Monday, April 23, 2018

Rockwell Art Sale Resolution and an Unusual Major Gift

I. Last November ( I wrote about the contentious dispute regarding the intent of the  Berkshire  Museum in Pittsfield MA to sell works of art (“deaccession”) in order to cope with a large deficit and fund new, non-art strategic initiatives. The estimated value of the art was $55 million, the bulk of which was represented by a single painting by Norman Rockwell, “Shuffleton’s Barbershop.”  

National museum groups decried the proposal on ethical grounds. Such sales are supposed to fund art acquisitions, not deficits. Local museum patrons, including several of Rockwell’s sons, filed suit to block the sale at Sotheby’s. At the last minute a judge ordered the sale delayed to give time for the Massachusetts attorney-general’s office to examine the matter.

In February 2018, the state announced it had reached an agreement with the museum that would allow the sale but modified from the original proposal. “Shuffleton’s Barbershop” would be sold to another, as yet unnamed museum for an unknown sum, but would always be in public view. The painting would also remain in the state for 18-24 months at the nearby Norman Rockwell Museum and be made available for display in other Massachusetts museums. The Berkshire Museum would be limited to proceeds not to exceed $55 million from the art sale, the amount it claimed needed to stabilize its finances.  Any funds realized  of between $50 million and $55 million would be required to be set aside for acquisitions of art. 

In his April 5 decision allowing the agreement to go forward, Judge David Lowy of the Massachusetts Supreme Judicial Court acknowledged the “serious concerns” raised by sale opponents but concluded it the sale was vital to the museum’s survival: “the museum’s charitable purpose of aiding in the study of art, natural sciences and cultural history must be protected.”  As one observer noted, the decision may have been sound on legal grounds, but weak on ethical ones.

II: A most unusual and heartening gift was reported in a recent edition of The Chronicle of Philanthropy .  William H. (Bill) Miller, a famous money manager and investor renowned for beating the S&P 500 Index for 15 years in a row, announced in January a donation of $75 million to Johns Hopkins University in his native Baltimore. The sum is significant enough, but its purpose is what got attention.  It has been designated for use by the Philosophy Department, not for instance health or STEM fields, popular designee programs for higher education. The donation will create endowed professorships and eventually almost double the number of full-time Philosophy faculty members.

Miller was a Philosophy major at Hopkins and a candidate for a Ph.D.  when, faced by a difficult job market,  he left for greener pastures in the investment field.  But as he stated in the interview: “Philosophy I found intellectually, psychologically and emotionally enriching. My life is a lot better for having studied it. Secondly…the critical-thinking skills, the analytical skills, the rigor of philosophy were extremely valuable to me in analyzing capital markets...” 

Are you listening, Wisconsin? The University of Wisconsin, at Stevens Point is proposing to drop 13 majors in humanities and social sciences, including Philosophy , History and  English, and adding programs with “clear career pathways. ” The Washington Post also reported that in 2015 Wisconsin Governor Scott Walker had attempted secretly to  change the mission of the state university system by removing words that commanded the university to “search for truth” and “improve the human condition” to be replaced by the mandate “to meet the state’s workforce needs.”  Such moves are in line with the belief in some conservative quarters that universities are breeding grounds for liberal ideas. After a storm of protest when the move was exposed, Walker pulled back, calling it a “drafting error.”  Perhaps he could have used more  English majors on his staff….

When asked about the timing of the gift to Johns Hopkins, Mr. Miller said he was advised by an associate that unless he wanted the government by default to become his favorite charity, he should do something important in his lifetime.  “I wanted to think about things that had an impact on me, “he said, “where significant money could really move the needle. I thought philosophy was a good place to start.” 

The somewhat idiosyncratic nature of this donation should remind nonprofit leaders that giving, in whatever amount, is a personal action, often driven by the donor’s particular passion. Honoring and working with that understanding can bring mutual satisfaction to all concerned, and should never be overlooked.

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Thursday, March 8, 2018

The Historical Lesson of Integrity

In each edition of The Washington Post there is a section titled “Happening Today” that lists some important meetings and events,  usually in the government – the President’s schedule, meetings, economic report roll outs, etc. On February 26 one announcement caught my eye: “3 p.m. The Senate gathers for the annual reading of George Washington’s 1796 Farewell Address to be delivered by Sen. Gary Peters (D-Mich.)”

According to the Senate Historical Office, the annual reading of the address by a current member is “one of the Senate’s most enduring traditions.” The first reading in 1862 was held as a means to boost morale during the Civil War. It was established as a yearly event in 1896, the centennial of its first publication. 

 It occurs to me that the rationale for its first Senate reading –morale  boosting– is particularly appropriate today with a country polarized by divisive disputes and led by a president lacking in basic leadership qualities, not the least of which is integrity, as so calmly exemplified by our first president.
The almost 7000 word “address” was not intended to be delivered in person but rather as a letter. Assisting in its preparation were James Madison and thereafter Alexander Hamilton.  It was first published in a journal called the American Daily Advertiser on September 19, 1796 in Philadelphia, then our nation’s capital. Washington’s purpose was to give advice to the young country for its future. 

 He first cleared a path by announcing he would not seek a third term as president in the upcoming election, just weeks away. He then went on to plead for national unity, well aware of the growth of political parties (then Federalists and Republicans) and the growing divisions in the nation. 

The U.S. Senate website summarizes the address as follows:  “Washington warned that the forces of geographical sectionalism, political factionalism, and interference by foreign powers in the nation's domestic affairs threatened the stability of the Republic. He urged Americans to subordinate sectional jealousies to common national interests.”  Doesn’t that summary resonate with our current situation? For instance, wasn’t the Russian attempt in 2016 to disrupt our presidential election tantamount to an effort to destabilize the Republic?

I daresay George Washington would be dismayed by the state of the nation today, and how his prescient warnings and advice are being ignored.  He also wrote:” It is substantially true that virtue or morality is a necessary spring of popular government. The rule, indeed, extends with more or less force to every species of free government. Who that is a sincere friend to it can look with indifference upon attempts to shake the foundation of the fabric.”  Even the most casual of observers can see that our current president, through his own immoral character and actions, is shaking that foundation. The indifference of many politicians only adds to the downward slide.

Washington’s address springs from his own integrity; Trump’s words and deeds issue from the lack thereof.  There are many synonyms for integrity, such as honesty, rectitude,  a character based on high moral and ethical principles.  The word is based on the Latin integer – meaning  whole or complete. A leader with integrity has to lead from within- from who he or she is completely. 

This applies to our leaders in the nonprofit sector every bit as much as it applies to government officials. We must not lose sight of the leadership standard of integrity, even as examples of the opposite flare up around us every day. I don’t know how many U.S. senators heard or took to heart the words of Washington’s Farewell Address recited in the chamber a few weeks ago. I hope some did. They, and others in position of authority in all sectors of our society, have got to pay attention.

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Friday, January 19, 2018

Time to Change Nonprofits' Game Plan

It's NFL football playoff season and that brings to mind the situation now facing nonprofits with the newly enacted federal tax overhaul bill.  When a quarterback breaking out of the huddle comes to the line of scrimmage and sees the situation has changed since he fixed the play, he calls out an
"audible," which informs his team of necessary last minute adjustments. In the same way, nonprofits must now quickly change their game plan.

The recent legislation is potentially very injurious to nonprofits. Although the tax deduction for charitable giving remains, the incentives to do so are constricted by the redesign of the deductibility architecture. The doubling of the standard deduction (now for a single person $12,000, a couple  $24,000) makes it unnecessary for  many taxpayers in the middle income ranges to itemize deductions. Before, itemization of charitable gifts as tax deductible was believed to encourage such donations. Similarly for the very wealthy the prospect of a hefty estate tax made present day donations attractive to some. That tax was virtually eliminated in the legislation.

On top of all this, nonprofit leaders are worried about the inevitable upcoming battles over federal spending made more acute by the looming budget deficits. If, as widely predicted, the Republican leadership will use the budget shortfalls as an excuse to attack the social safety net/entitlements (Medicaid, Medicare, etc. ) long a favorite target of the Right. As these are cut, the pressure on social service nonprofits to make up the difference becomes acute.

So the quarterbacks for the charitable community come to the line of scrimmage and see the landscape has changed radically. Time for an audible. First, the issues must be faced head on.  Will donors reduce giving because of the changes to deductibility? Do  donors know what the changes are and how they might be affected? To the extent that nonprofits  have had a hands-off relationship with  donors except for year-end asking for money, this attitude needs to change. Perhaps organizations should collaborate in presenting a seminar for donors led by accountants and financial advisors on tax law changes. Then enter into a dialogue with donors. How important actually is deductibility to them?

If it is an important  factor, then provide a counterweight to that rationale. Logically that should be an increased emphasis on communicating your mission - what service do you provide the community? What return do you provide on the donated dollar? The effectiveness of those messages depends on building a strong relationship with the donor. If it is weak, strengthening that bond should be a goal embarked on now. I am not sure tax deductibility is the principal impetus to philanthropy but it is important to ascertain how important it is has been in your organization and build powerful alternative reasons for support. 

As for the other threat - budget cutbacks- relationship is once again the key, here with elected representatives at all levels of government. There is consensus that the nonprofit community dropped the ball (to continue my football analogy) in the recent tax bill fracas.  The advocates relied too much on assumption that previous support from legislators would continue without factoring in the speed in which the bill was fashioned and the changes in political climate. It relied too much on the old formulas - for instance the mass "advocacy day" assault on Capital Hill. In November 2012 I wrote a blog post called "Getting the Dog Back" about political persuasion. It still makes sense to me. Here it is:

If "trickle-down" was a buzzword for adherents of the tax changes, then their effect on state and local governments, along with impending federal budget cuts, would resemble more of a mudslide. In the offing might be additional fees, payment in lieu of taxes on nonprofit real estate and overall reconfiguration of  state and local tax laws. So building relationships with state and local officials  has to be part of the advocacy/firewall  mix. If you review the backgrounds of federal legislators many of them came up through the local and state elected ranks. A county commission can do as much damage - or good - to a nonprofit as any federal legislature.

So, nonprofit quarterbacks, signal the necessary changes to the game plan. Position your blockers, align your receivers to catch your brilliant initiatives and most of all, know the players, both defensive and offensive. It's early in the game. But don't wait until the last quarter to act!

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Tuesday, December 12, 2017

Tax "Reform"???

I had started to write this blog post about the tax (“reform” “overhaul” “cut”), bill, analyzing the various provisions that affect nonprofits in both the House and Senate versions, soon to be reconciled in legislative conference. But then on December 7 I was caught up short by a full page photograph in The Washington Post, and put aside the analysis until there is a final bill. I am not sure I understood all I knew about it anyway. But I daresay not many of the legislators do either.

The photo is heartbreaking. It shows a mother clinging to her adult son. Both are standing. Her age- lined face is a portrait of misery and apprehension. Her head rests on his shoulder, held there by his hand.  The son’s face, looking over and beyond her, is impassive. Their physical position together is all too familiar to him, as is their economic one.  

They are Tyler McGloghin and his mother Sheila of Grundy Va.  The $500 a month she gets from disability supports her unemployed son and daughter-in-law. Periodically Tyler stands on the highway holding a sign that begs for money to help feed the family. 

To me, this photo symbolizes the rotten core of the tax legislation, its content and purpose.  It Ignores the poor through the middle class in favor of very rich individuals and corporations.  Its Republican advocate-enablers admit the monster deficits it will give birth to will eventually mean cutting back Medicaid and Medicare, and other parts of the fiscal “safety net” designed to assist families like the McGloghins.  

A recent study by economist Edward N. Wolff revealed that the richest 1 % of American households own 40% of the country’s wealth. There is hardly anyone but the “One Percenters” who benefits from this blatantly cynical train wreck of “law-making.” 

There are other telling anecdotes about the stark contrasts between the have and have nots in our society. A Leonardo Da Vinci sells for $450 million at a New York City auction. Even though it was bought by an obscure Saudi prince, who were those who bid up to that point?  The founder of Amazon (and owner of The Washington Post ) Jeff Bezos’ net worth is  $96.1 billion (down from $100 billion in November). And so on.
I have written before about the plutocrats in the Trump cabinet (“Pluto Philanthropy” April 2017). Longtime political commentator E. J. Dionne Jr. writing recently in The Washington Post  suggested why Republicans dare not take on Trump: …” it might derail their party’s only  driving purposes: court packing, the care and feeding of the privileged, and the gutting of federal social services and regulation.”
Undoubtedly the final tax bill will affect nonprofits negatively in one way or another, most likely through altering the deductibility architecture or raising taxes on individuals.  At the same time, many of the nonprofits, especially in the social service arenas, will face intense pressure to make up for the federal cutbacks. But what the congressional Republican leadership lacks in backbone and serving any purpose other than their own interests, nonprofits and their supporters must try to bridge the gap. It will take courage. It will take donors to ignore the tax roadblocks and step up in support of decency and compassion.
Finally, some charities are advising their donors to accelerate giving this year given the uncertainties –tax code and otherwise- in 2018. Those who benefited from the stock exchange run-up have increased encouragement to act now. And shake out some of those Bitcoins, if you have them and/or understand what they are.
In any case, happy holidays, Merry Christmas and above all, Happy New Year! The latter is sorely needed.  See you in 2018.

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Tuesday, November 7, 2017

Norman Rockwells on the Block?

On November 1, Judge John Agostini  of the  Berkshire Superior Court surveyed his packed courtroom in Pittsfield, Massachusetts and quipped that  “it usually takes a murder case to equal such a turnout.”  What brought so many citizens, lawyers and the press together? :  Art.

The art in question are 40 works by the likes of Alexander Calder, Augustus Saint-Gaudens , Albert Bierstadt and central  to this case, Norman Rockwell, that the Pittsfield-based  Berkshire Museum  last July announced it intended to deaccession and put on the auction block. The estimate of proceeds is $50 million to be used to fund an endowment, deal with chronic financial shortfalls and to renovate the museum to suit its “new vision” mission  emphasizing  interactive displays of  science and natural history.  The museum has claimed the art works up for sale were “not essential to the museum’s refreshed mission.”

Facing $ 1 million annual deficits, the museum trustees undertook a two year study evaluating its purpose with a view to attracting larger audiences and support.  Founded in 1903 the museum was intended by its founder paper magnate Zenas Crane to educate the public with art, scientific and history displays, as a “window on the world.”
Two lawsuits, one by three of Norman Rockwell’s sons, have been filed to block the sale. Rockwell lived and worked in nearby Stockbridge (where a popular museum dedicated to his work now exists). He personally donated the two paintings to the Berkshire Museum in 1958 and 1966. They are expected to fetch over $30 million in a sale scheduled at Sotheby’s on November 13. The Rockwell sons stated their father did not intend the paintings to be sold as a commodity to reduce deficits but rather held  for the pleasure and education of the public in the Berkshires. Norman Rockwell had a long association with the museum; it was the first museum to exhibit his work.
The Rockwell paintings have given the case an emotional edge not often seen in deaccessioning battles, fueled by the participation of his sons and public desire to keep close to home famous work by one of the region’s native sons.  Recently the Office of the Massachusetts Attorney General, which oversees charities in the state, entered the fray.  At the November 1 court hearing it sought an emergency motion to halt the art sale. Its brief made a strong case that the court should ultimately decide whether the museum has the right to sell the art.  Local and national media have been covering the issue.
The issues raised range from museum ethics to the role of trustees in their fiduciary/public trust roles.
Museum ethics, as defined by two national organizations, the American Alliance of Museums (AAM) and the Association of Art Museum Directors (AAMD), state clearly that proceeds of sale of work  from a collection must only be used to fund future acquisitions, not for debt reduction or other operational uses. It is believed this sale would be the largest ever used for such unethical purposes.  Besides public censure, the only teeth the AAMD  has is to recommend  that member institutions not make loans to the museum. That even may be weakened as the Berkshire Museum seems to be disposing of its art –related mission.
The question before Judge Agostini is whether the plaintiffs (the suits are now consolidated into one, along with the Attorney General)  have the right to challenge the trustees’ action. Do they have “standing” in legal terms.  If he rules they do not, then in all likelihood the November 13 sale will go forward. If he rules in the affirmative, the legal battles should only heat up. Sotheby’s is already exhibiting in New York the major Rockwell painting “Shuffleton’s Barber Shop,” which the house estimates will draw bids between $20  and $30 million.
“Trustees” are so named because they are charged with managing a museum and its collection, which is held in public trust.  There seems little doubt these trustees are facing a difficult future. They have invested in consultants, a lengthy public input process and arrived at what is clearly a transformative solution. But at what cost? The public would lose access to great art, acquired largely by the museum from donors who presumably, if they knew the works were to  be cashed in, might have had second thoughts about their generosity.
What is particularly troubling is the magnitude of the transactions. The Attorney General questioned if the amount was really keyed to the museum needs or just simply matched the amount Sotheby’s estimated the art would fetch at auction. There is an aura of commodity trading about the whole business.
I hope the judge will grant the restraining order in order to give time for the Attorney General to complete her investigation and the court to adjudicate the entire matter absent the pressure of an impending sale. If the sale goes forward on November 13, the Rockwells and other fine works  disappear from public view. And after the sale, there is no going back.
The judge’s decision is imminent.  I will post it.
What do you think?


Just a few hours after I posted this on my webpage November 7, Judge Agostini announced his ruling - in favor of the museum. In a 25 page decision, he stated the plaintiffs failed to make the case to halt the sale. He wrote "it was the court's duty to act dispassionately and decide cases solely on the legal merits."  He conceded his finding means "timeless works by an iconic, local artist will be lost to the public in less than a week's time."

He added" "the rights of a charitable board to make thoughtful decisions to steer its charity through troubled times have been vindicated."

I would add: there's a lot more steering ahead.

The sale will proceed November 13 at Sotheby's.


Friday evening November 9:  A judge of the Massachusetts Court of Appeals granted a last-ditch appeal by the Massachusetts Attorney General for a preliminary injunction to halt the sale scheduled at Sotheby's for November 13. The AG had requested more time to complete the investigation. The injunction holds until December 12.
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