Don't Do Your Organization Any Favors

By Janet Brown from her blog Better Together

I toured Europe for a year in the 80s as general manager of an American musical. It was a crazy tour with a less than experienced producer. I actually encouraged him several times to shut down the tour because we had gaps between bookings and were continually getting advances from future dates to pay current salaries. But, he was the boss and the tour continued. Along the way, I ended up using my own salary (and the production stage manager’s) to keep the company afloat. I left the tour with the producer owing me several thousand dollars. Does this sound like a financially healthy business to you? It wasn’t.

Recently, I was having lunch with a colleague who told me about a performing arts center in his region. The current CEO was a retired corporate CEO who was thinking of retiring from the center. This job is a great opportunity for an arts administrator looking for a place that has good community support and a diversity of offerings. So, what’s the problem?

It seems the current CEO, who has been there for over five years, decided he didn’t need the money (nice of him) and had been taking only a very nominal salary. This, of course, saved the organization over those five years hundreds of thousands of dollars. As with many organizations, that made the difference between showing an annual profit, and minimizing any deficit. Good news? No.

In reality, the organization has been undercapitalized for the entire time he was not paying himself a marketable wage. Now, it’s time to pay the piper. The organization probably has two options. 1) Find another retired CEO as accomplished at running an arts organization as he was operating a for-profit who will work for little or no salary, or 2) find about a hundred thousand dollars out of the current budget to hire a professional who actually needs to be paid. Not a pretty scenario, really.

Unfortunately, in our business, this is not unique. Generally, you find it in start- ups or organizations whose founder is so passionate he or she is willing to forego wages. Still not a great idea but sometimes that investment pays off. In other instances, it becomes a liability. One organization, I know of, had a founder who was subsidizing the organization much to the chagrin of the next executive director who didn’t realize the financial realities until it was too late. She’d taken the job only to discover the organization’s lack of real income was hidden by contributions from the founder. This kind of activity often occurs in small-budgeted organizations where sweat equity keeps things running. In a larger institution, this is just bad business practice.

The performing arts center should have been booking the CEO’s non-salary as an in-kind contribution all these years, keeping the reality of the expense in the budget. This, of course, would have shown a loss for some years, which (I’m only guessing here) is probably not what the CEO or the Board wanted. So the cycle of under-capitalization continues.

Sound business practices are possible in nonprofits but, as I’ve stated before, this demands transparency and leadership that wants to do more than keep the doors open. They want the organization to be financially healthy and to follow the same standards of financial management one would expect from a for-profit that answers to investors. Our investors in the nonprofit arts world are community members, governments, foundations and corporations who give money because they believe in our organizations, their missions and the good they are doing for our communities. These investors also deserve (and should demand) returns, which include the best artistic product possible and the strongest balance sheet good management can provide.

I got my thousands of dollars from the producer but it took many months of determined nagging on my part. He paid me in cash on the day I was leaving New York City. I had to drive the U-haul, with all our belongings in it, to his place in lower Manhattan and pick it up. I was lucky. Lots of artists working for nonprofits with poor business practices are not.