Each man's death diminishes me,
For I am involved in mankind.
Therefore, send not to know
For whom the bell tolls,
It tolls for thee.
John Donne, For Whom the Bell Tolls
DATELINE: December 7, 2008, Chicago
Randy Kennedy of the New York Times reported yesterday that the National Academy sold two paintings from the Hudson River School of painting. National Academy Sells Two Hudson River School Paintings to Bolster Its Finances. One was by Frederic Edwin Church and the other by Sanford Robinson Gifford. The Association of Art Museum Directors (AAMD) criticized...
|
The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives
Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. |
the sale in a December 5, 2008 press release. In its statement, the AAMD wrote:
It is therefore a fundamental professional principle that works can only be deaccessioned to provide funds to acquire works of art and enhance a museum’s collection. The Association of Art Museum Directors is deeply concerned to learn that the National Academy Museum has deaccessioned works of art from its collection to pay for operating expenses…. The National Academy is now breaching one of the most basic and important of AAMD’s principles by treating its collection as a financial asset, rather than the cornerstone of research, exhibition, and public programming, a record of human creativity held in trust for people now and in the future.
Apparently the sale and the resulting criticism from AAMD resulted in the voluntary resignation by the National Academy from the AAMD. According to Kennedy’ article, the AAMD has asked its member organizations to stop lending works to the National Academy.
Normally, we agree with AAMD’s tough stand on deaccessioning, particularly if the sales proceeds are used to pay current operating expenses. But there needs to be flexibility in any rule. This decision and the resulting sales strike us as well considered and reasonable. First, the sale was made after an extensive consideration by the board of directors. One of the other options was to sell the Academy's facilities, which would only require the Academy to find a new location. That most likely would result in higher occupancy costs.
Second, the sale apparently was necessary for the Academy to survive. Kennedy reports that the Academy has long been a financially troubled institution. The Academy’s interim director, Carmine Branagan, told Kennedy that the Academy would have been forced to close without the sale. It has unpaid vendors.
Third, and most important from the standpoint of the AAMD’s policy, the two works were not “diploma works.” You ask, “What is a diploma work?” Well, the Academy is an artist-governed organization. Diploma works are works donated by members of the Academy when a member is admitted to the Academy. Branagan told Kennedy that the heart of the collection is the diploma works and that a diploma work would never have been sold. In a sense, the sale is no different than the Red Cross selling a painting that someone donates to it.
The AAMD can stand on principle, but the fact remains that the Academy holds over 7,000 paintings, most of which have never been publicly displayed (perhaps they were available for study), according to Kennedy. That is far more disturbing to us given the fact that the Academy is 183-years old. Generations of art lovers have never seen works by William Chase, Frederick Church, Gilbert Chase, John Singer Sargent, Thomas Eakins, and dozens of other American artists. Some of the sales proceeds will be used to mount exhibitions that will be open to the public. If the status quo continues, future generations will be deprived of seeing works by Chuck Close, Japser Johns, Franky Gehry, and Wayne Thiebaud.
Prior to the sale, the National Academy had asked the AAMD to assist it with alternatives to deaccessioning. Obviously help was not forthcoming. It is easy to impose high-falutin’ principles on museums, it is quite another to assist members deal with reality. We suspect that in the coming months, the AAMD’s apparent inadequacies will surface again. If the AAMD is serious, it should create a committee and a fund to assist museums that find themselves faced with no other choices. If deaccessioning is so horrible, why aren't other museums and the AAMD taking the steps necessary to make it unnecessary? The AAMD's current approach is criticism and boycotts after the fact rather than positive preventive steps.
The other question that the principles-bound AAMD should be prepared to ask: What happens if an organization like the Academy files for bankruptcy? Maybe the state attorney general will intervene to protect the charitable assets, but bankrutpcy can be a messy process. Unless the assets are specifically restricted by the donor, a case can be made that they can be used to satisfy creditors. See In re Boston Regional Medical Center, 2004 U.S. Dist. LEXIS 15398; and In re Winsted Memorial Hospital, 280 B.R. 588 (Bankr. D. Conn 2000) for two cases holding that assets without express donor restrictions could be used to satisfy creditors in a bankruptcy proceeding. If those cases are followed, unrestricted artwork will be sold (and not necessarily to other museums) and the museum will go out of existence. Wouldn't it have been prudent in terms of AAMD's concerns to sell a couple of paintings and keep the museum (generically--we aren't referring to the National Academy) running then risk being forced to sell all the paintings in a bankruptcy proceeding? In short, we don't think the AAMD has followed the logic of its strict policy to its logical conclusion. The logical conclusion: By being inflexible, the AAMD may end up forcing more artwork out of the charitable sector than if it were more flexible. For a further discussion of bankruptcy issues, see Evelyn Brody, The Charity in Bankruptcy and Ghosts of Donors Past, Present, and Future, 20 Steton Hall Legis. J. 471 (2005)
We suspect the economy is about to teach the AAMD a valuable lesson. It is easy to post a sign setting the speed limit at 45 miles per hour. It is quite another to enforce it when the average motorist is whizzing by at 60 miles per hour. We will see how long the AAMD's sign remains posted as more and more museums whiz by out of desperation.
In the meantime, we commend the Academy’s membership. Of the 370 members, 183 members voted on the question of the sale. Of those, one voted against, one abstained, and 181 voted in favor. We assume the Academy’s board put the sale to a vote of the membership. If so, we commend the board. Fiduciary duties carried the day. At the end of the day, the directors have a legal duty to the Academy, not the AAMD.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
Copyright 2008, Charity Governance Consulting LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124
