced, middle managers who are capable of handling difficult decisions.

Also, by nature, most box offices are separate from administrative offices. I really recommend to any one building a theatre, think of connecting the two. Satellite offices naturally receive information at a different rate and are by placement alone separate from the day to day conversations and camaraderie of the general office staff. The box office should be closed for full staff meetings and all box office staff should be in attendance at these meetings.

Of course staff structure is different at each theatre, but there must be a strong connection between marketing and development functions, as well as a system for staff education that makes sure that these front of house staff members are in the loop as decisions are made. These key intermediaries between the audience and the organization MUST have interaction with the artistic department and artists – and not just booking their tickets, showing them to their seats or letting them know about house sizes. It must be healthy, quality interaction about the work happening on stage.

As for the information that these staff members collect about customers from conversations and sales interactions, it has to be recorded somewhere. I don't care how busy the phone lines are – we have to learn more about our customers and what better way than through the person talking to them.

If we are going to connect with people, the connection should be as intimate as theatre itself with as many of our patrons as possible and at all levels of the organization. People can get cold, canned, impersonal experience from the majority of businesses they interact with throughout the day. If they don't want a human experience they will buy on-line. But most people who come to the theatre are coming for the human connection whether social, emotional or intellectual, they want a connection. We have to give them a positive, well-informed one.

From Harvard Business Publishing Blogs:

It's Not Who Your Customers Are, It's How They Behave by Peter Merholz

9:28 AM Wednesday February 11, 2009

Businesses cannot exist without customers, so it's sadly ironic that many, if not most, businesses, actually understand so little about them. As a company grows, a smaller and smaller percentage of the staff interacts with the customers. In fact, those folks on the "front line" (think call centers, service counters, retail stores) are typically among the lowest-paid and have the least authority.

Meanwhile, back at headquarters fundamental decisions are made with extremely limited information about customers. There, understanding the customer is often considered someone else's responsibility, because, "we have a department for that." No department has a complete view of the customer, however, and so in place of true understanding are models and frameworks that attempt to describe the customer. Many companies don't go beyond demographics and market segmentation. While it's helpful to know how they break down by age, sex, income, region, and other easily measurable characteristics, there's actually very little you can actually do with that information. In order to become customer experience-driven, you need to go beyond who your customers are, and understand what they do.

When companies think of how their customers behave, it's typically in one of these four ways. See if any of these resonate with you:

1. "A gullet whose only purpose in life is to gulp products and crap cash"

That quote comes from The Cluetrain Manifesto, still one of the best books on how companies should embrace a new way of communicating with their customers. Very few companies would admit it, but you know that some still see their audience this way (I'm looking at you, broadcast media.)

2. Sheep

This view holds that with the right "messaging", you can guide people to behave in certain ways, because they're docile and gullible and respond only to emotional tugs. And while this might be fine in the world of packaged consumer goods, where there's not a lot of complexity in using (i.e., literally consuming) the product, it breaks down when your offering is more complex. During the first Web boom, I remember companies spending tens of millions of dollars on advertising, and a tenth (or even a hundredth) of that on the site experience. You can no longer simply hound people into buying your product.

3. Homo Economicus

If Sheep are one side of the behavioral coin, this is the other. This view argues that customers are highly rational beings who want to maximize the utility of their purchases. This leads to an assumption that what matters most is "bang for the buck," which in turn gives us products with bloated feature lists, because who wouldn't want to buy the item with 14 bullet points on the packaging over the item with just 10? Sadly, there's research that suggests that many customers do make just this purchase decision; however, there's also research that up to 50% of product returns are for items in perfectly good working order -- they're just too confounding to use.

4. Type A Personality

Perhaps the most sophisticated common view of customer behavior is the one that understands customers are completing tasks in the process of accomplishing a larger goal. This view comes out of the world of software and Web design, where the functionality can get quite complex. This perspective becomes problematic when taken to the extreme -- that people are some kind of flesh robot seeking to maximize productivity. This leads to offerings that work, but can be joyless and dull. Perhaps you've used some of Microsoft's products?

Now, these perspectives aren't wholly wrong (well, maybe the gullet), but clearly they're not quite right. In order for a company to deliver truly outstanding products and services, it must embrace the messy complexity of human life, and endeavor to understand its customers as people. In other words, understand your customer as you understand yourself.

This means going deeper than tasks and goals to appreciate behaviors and motivations. A few years ago, I worked with a large national bank to help them better understand how customers decide to purchase the bank's products and services. The bank had a sophisticated demographic model, but didn't understand what cinched the deal.

Our initial efforts focused on the "goal" of buying a product, and we were able to outline the steps that people took to achieve that goal. They researched banks online, then compared products within banks as well as across banks. They visited nearby branches, and spoke with representatives in person or on the phone. And once they amassed enough information, they committed.

In our analysis, we realized this was only part of the story. We asked the research participants to retrace their steps, focusing on the Web site, to walk us through their experience. And in doing so, we saw that while there was a set of discrete tasks that lead to achieving a larger goal. More importantly there was an underlying motivational layer of emotion that actually guided their decisions. Buying financial products is challenging, because unlike physical goods, it's hard to define what you want ahead of time. At Best Buy, you can point to a 52″ television and say, "something like that." You can't do that with a loan or a line of credit.

So what happened was that while people appeared to engage in the appropriate steps to make a purchase decision, because they couldn't articulate an end state, they were simply going through the motions and would never commit. We realized that customers must satisfy three sets of requirements -- functional (does the product meet my basic needs); intellectual (through comparison, am I confident I'm getting the best deal); and, crucially, emotional (could I have a relationship with this bank?). The bank wanted to drive all applications for new products online, but the customer research analysis made clear the importance of maintaining a quality cross-channel experience. Potential customers often wanted to meet representatives, either in person or on the phone, before committing to an application, even if they've done all their research online.

Peter Merholz is a founding partner and president of Adaptive Path, an experience strategy and design firm. He has worked with a wide variety of clients from large multi-national companies to smaller, avant-garde firms and start-ups. Past clients include Hallmark, Socialtext, Intuit, United Airlines, and The Vanguard Group. Peter is an internationally recognized thought leader on user experience. He co-authored Subject To Change: Creating Great Products and Services for an Uncertain World, published by O'Reilly. Peter's thought leadership is perhaps most dubiously demonstrated in his coining of the term "blog" in 1999 when it was a nascent genre.

What is this blog? Why am I writing it?

It is…

Off-Stage-Right is a strategic look at the process of running a nonprofit theatre, and all of the factors that affect the process (with the occasional personal story tossed in). It is a source for all theatre practitioners, but topics addressed are a necessity for all nonprofit theater leaders to be thinking about. Issues explored include: marketing, development, leadership, nonprofit tools and most importantly why the heck to produce theatre in the first place.

Why am I writing it?

If we can’t make theatre relevant, why do it? If we can’t make it affordable and sustainable, we won’t be doing it. I want to make theatre relevant, affordable and sustainable - this is my way of thinking about what might do that.

Extreme Fundraising

So I am reading the April 13 edition of Forbes Magazine. There is an interesting article in it called Extreme Fundraising. It is one of the few magazines I get in print, so I am not sure if it is available on-line (google it). Anyway it is about these athletes going to, well, extremes to raise money for charities.

The people involved were amazing individuals who in all cases had been touched personally in such a deep and affecting way that they were driven to push themselves to the edge of their endurance in order to raise funds and awareness for their causes.

These are REAL extremes, rowing across the Atlantic Ocean extreme. Most seem to be for medical causes and most seem to be related to sports, but it begs the question...what would be considered extreme fundraising for the arts?

Is there a marathon for the arts?

Does someone paint a skyscraper for the arts? (I know I got a city bus painted for the arts - bright pink and at a community arts festival children painted pictures on it - every time I saw it on the street I smiled, but I digress.)

Does someone sing across America?

A cross country theatre-thon? (What in the world would that be?)

Or is simply about creating that kind of unique, somewhat insane fundraising event?

What captures attention with these extreme fundraising profiles in the article is that they are such personal causes. There are great back stories and the fundraisers themselves are fascinating characters.

Can we capture this sort of thrill in the arts? Can we inspire this kind of personal challenge for the arts? Can we create this kind of personal journey in our fundraising? After all, we certainly have wonderfully passionate, entertaining, and exciting individuals in the arts. Many artists and arts participants have been profoundly affected by the arts.

The other day, I was having a discussion about how difficult it is for some organization's leadership to ask artists to help with fundraising - they are so busy, we pay them so little, it isn't any fun, and they get asked by so many. I take the position that if you are passionate about your organization you had better ask the artists to help with fundraising and frankly the artists should and usually do want to help.

If we want to figure out a form of extreme fundraising for our individual organization...we are going to have to take a huge risk in creativity and have our artists work with us on it.

Any extreme fundraising ideas being used in your organization? Email me because I would love to hear about them.

Working together even if you are direct competition - technically...

In a posting last month I talked about the restructuring or the possiblilties of resource sharing. Here is a great example taking a co-production a bit further than the norm with two great nonprofits teaming up!


Playwrights Horizons, Vineyard team 'Burnt Part Boys' opens spring 2010
By DAVID ROONEY

Off Broadway stalwarts Playwrights Horizons and the Vineyard Theater will team for the first time to co-produce the musical "The Burnt Part Boys," scheduled to bow in spring 2010 following two developmental productions.Written by Mariana Elder with music by Chris Miller and lyrics by Nathan Tysen, the show is set in West Virginia in 1962. Coming-of-age story traces the odyssey of a group of teenagers whose fathers were killed years earlier in a tragic coal-mining accident. Erica Schmidt ("Humor Abuse") will direct.

The tuner has been the subject of Gotham transfer rumors since it was first seen in summer 2006 as part of the Barrington Stage Musical Theater Lab. The Vineyard will further workshop "Burnt Part" in a developmental staging running May 26-June 6, followed by a summer presentation as part of New York Stage and Film on the Vassar College campus. The official premiere will take place in 2010 at Playwrights.

Both Playwrights and the Vineyard have a history of shepherding unconventional musicals, the former with shows such as "Grey Gardens" and "Sunday in the Park with George" and the latter with "Avenue Q" and "[title of show]," among others.

Who should get funding in times like these?

Controversy in the funding community...see Wall Street Journal article below

We all know that the arts are facing some serious challenges. Unfortunately, it is a reality that now more than ever we are competing for dollars against social service initiatives.

Let's be honest - feed a homeless child or help a theatre put on show? I have to admit - I would probably give my dollar to the homeless child. In times like these most people will. Of course there is the argument that Arts feed the soul. But who are we kidding, as with September 11 and Katrina, we need to adjust our funding requests and justifications.

I am not suggesting we all go out and start a bunch of new programs directed to the increasing "poor." Quite the opposite. I think we all need to think about our missions. Are truly serving our communities as we want to or are we only serving the upper echelon of our society? We have to ask ourselves honestly does our organization only want our programming (except maybe education programs) to serve the upper echelon of society.

Unfortunately the majority of the professional theatre in this country is produced and presented for wealthy. It is an assumption I am making - before everyone comments asking for proof - based on price of tickets alone (let alone the cost of baby-sitters, dinner out, and transportation). Of course discount and outreach programs open the doors to a few others, but as a whole you have to have a healthy weekly pay check to catch a performance. What are we as theatre managers to do to open up our houses to those who can't afford $35-65 tickets? And do we really want to? And if we can't or don't - how can we or should we compete with all of the social service and education initiatives out there, especially when most of our donors have a lot less to give?

Just the beginning of the conversation.




MARCH 23, 2009, 8:18 P.M. ET

Foundations Oppose Call to Target Grants

A prominent philanthropy watchdog has riled some foundations by releasing a report suggesting they should devote half their grants to minorities, the poor and other disadvantaged groups.

The report, released this month by the National Committee for Responsive Philanthropy, argued that foundations should meet a handful of benchmarks to practice "philanthropy at its best," including making half their annual grants to "lower-income communities, communities of color and other marginalized groups, broadly defined."

Several foundation leaders have called that benchmark overly prescriptive and argued it could exclude philanthropies that pursue missions such as the arts, medical research and education -- areas that might not always directly affect the groups identified by the committee. In addition, the committee lobbies Capitol Hill, so some fear the report could spur stricter regulation of foundations' activities.

Criticism of the report has intensified in recent days, with a well-known foundation president blasting the report's findings on an Internet blog and another large foundation canceling its membership with the committee. The committee in turn circulated a memo attempting to shoot down criticisms.

Aaron Dorfman, the committee's executive director, said his group doesn't seek to codify the benchmarks and that he has been "surprised by the amount of venom" the report's suggestions have produced.

"We couldn't have been clearer that this isn't intended to be a set of legislative suggestions or mandates in any way," Mr. Dorfman said. "This is a document to spark discussions among the leaders of our nation's grant makers and to challenge them to be more responsive to marginalized communities."

The debate over the report comes as foundations face increased economic and political pressures. Foundation assets fell about 28% last year amid tumbling world-wide markets, according to the Council on Foundations, a Washington group that lobbies on behalf of more than 2,000 grant makers.

The committee's philanthropy benchmark report found that most foundations steer about a third of their grants toward "marginalized groups," defined to include the poor, minorities, women, people with AIDS, the disabled, the elderly, immigrants and refugees, and crime and abuse victims, among others.

The committee advocated 10 benchmarks. It said foundations should distribute 6% of their assets annually, up from the current legally required 5%. The report also advocated better transparency and more-diverse boards at foundations.

But the benchmark on grant allocations drew the most fire. Paul Brest, president of the William and Flora Hewlett Foundation, called that proposal "breathtakingly arrogant" in a blog entry on the Huffington Post Web site.

"I don't agree with it at all," Mr. Brest said in an interview. "Whether you call it arrogant or inappropriate -- you could imagine 10 different organizations deciding the most important issue is cancer" instead of marginalized communities, he said.

The California Wellness Foundation canceled its membership with the committee and asked for money to be returned after reviewing the report. The report "sounds like an attempt to endorse a one-size-fits-all approach for all foundations," said Gary Yates, the foundation's president. He said the foundation canceled its membership because it didn't want to be viewed as "tacitly endorsing positions" the committee takes.

Many foundations, charities and nonprofit leaders endorsed the report. Among the most prominent was the Atlantic Philanthropies. Many critics are "misreading" the report, said Lori Bezahler, president of the Edward W. Hazen Foundation, another endorser.

"This is a set of ways we can look at our work," Ms. Bezahler said, adding that many other groups have explored best philanthropic practices.

In a follow-up report addressing criticisms from foundation leaders, the committee said "flexibility is important" for foundations and that their leaders should decide whether to meet or exceed its proposed benchmarks.

Nonprofit Compensation

With the A.I.G. scandal so widespread, it is not surprising to find the Wall Street Journal article below:







MARCH 27, 2009

Pay at Nonprofits Gets a Closer Look

The furor over big bonuses at American International Group Inc. and other Wall Street firms is prompting nonprofit organizations to brace for more scrutiny of their executive pay practices.

Though they haven't received taxpayer bailouts, charities benefit from billions of dollars in subsidies through their tax-exempt status, which could expose nonprofit leaders to the same level of scrutiny that executives at subsidized financial firms are facing.

Nonprofits of all stripes were feeling greater heat over pay even before the AIG bonus furor. At the University of New Mexico, faculty are in an uproar over pay for the school's president and other top executives. For the first time in 20 years, the Internal Revenue Service recently imposed stricter disclosure requirements on executive pay. The IRS also has scrutinized pay for nonprofit hospital executives, while the Chronicle of Higher Education has put the spotlight on big payouts for professors, administrators and athletic coaches.

"The train of greater focus on nonprofit executive compensation has left the station, and charity boards better get on, or they're going to suffer greatly for noncompliance," says Michael Peregrine, a partner at McDermott Will & Emery LLP, who advises nonprofits. Nonprofits should start reviewing their pay policies in light of the current political environment, he says. "It just cannot be business as usual."

In higher education, the University of New Mexico's faculty delivered a no confidence vote last month against its president, David Schmidly, amid consternation over executive pay and other issues. Mr. Schmidly took home $587,000 in total compensation in fiscal 2008. A recent university report showed budgeted salaries -- excluding other perks -- for senior executives increased 71% to more than $9.8 million between 2002 and 2008. (Mr. Schmidly took the reins in 2007.)

The increased pay for these university leaders has created "a similar sense of disparity" that others have voiced about paydays for Wall Street executives, says Douglas Fields, the university's incoming faculty senate president.

Mr. Schmidly, who recently instituted indefinite pay freezes for himself and other top executives, expressed disappointment in the faculty decision, but in a statement after the vote vowed to "reach out and gain the support" of the university community. He declined to comment further through a spokeswoman.

In a survey by the Chronicle of Higher Education examining large compensation packages at universities, David N. Silvers, a Columbia University dermatology professor, was the top-earning academic, bringing in $4.3 million. In a statement, Columbia declined to discuss Dr. Silvers' pay but said he is "renowned in the field and has significant responsibilities in directing a highly specialized lab" at the university's medical center.

Universities point out that their officials help generate millions of dollars in revenue. And even the best-paid nonprofit leaders don't come close to making the tens of millions of dollars reaped by some on Wall Street. At the largest nonprofits, or those with budgets exceeding $50 million, top executives earned $476,383 on average in 2006, according to the most recent figures compiled by GuideStar, an electronic database that gathers information on nonprofits. Some argue that nonprofit leaders are underpaid, which may lead to the same "brain-drain" phenomenon that Wall Street executives have warned about in light of new pay restrictions.

"I've run into a lot of people who are great leaders of great nonprofit organizations who end up having to leave to go into business to make some money, because they have kids they're going to need to send to college," says Steve Case, the America Online co-founder who now chairs his own foundation.

Still, the IRS has signaled more aggressive oversight of charities as various compensation scandals crop up among nonprofits. The agency overhauled the annual tax form nonprofits must file. Now, nonprofits are required to disclose compensation perks under certain circumstances, such as when an employee makes more than $150,000. Among the compulsory disclosures are benefits that have featured prominently in recent compensation scandals. They include first-class air travel, expense accounts, housing allowances and the use of bodyguards, chauffeurs and lawyers.

The IRS also has homed in on hospital pay. In a report, which surveyed 489 institutions, the agency found pay for the top official averaged $490,000 a year. Among a select 20 hospitals that paid relatively higher amounts, the compensation figure averaged $1.4 million. The IRS declined to name the hospitals.

The IRS can currently impose penalty taxes, called "intermediate sanctions," on an executive receiving excessive compensation from a charity. But the agency also has established a procedure, called the "rebuttable presumption of reasonableness," that allows charities to avoid the penalty. To do so, the nonprofit must demonstrate its board approved the pay and used comparable compensation data from similar organizations to determine it, among other things.

Critics say the standard is loose and puts the burden on the IRS to show compensation is excessive. Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee who has pushed for stricter regulation of nonprofits, is considering legislation that would put more pressure on charities to prove their compensation is reasonable, an aide said.

Others say the policy has already spurred charities to more prudent governance. "We have encouraged our clients to use it religiously" to ensure compliance with IRS rules, says Victoria Bjorklund, a partner at Simpson Thacher & Bartlett LLP who represents charities.

Still, squabbles over nonprofit executive pay continue to emerge. In the fall, a controversy swirled around a $1.2 million pay package for the United Way of Central Carolinas Inc.'s chief executive, Gloria Pace King. Board members resigned and Ms. King was ousted as a result.

Ms. King couldn't be reached for comment. She recently told the Charlotte Post that she thought her performance justified her compensation.