By Mark S. Gold
A museum in financial crisis would have to close rather than use its collection to secure a loan. Is that ethical?
This article was published in Museum News November/December 2005.
“Those museums deserve to die.”
That was the unequivocal response of a respected museum professional when asked what should happen when a museum’s very survival depends on using its collection as collateral to secure the necessary financing. She was given an opportunity to moderate that harsh judgment, but declined to do so. She is not alone in her thinking.
The prohibition against using collections as collateral was an extension of the rule that limits the use of proceeds from deaccessioning. Although cloaked in a sanctity-of-collections rationale, in the case of AAM at least, the deaccessioning rule was clearly a response to the efforts of FASB (Financial Accounting Standards Board) to require museums to capitalize their collections. At that time, AAM used the recently enacted ethical rule as a key component of its argument that capitalization was not appropriate. The implementation of the rule solved the problem of well-heeled museums having to disclose to the public, including their donors, the value of their collections. But it slammed the door on less fortunate museums (which constitute the vast majority of museums) to access what might be their most valuable asset to ensure their survival.
The prohibition on the use of a museum’s collection to secure financing is unambiguous and without exception in the ethical rules of AAM and other major museum organizations. The rule does not hold up well, however, when poked and prodded with a series of hypotheticals or when measured against the shared values of the museum community. It is time to re-examine the rule, given the difficult economic environment in which museums now find themselves.
For example, should a museum be condemned by its peers for violating the rule if:
the objects that are pledged are surplus or the least relevant to the mission of the museum?
the financing is absolutely necessary to get the museum through a short, rocky period (such as Sept. 11) and is likely to be repaid from future revenue?
the museum secures from its lender an agreement that if the objects are lost on default, other museums will be given an advantaged preference to purchase those objects before they are offered to the general public?
There are lots of other situations where one could easily argue that the fiduciary obligations of the museum’s governing body actually would require use of the collection to ensure the survival of the institution and its mission. Ultimately, it is the Attorney General of the state in which the museum is located who oversees the propriety of such decisions, not AAM.
A thoughtful framework that provides for certain conditions to be met and certain tests to be satisfied before a pledge of a collection can be made will reflect the shared values of the museum community to a greater extent than does the rigid rule now in effect. Those values include: (i) the continued existence of the museum and its ability to fulfill its mission, (ii) the preservation and security of the collection, (iii) the continuation of public access to the collection, and (iv) the ability of the governing body and professional management of the museum to make choices and establish priorities within, and on behalf of, the institution.
Indeed, a well-structured financing arrangement that includes a pledge of objects from the collection will do more to protect the collection than an unsecured loan. Restrictions can be agreed upon with the lender in terms of the order in which security will be reached, the manner of disposition upon a default to ensure continued public access, and the ability of the museum to substitute collateral as it desires. In the absence of such a structure, any creditor of the museum who has obtained a judgment can pick and chose from the assets of the museum, including the objects in its collection.
The lack of urgency to address this issue is based in part on the belief that in the event of a museum failure, all of the collection will somehow find happy and welcoming homes in other institutions and remain available to the public. The museum world has been fortunate to have so far avoided a major auctioning of objects to satisfy the claims of creditors. It is naïve to assume that the dissolution of a museum means simply that its collection goes to another museum. The museum’s creditors, or a trustee in bankruptcy, likely will have a different set of priorities for realizing the greatest possible proceeds from the disposition of the collection. It is a better outcome for a museum to stay alive through a financing that gives some protection to the collection than to fail for financial reasons and leave the disposition of the collection in the unfettered hands of creditors.
A balance can be achieved between the high priority that the collection deserves, and the ability of the museum, through its governing body, to make sound decisions involving competing priorities and urgent needs facing the institution. There is no need to ascribe blame and impose punishment. There is no benefit in eliminating options for museums trying to juggle those competing priorities and address those urgent needs. A framework for the pledge of collections—or even an outright deaccessioning—that ensures the survival of the museum or meets its urgent needs, at the same time as it ensures that the collection remains accessible to the public, is consistent with every one of the shared values of the museum world. Museums that achieve both of those results ought to be applauded, rather than be branded unethical.
A thoughtful framework is not a quick fix. At the same time, however, it avoids a blanket condemnation of conduct that should be considered in an individual context. It will present a series of issues to be considered and requirements to be met in order to allow the conduct to be deemed “ethical.” When each of those issues has been considered, and each of the requirements has been met, the governing body of the museum will have discharged its fiduciary duty to the institution, and its decision ought to be respected.
As the economics of museums become more and more of a challenge, it is time to re-examine the values implicit in the existing rule and re-visit whether it is in the best interest of the public for a museum that is already facing a grave crisis to face the collective moral judgment of its more fortunate peers as well, especially when the conduct deemed unethical is entirely legal, the result of a thoughtful process, and consistent with the best interest of the museum and the community it serves. A session at the 2006 AAM Annual Meeting in Boston will consider a proposed framework for the pledge of collections to finance museums. Perhaps it will be a starting place to re-open this important discussion.
Mark S. Gold, an attorney from Williamstown, Mass., has practiced law for 30 years and specializes in nonprofit organizations. He holds a master’s degree in museum studies from Harvard University and is former chairman of the Leadership Council of the Massachusetts Museum of Contemporary Art.
