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The Mellon Foundation, the Elephant Task Force, and the “Flanagan Report”Forum Member -
The Orchestra Forum was established in 1999 as part of a program of the Andrew W. Mellon Foundation designed to further creative thinking and innovation among orchestras and related organizations. Forum meetings bring together musicians, managers, and trustees of participating orchestras with invited scholars and leaders from the performing arts, and sessions include blocks of time for ad hoc discussions focusing on participant-posed questions.
The so-called Elephant Task Force (“ETF”), a cross-constituent group of musicians, managers, and trustees grew out of one such discussion in late spring 2003–a time when a significant number of orchestras were facing financial challenges. The economy was still reeling from the bursting of the stock market bubble and the direct aftereffects of 9-11, and national resources were being reallocated away from the arts. Orchestras, both major and regional, had reported significant financial deficits the prior season. All of the Forum orchestras admitted to projected deficits that year ranging from five to fifteen percent of revenue.
From the outset, one key issue for the ETF was the question of whether fiscal problems were structural or cyclical. This question loomed large, for the organizational implications of it being one or the other are significant. A verdict in favor of “cyclical” would imply that the status quo is fundamentally sustainable, and the key financial challenge for orchestras would be to gain greater ability to withstand the inevitable ebbs and flows of the economy. A verdict that the problem was structural would carry with it far greater implications for the long-term management of the organization.
In March 2006, the Mellon Foundation on behalf of the ETF commissioned Stanford University Professor Robert Flanagan to conduct an analysis of the economic health of orchestras, with the objective of assessing the cyclical and structural influences thereon.
Responding to the central question posed to him, Flanagan found that changes in the financial balances of symphony orchestras reflect the influence of both general economic conditions (i.e., cyclical effects or business conditions) and trend factors (structural factors unrelated to changing economic conditions over the business cycle.) One example of a trend factor is the productivity lag identified by Baumol and Bowen: the performing arts, unlike other sectors of the economy, benefit little, in terms of productivity, from technological innovations; unit productivity does not rise as fast as the cost of talent; and thus performing organizations’ costs almost always (and increasingly) exceed their earned income.
The result is that each time business conditions improve, orchestras find themselves in a slightly worse financial condition than they were prior to the economic downturn, and with a larger gap between performance revenue and performance expense to cover. Flanagan finds that this performance income gap has been addressed by a significant trend increase in nonperformance income (government support, private contributions, and investment returns.) When one combines the modest trend increase in performance revenue and sizable trend increase in nonperformance income, and sets it against the very sizable trend increase in performance expense and trend decrease in government support, there is a quantitatively small but statistically significant trend improvement in the overall financial balance of the average orchestra in the sample. Flanagan calls this a “gentle trend towards surplus,” but cautions that this trend may be overwhelmed by small adverse cyclical effects.
Each orchestra’s financial situation is unique and each orchestra has a unique place in its own community. There are, however, some common areas every orchestra can examine in order to succeed in a challenging environment. In its multi-year investigation of these challenges, the ETF formulated four areas of attention that can affect orchestras’ well-being.
Community Relationships: Ways in which the orchestra organization connects meaningfully to its community and creates true public value;
Internal Culture: Ways in which the orchestra constituents work together in mutually supportive and cooperative ways;
Artistic Activities: Ways in which the orchestra deploys artistic resources broadly and effectively in service of the art form, the community, and individuals in the organization;
Financial Structure: Ways in which the orchestra matches cash resources with expenditures either to maintain the status quo or to achieve financial viability or financial robustness.
Out of the sense of urgency to assist orchestras in addressing financial deficits, the ETF’s work grew to a focused consideration of how their orchestras might envision themselves in the future. What began as a response to fiscal exigency–coping with financial deficits–evolved over five years to a call for orchestras to create for themselves both a vision of a sustainable artistic endeavor and the innovations necessary to achieve that vision.
Today, the ETF stands for the proposition that orchestras should re-examine devoting huge energies to short-term coping strategies to address weak bottom lines. The ETF has concluded that coping mechanisms such as unsustainable draws from endowments, underfunding pension obligations and reopening contracts to seek concessions, are recipes for failure. Rather, orchestras are best advised, after carefully weighing costs and benefits, to engage in risk-taking experimentation to find innovative ways of addressing the inevitable challenges embedded in a changing environment.
The ETF hopes that people who care about the future of their orchestras will undertake the self-examination of their individual orchestra’s circumstances, and use the ETF’s work, which will be shared with the full Forum in May 2008, as stimulation for vigorous, cross-constituency internal debate, on their own terms, about the appropriate choices for their orchestra.
