0.14 Chapter eleven: the importance of governance

The Society's attempt to establish a formal affiliation between its library and the library of New York University (NYU) offers a telling example of the impact of public controversy on the options available to an organization. The nature and timing of negative publicity, which appeared on the morning the Society's board was to vote on a contract formalizing a long-term relationship between the two institutions, made a discussion of the agreement on its merits impossible. Particularly damaging was the characterization of NYU as some kind of "corporate raider" intent on a takeover of the Society's most valuable collec­tions. Although not factually correct (no change of title for any of the Society's collections was proposed), this negative characterization was accepted by pretty much everyone not fully briefed on the months of complex negotiations that had led to the proposed contract.

Because of the sensitivity of the negotiations, it is not surprising that only a few people were directly involved; however, not enough work was done to ensure that key stakeholders were adequately informed. Important local political officials, some of whom had been instrumental in passing the $12.6 million appropriated to the Society in 1992, claimed that they were not consulted, and they were angry. They protested the "complete lack of communication" and as­serted that the state and city governments' future commitment to the Society would be in jeopardy if the contract were ratified. The proposed agreement never had a chance.

An additional consequence of swirling public controversy is that nearly everyone assumes the role of expert. People lose faith in management and the board, and rather than working to help find solutions, they seek to assign blame for past failures. Grievances are voiced—and must be heard. As the experience of the Society illustrates so well, politicians, scholars, schoolteachers, neighbors—everyone becomes involved in the governance process. In such an environment, institutions are pressured to pursue solutions that aggravate no one—with predictable results.

In effect, public attention reduces the ability for the board to evaluate options, assign priorities, and make choices. One of the Society’s largest current financial obligations is a ten-year lease for outside storage that costs $500,000 per year. Some critics argue that many of the items stored in that warehouse are not worth the money that is being expended to store them. They wonder how the Society could have gotten itself into such an expensive agreement for so long a term.

In 1986, Bryant Tolles issued a report criticizing the condition of many of the Society's collections stored in a Paterson, New Jersey, warehouse. Soon after receiving the report, the Society moved the collections out of the warehouse and into safer surroundings in Manhattan. In the summer of 1988, the Tolles report was leaked to the press. The resulting expose described in great detail the environment from which the Society's collections had been removed two years before. The fact that most of the paintings in storage were of relatively little curatorial or financial value was not addressed in the article. Instead, the article focused on the horrible conditions of the storage environment. The resulting controversy led to the resignation of the Society's director, the convening of a special advisory committee, and an attorney general's investigation.

As the Society struggled to recover, the predominant issue before the board, set by the public debate, was quite naturally the storage conditions for its off-site collections. No expense was spared in finding a top-of-the-line storage facility. Rep­resentatives of the press, the attorney general's office, and others were brought to the new facilities to see how the Society had cleaned up its act. The new facili­ties truly were impressive, and a long-term lease was signed.

No consideration could be given, however, to the quality of the paintings and whether it was necessary or appropriate to store them in such an expensive way. Nor could consideration be given to how the terms of the lease would affect the Society's financial standing over the long term. Most important was responding to public criticism as forcefully as possible.

Conclusion

The New-York Historical Society is not the typical nonprofit organization. Few institutions have the privilege of worrying about caring for over $1 billion worth of irreplaceable collections. Nor do most have to be concerned about how arti­cles in the New York Times portray their activities. But that does not make this case unrepresentative; it just makes the lessons it yields more dramatic. The experience of the Society supports the proposition that it is easy for nonprofits to get in financial trouble and that detailed planning processes are essential at non­profit institutions of all types and sizes. It also shows quite clearly how declining financial stability erodes board autonomy.

In the final analysis, perhaps the most dramatic lesson documented by the Society's long struggle has been the change in the nonprofit operating environment. There was a time when managing and overseeing a nonprofit institution was a far simpler process. To be elected to a board, particularly of a large cultural institution, was to become a member of a prestigious club. Membership was, in a sense, a reward for professional achievement and a recognition of valuable asso­ciations. Times have changed. Over the past twenty-five years, many intelligent people, with the best of intentions, have worked heroically in attempts to turn the Society around, only to leave with their reputations tarnished. And still the Soci­ety remains on the brink of bankruptcy. Serving on this nonprofit board of trustees has been no sinecure; it has been, rather, an excruciatingly difficult tour of duty.