By Harold and Susan Skramstad
This article was published in Museum News July/August 2004.
Q: Our museum just finished a board recruitment drive, and among the proposed new board members are an attorney who has done pro bono work for the museum; a commercial art dealer; and an artist whose work we might conceivably acquire some day. Are we facing conflicts of interest here, and should we reject their candidacies for the board?
A:Conflicts of interest, especially at the board level, are an important and continuing issue for museums. If your board is composed of influential individuals who are in a position to provide real service to the museum, some of them may have potential conflicts of interest.
Can an antiques dealer, collector, or artist serve on a board? All of these people can be effective board members—as long as the dealer understands that the museum’s interests come first; the collector that he can not compete against the museum; and the artist that a show of her work will raise both the value of that work and eyebrows at the same time. (Any services or expertise your museum obtains on a pro bono basis is a financial contribution and probably not a conflict of interest.)
We resist the notion that a museum should turn away a potential board member simply because that individual may have a conflict of interest. However, the museum must have clear and simple rules of engagement. First and foremost, board members must understand that loyalty to the museum’s interests always take precedence over individual personal, professional, or business interests. Always. Second, there are simple processes, easy to put into place and follow, that can help a board chart its way through the conflict of interest issue, such as:
• Begin at the recruitment interview with an understanding that potential conflicts of interest will be disclosed and reviewed as a normal board activity.
• Ask each board member to fill out and sign a simple disclosure form, identifying existing or potential conflicts of interest and agreeing not to vote on issues in which there is a conflict. For some museums a simple form ,such as the one in our book, A Handbook for Museum Trustees (AAM, 2003), will suffice. Large and complex institutions may need to seek the advice of legal counsel.
• Annually review and discuss the conflict of interest forms, and take any action required.
The concept of putting loyalty to the museum’s interests above personal interest cannot be an abstraction for board members—or staff, for that matter. It is a fact of museum board service, with continuing implications for individual board members and the board as a whole. Here is where the “culture” of a board is so important. No disclosure forms or procedures can replace the effectiveness of an open, honest board discussion of important and sometimes difficult topics, such as conflict of interest.
When a board is successful, it is usually because it has a culture that allows for open dialogue on difficult issues. And this isn’t easy. Who wants to criticize the hard-working investment banker on the board whose management of the museum’s endowment is not up to par? Or the attorney on the board who gives wise counsel on most things but charges more than other attorneys for the same services? Or the antique dealer who is helpful in so many ways yet uses her museum connection for special advantage in the marketplace? Too often museum directors are forced into the role of trying to police conflicts of interest at the board level, which puts them into an impossible position. No board that understands its own responsibilities should allow this to happen.
Boards also should be familiar with the Sarbanes-Oxley Act, formally known as the American Competitiveness and Corporate Accountability Act of 2002. Sarbanes-Oxley was enacted in the wake of the Enron/Arthur Andersen scandals to establish new governance standards for publicly traded companies. “While nearly all the provisions of the bill apply only to publicly traded corporations, the passage of this bill should serve as a wake-up call to the entire nonprofit community,” notes a paper prepared by BoardSource and Independent Sector. “If nonprofit leaders do not ensure effective governance of their organizations, the government may step forward and also regulate nonprofit governance.” For more information, see “The Sarbanes-Oxley Act and Implications for Nonprofit Organizations.
Dealing with conflicts of interest is not so different from dealing with the other problem areas no one likes to talk about. What about board members who are unproductive, taking up space and time on the board? What about dysfunctional or disruptive board members? Too many museum boards silently wait out their problems, hoping they will go away; after all isn’t that what term limits are all about? We believe that is irresponsible. The concept of loyalty to the museum and its mission must be embedded in the culture of the board. Board service is professional service, not club membership. If undivided loyalty to museum mission is central to board culture, it gives more than permission; it gives invitation (and for the board chair, imperative) for board members to raise issues, whether around conflict of interest or anything else that may do disservice to the museum.
Some museum boards will feel that the potential or real conflict of interest is just too great to allow board service. That is an individual board decision. However, we have observed that there are few conflicts of interest that cannot be resolved if the board culture is strong enough, and all members understand that any conflict of interest will be determined in the museum’s favor. Creating and sustaining this kind of a board culture is one of the most important tasks of board development.
Resources:
AAM’s Museum Assessment Program includes the Governance Assessment, which helps museum boards examine their structure, roles, and responsibilities and enhances their ability to advance the institution’s mission and engage in effective planning. Skramstad, Harold, and Susan Skramstad. “Handling Difficult Board Issues” in A Handbook for Museum Trustees. Washington, D.C.: American Association of Museums, 2003.
Harold Skramstad, president emeritus, Henry Ford Museum & Greenfield Village, Dearborn, Mich., and Susan Skramstad, former vice chancellor for institutional advancement at the University of Michigan-Dearborn, are consultants to nonprofits on issues of change, planning, fund raising, and board and staff development. They are the authors of A Handbook for Museum Trustees (AAM, 2003).
