Don't Raid the Cookie Jar: Creating Early Interventions to Prevent Deaccessionig Crises Summary Report

This paper summarizes the ideas and recommendations generated at "Don't Raid the Cookie Jar: Creating Early Interventions to Prevent Deaccessioning Crises," a convening held December 14-15, 2017 in Cambridge, MA. 

Introduction
In 1992 Stephen Weil wrote an essay exhorting museums not to use the "deaccession cookie jar" as the functional equivalent of a cash reserve. He laid out the consequences of selling collections to pay operating expenses, including the corrosive effect of such practices on the public trust. Field-wide standards codify Weil's position, and the American Alliance of Museums (AAM), Association of Art Museum Directors (AAMD), and the American Association of State and Local History (AASLH) have created a framework to support nuanced, ethical decisions regarding the use of funds from deaccessioning. 

Despite this consensus, instances repeatedly arise of museums selling—or being pressured to sell—collections as a way to address financial needs. To help forestall such incidents, AAM organized "Don't Raid the Cookie Jar: Creating Early Interventions to Prevent Deaccessioning Crises." This convening, hosted on December 14-15, 2017 by the Harvard Museums of Science and Culture, brought together a diverse group of over forty people associated with the museum sector to explore how the field can create an "early warning system" to detect potential crises that might lead to inappropriate sales and frame out resources that could help museums find other options to address their financial needs. Participants included current and retired museum directors, staff and board members, independent professionals, association staff, and attorneys. 

The convening was organized in partnership with the Association of Art Museum Directors, the American Association for State and Local History, the Association for Academic Museums and Galleries, and the New England Museum Association.

Agenda
The convening began at 9 am each day, ending at 5 pm on the first day and concluding at 3:30 pm on Friday the 15th. The convening kicked off with Nien-hê Hsieh, associate professor of business administration, Harvard Business School, leading attendees in a discussion of a business ethics case from the for-profit sector. Following the case study, participants broke into three groups to identify early warning signs for deaccession crises, proceeding on the premise that detecting crises before they mature will give museums more time to develop alternative financial responses. The groups shared, integrated and discussed their findings in plenary session. Day one concluded with four attendees sharing stories about financially-driven deaccessioning from their personal experience for discussion by the group. 
On the second day of the convening, participants were assigned to new breakout groups to brainstorm list of potential new products, services, and strategies that might help a museum avert or respond to financial crises.

The convening concluded with a session at which participants share their hopes, expectations and commitments regarding next steps.

Some General Observations 
While the impetus for this convening was helping museums find alternatives to monetizing collections, the outputs are equally applicable to non-collecting museums. Participants notes that the issue of deaccessioning, and the temptation to link sale of deaccessioned materials to financial need, may increase in coming years because the growth of collections, overall, is outpacing the ability of museums to support that growth.

While this convening took place, a Massachusetts Appeals Court Judge extended a preliminary injunction blocking the sale of collections from the Berkshire Museum. In fact, the grass roots group Save the Art/Save the Museum staged a rally outside the convening venue on Friday to protest that sale. That said, the agenda and discussions purposely did not focus on the Berkshire Museum or any other particular case of deaccessioning currently proposed or in process.

Timelines for detection and intervention
Participants felt it was important to consider the entire timeline within which financial crises develop, from the first red flag to climax and resolution. Creating desirable outcomes, they agreed, depend on identifying vulnerabilities at the appropriate times, determining how far back the vulnerability may begin and identifying where in the timeline what intervention would help. Detecting a financial weakness when it first manifests might provide a museum with several years to strengthen its position and develop new income streams. 
Risk Factors for Financial Distress
When invited to generate lists of "red flags" signaling financial distress, all the breakout groups broadened this assignment to encompass risk factors that may predispose a museum to financial crises. Note that these risk factors are not in and of themselves predictive of unethical or unwise financial behavior. However, being aware of these behaviors and situations may encourage a museum to "improve their lifestyles" and reduce the likelihood of poor financial outcomes. The risk factors identified by participants include:

  • Policies
    • Lack of a written, approved mission statement, or manifestations of mission creep
    • Lack of core policy documents, particularly a current strategic plan, or policies that are out-of-date
  • Governance
    • Lack of or inadequate transparency, financial and cultural, between board & staff
    • A board that is disengaged--or too domineering and too involved
    • Board policies and procedures that are out-of-date or not used
    • A board that is not diverse in background or skills
    • Lack of governance training
    • Absence of framework for holding the board and director accountable
  • Lack of innovation and resistance to change
  • Failure to include staff who are not part of the leadership team in financial planning;
  • Lack of financial literacy among staff
  • Capital campaigns, which play a role in creating a climate of financial vulnerability
  • Over dependence on one source of funding
  • Staffing
    • Rapid staff turnover, including rapid changes in leadership
    • Poor morale
    • Lack of staff with professional museum training
    • A lack of transparency in the museum's culture
  • Lack of reporting out on key indicators
    • to board
    • to staff
    • to the public
  • Parent institution has issues: financial, or not caring about the museum's priorities—predatory parents
  • Organizational history of poor deaccessioning practices
  • Collection is out of proportion to financial or physical resources (e.g., overcrowding in collections storage)
  • Over-building (building out the museum's facilities beyond the organizations capacity to support the expansion)
  • "Deaccession contagion" vulnerability from other museums' decisions' regarding deaccessioning, particularly if those museum(s) are seen as peer(s)
  • Lack of connection to the wider professional community
  • Changes in banking regulations or tax law that destabilize a museum's finance

Signals of Financial Distress ("Red Flags")
Participants generated an extensive list of warning signals, observable internally by staff and board or externally by the public, funders or other parties, that they felt indicate some degree of financial pain.

  • Poor financial performance/financial instability as reflected in
    • Organizational budgets
    • IRS form 990s and audited financial statements, budgets, showing instability
    • Annual self-report-cards (any kind of internal stress test), against field wide metrics, benchmarking against past performance or peers
  • Downward trends in financial performance, including declines in earned revenue and grant support
  • Sustained deficits, structural deficits
  • Buildings overleveraged with debt
  • Backlog of deferred maintenance
  • Dipping into the endowment to pay bills
  • Return on investment in endowment dropping under 5%
  • Downgrading of debt
  • Declining in public support, including attendance and donations
  • Staff instabilities and stressors
    • Rapid changes in leadership
    • Long standing unfilled staff positions
    • Staff salaries: lack of cost of living increases, staff attrition without replacement; use of interns instead of staff to do professional jobs
    • Lack of adequate staff to care for collections
  • Repeated instances of violating/disregarding the museum's own policies
  • Failure to respond to recommendations of external reviews
  • Loss of accreditation
  • Commissioning appraisal(s) of collections from auction companies
  • Board/board member asking why staff don't monetize the collections
  • Board and/or leadership actively considering deaccessioning to solve financial issues

Potential Interventions
On the second day of the convening, participants brainstormed potential new products, services, and strategies that might help a museum avert or respond to financial crises. Concepts included:

New products and services

  • Online early detection tool kit/financial analytics tool
  • Using the Data Arts system as a potential site where additional questions could be posed, from list of risk factors, leading to kind and gentle notification
  • Museum Assessment Program—like financial analysis (including self-directed workbook, external peer review, and advisory report)
  • Commission research to document what strategies and tactics to stabilize finances work (as well as what does not work)
  • Develop and share case studies
    • What red flags showed up and at what point?
    • Are museums that use deaccessioning as a one-time financial bailout actually successful in the long term?
    • Stories of successful interventions
    • New income models from other fields
  • Encourage museums to have a conversational relationship with auditors, looking at stress points
  • Create a culture in the museum field that supports candid conversations
  • Provide guidance on how to gracefully close a museum
  • Teach museums to use going through the accreditation process as a tool for self-assessment
  • Encourage the use of AASLH StePS or MAP—leading to credentialing
  • Develop and share resources like visual tools and analytics
    • benchmarking so that results, like a medical test, compares results to acceptable ranges of financial health.
    • worksheets that can be printed out and shared at board meetings.
    • A dashboard that serves as a predictive model of future financial performance
    • Free and accessible to organizations that are not members of any association
  • Encourage grantmakers to share their assessment of an applicant's financial condition
  • Form a taskforce that could examine information in the Data Arts database (and recommend new questions) empowered to reach out "gently" to museums that might be in early stages of distress. (Other participants felt very strongly that it was undesirable to have any kind of outside "policing," and that all early detection systems should be based on voluntary participation, self-diagnosis and self-reporting)
  • Establish an anonymous hot line for tips or self-reporting
  • Foster the availability of small, safe groups in which to discuss financial issues
  • Create a centralized resource of all existing individuals, programs, online tools that might be of assistance
  • Create and share a crisis communications guide
  • Create organization/service(s) that can
    • facilitate partnerships between museums
    • arrange inter-museum sales of collections; serve as a "museum pawnshop" where collections can be used to leverage funds while ensuring they remain in the public domain
    • help museums connect with social impact funders (organizations and individuals)
    • facilitate access to financial loans
    • maintain a "rainy day" fund for museums, offer bridge financing
    • serve as a "hospice" that helps museums go out of business.

Strategies museums might deploy

  • Strengthen the audit process beyond minimal obligations
  • Foster an organizational culture in which difficult conversations can happen, make sure the museum creates a climate for candid conversations
  • Educate boards about their collections oversight responsibilities
  • Bring in a "SWAT" team of outside experts to help explore potential courses of action

Pitch Sessions

The groups were tasked with fleshing out at least one idea in more depth, including framing the financial model for the product or service. This was followed by a "pitch session," during which representatives of each group presented their ideas, with the rest of the attendees playing the role of decision makers at the organization (such as a funder) to which the pitch was directed. The audience was invited to press for more detail, question assumptions, and suggest improvements. At the conclusion of each presentation, they voted on whether they would fund the project, invite the presenters to provide more details at a future date, or politely show them the door.

Pitch 1: Trustee and Director Training Workshops
Create and pilot convenings for museum trustees and directors. Curriculum to cover risk management, financial sustainability, new revenue models, and board recruitment and training. Goal is to empower trustees to ensure the sustainability of the institution. Could draw on financial experts and funders. Other goals for these meetings could include making peer connections, expanding networks of colleagues willing to share information, creation of a white paper that includes lessons learned and case studies. One "soft" benefit would be providing the opportunity for museum directors to have a meaningful experience with their board chairs, and for participants to expand their network of trusted colleagues to draw upon for advice. Pilot the program at several test sites. Collaborate with multiple museum associations to help bolster participation. Could be created in partnership with Museum Trustee Association, and other museum associations. Draw on expert resources such as the Nonprofit Finance Fund. Enlist other associations to help with the marketing. For instructors, use a combination of peers volunteering their time, and high-level headliners to increase appeal. Create a white paper to circulate broadly online and through professional associations.

Timeline:

  • Year 1: present at MTA Forum
  • Year 2: Pilot with three sites
  • After launch: goal of holding five convenings/year, by making it readily replicable on demand

Financial model: Start small by piloting at a scheduled MTA meeting, at limited additional cost. Solicit corporate and foundation funding to lower registration costs and provide scholarships. . Charge a (small) registration fee. Market workshops as a model that can be brought to any community or region with a funder or sponsor.

Points for discussion:

  • Some museums inside larger parent organizations (e.g. universities) don't have governing boards, may only have advisory boards.
  • How much benefit will result from a 2 to 3 day workshop? How does a museum sustain this learning in the face of board turnover?
  • Faculty might draw on staff of the Nonprofit Finance Center, MAP and Accreditation peer reviewers, auditors.
  • If these are geographically-based convenings, invite peers from outside the region to ensure cross pollination of ideas and avoid competitive conversations.

Vote: 
Yes. Nearly everyone concurred, three attendees wanted more information before deciding. 

Pitch 2: Financial Health Dashboard
For this pitch, the audience played the part of grant-making decision makers at the Bloomberg foundation. (The pitch team notes that there are various business schools that might be good partners, as alternatives to Bloomberg.) Product description: A dashboard that is easy to input and to read, and is graphically attractive, that could be used as the first page of every quarterly packet to board members. The audience for the dashboard would be anyone within the museum—trustees, donors—who want to check the museum's health.

The development team would conduct a literature review to come up with the top 10 indicators of institutional health (basic data including type of museum, the budget, endowment, attendance numbers, etc.), test on a group of stakeholders. The team would also develop an algorithm to evaluate the input data to diagnose the organization's financial health. The maintenance of these indicators will be an iterative process depending on repeated engagement with the tool and enhancement of tool over time (ongoing adjustments and revisions). The tool will be anonymous, easy to use, quick, free, hosted on AAM's website, and also linked from the regional associations' websites. Extensive marketing will be done through AAM, MTA, AAMD, the regional organizations, accrediting groups for higher education, municipal group for state and local government.

The pitch team requests $250 million and as well as Bloomberg's expert assistance in developing an electronic financial reporting product that will produce a one-page financial "health report" that's easy to read for boards, deployable by those in charge of sharing financials. Startup funding from Bloomberg, ongoing operating costs to be underwritten by AAM through fundraising. 

Vote:
Yes: 10; No: 2; Learn more: majority

Why did some people vote "no" or "learn more"? There was some hesitancy on whether this needs to be an online tool or just presented as a survey or downloadable template/guide. A low-tech template or guide would be less expensive to implement and could provide the same basic feedback, and not feeding data into a common pool would make the user's entries utterly private. 

Pitch 3: Leadership Training and Trustee Support System 
For this pitch, the audience played the part of program officers at The Andrew W. Mellon Foundation. Within museum leadership (hundreds of thousands of trustees and directors), there's potential for a lack of communication, translation, and information as the directors and boards come together. This proposal requests $10 million for leadership training and a trustee support system through an online dashboard and resources, with a tiered approach. The featured content will be a combination of things related to financial sustainability: fiduciary responsibility, financial literacy, ethics, structures, and contexts of broader field. Unlike the Getty and Kellogg leadership programs, this program will not be cohort based, will not have limited enrollment. 

The price would be tied to tiers of access. With the tiered pricing feature, the resources will be affordable to all kinds of museums, all sizes. The basic level: Online self-paced dashboard/resources, including webinars and chats; The next level up: Group meetings for peer-to-peer learning; and the upper-most level: Personalized coaching by peers and experts and an ongoing live help desk. (The coaches would consist of experts from across the field, including peer reviewers from AAM's assessment programs.) The entire program would be able to address any issue the museum may have on the heath lifespan (from early intervention to crises management to "museum hospice care"). 
To increase accessibility, some tiers may be "pay what you can." 

The pitch team proposes to create a new nonprofit organization to run this new program, in the form of a consortium of the various associations to work together on an on-going basis.  Additional income might come from an associated certification program, provision of Continuing Education Credits, and on-going grant funding. 

Vote:
Yes: 8; No: 4; Learn more: majority (by a small margin) 

Why did the majority vote to learn more? The audience was impressed by the ask and the business model. Interested in more details around the tiers and paying at the basic level. Concerned about how the partnership between organizations would work and how to serve such a wide range of institutions. They sought clarification that this new program would consolidate and leverage existing resources, not duplicate. Those who voted yes liked the fact that this program creates a resource in which museum people know they can turn to, accessible to all people in a museum. Tiered access is a strong positive. 

Some additional thoughts on potential products or services:
The American Alliance of Museums, and other associations, should consider interventions that can be deployed over a 2 to 4 year timeline. It will be important to destigmatize the idea of going through financial crises, via a messaging campaign that emphasizes the importance of seeking outside help. One of the first steps that could be taken is to compile and share a list of all the existing resources available from AAM and elsewhere. One simple but important resource to add to the mix is a model communications plan for museums dealing with financial crises. 

Our discussions frequently touched on the potential benefits of strengthening a chronically underperforming organization via a merger or acquisition by a more stable, high capacity organization. It would be worth investigating what kind of support systems could help plan and execute such transitions. 

This session also surfaced several radical ideas that deserve further consideration, such as creating a bridge financing system for museums that would pay off the debt service giving a museum the breathing space it needs to plan for a full recovery. Another intriguing concept is a "Museum Pawn Shop" that provides funding for objects reposited in the shop, to be redeemed or sold to other museums. 

Next Steps 
The commitments made by individual participants included reporting back to their organization (museum, professional network, or association) and soliciting additional feedback to share with AAM). Many people plan to discuss the content from the convening with boards of trustees and with staff of their organizations. 
Participants expressed their interest in having AAM and other associations tackle the following steps:

  • Developing a toolkit/template/diagnostic check list—AAM to take the lead as the convening organizaiton for the other associations.
  • Expand this discussion to include other sectors (like those who create insurance financial products). Convene this kind of conversation with other professionals.
  • Reach out to other entities, including foundations, that could benefit from participating in this conversation.
  • Encourage museum studies programs to include or expand financial literacy in their curricula.
  • Address the gap between guidelines from AAM's and AAMD's ethics policies. Convene people to explore new options in an evolving world like mergers, etc. to be included in guidance.
  • Look into how hospitals or universities are handling this. (Thought, hospitals, having for profit and nonprofit, could be an interesting field to evaluate in comparison.)
  • Create a deaccessioning workbook/reader (Participants note that one such work is being published in 2018).