Donor Governance and Risk Management in Prominent U
- Slides: 17
Donor Governance and Risk Management in Prominent U. S. Art Museums David Yermack NYU Stern School
What’s interesting about art museums? • They seem very wealthy • But they are always in financial trouble • Private benefits of control are very high
Balance sheet of the Metropolitan Museum of Art, 2014 • Assets – – Fixed assets - $452 m Working capital - $260 m Investments - $3, 109 m Art - $1 – Art - $100, 000 m • Liabilities – Current liabilities - $123 m – Retirement obligations - $157 m – Long-term debt - $172 m • Net assets - $3, 279 m • Unrestricted: 28% • Temporarily restricted: 45% • Permanently restricted: 27%
Art museums in trouble: American Folk Art Museum, 2010 -11 Forced to sell building and downsize after bond default
Risk-taking by museums Museums with tax-exempt bonds issued to finance expansion Number of museums (out of sample of 129) 50 40 30 20 10 0 1999 2001 2003 2005 2007 2009 2011 2000 2002 2004 2006 2008 2010 2012
Thomas Campbell CEO and Director of the Metropolitan Museum of Art • • • $840, 000 salary (fiscal year 2014) $110, 683 benefits $308, 500 apartment on Central Park $36, 104 pension contribution constant media visibility gatekeeper for New York donor society
Where do art museums get their money? Unrestricted assets have fallen from 45% to 30%
“Donor governance” • Restricted gifts are analogous to raising equity with covenants • Restrictions can be temporary or permanent, and they often outlive the donor • All restrictions become obsolete eventually, so sometimes courts get involved
When does donor governance make sense? • Information asymmetry between management and outside monitors • High potential private benefits of control for managers • Weak boards of trustees and weak monitoring by lenders
Other contractual restrictions that reduce agency costs in museums • Rules against “deaccessioning” art • Rules against spending principal from endowment • Rules against investing tax-exempt bond issues in endowment • Matching requirements for government grants
Sample of 129 major U. S. museums AAMD members organized as public charities, 1999 -2013 No university or government-owned museums; no non-collecting institutions Donations greatly exceed program service revenue, but together they do not cover costs
Risk-taking by museums Living without insurance Theft Deterioration Gardner Museum, Boston, 1990 The Last Supper, Milan Fire Cuming Museum, London, 2013
Museums’ sources of funds
Restricted capital and museums’ cost structures
Restricted capital and museums’ profit margins and stability
Investment – cash flow relations
Conclusions • Restricted gifts are a huge and increasing source of non-profit capital • They create a type of “donor governance” that appears to have strong impact – Rearrangement of cost structure – Retention of funds in endowments – More stability, lower margins • Much more to learn about the form, effectiveness and duration of these restrictions
- Data governance and risk management
- Microsoft 365 governance and risk management
- Credit risk market risk operational risk
- Oracle grc
- Hr governance risk and compliance
- What are some of the prominent disadvantages of consensus
- Key risk indicators for vendor management
- Risk map
- Governance risk compliance framework
- Most prominent organelle in eukaryotic cells
- Ntative
- For centuries prominent thinkers have pondered
- Christianity vs judaism vs islam chart
- What macromolecule is a prominent part of animal tissues
- Evocative foreshadowing
- Nameplate newsletter
- Employee stressed syllable
- Prominent x descent