Layoffgate? … or something like that

I know I’ve deposited Michael Henson in the bin of irrelevancy. And trust me, I’ve enjoyed leaving him there. But occasionally I can’t resist peering into the bin, especially after Bonusgate…and I want to take another peek now.

I was doing some research for a friend the other day when I came across this article from the Strib.

Minnesota Orchestra trims its staff

It’s from May 9, 2012. In it, the Minnesota Orchestral Association announced the axing of nine full-time positions (thirteen percent of its administrative staff) and seven part-time positions. In all, sixteen people received the soul-crushing news that their jobs were disappearing. Yes, it was acknowledged that some part-timers might come back after the hall reopened in “the fall of 2013″ (how’s that workin’ for ya?), but the full-time position reductions were apparently permanent.

But on the plus side, the MOA was going to save $450,000 over the course of the 2012-2013 season!

Of course the November 2013 reader says, “Hey, wait a minute…”

As the entire orchestra world now knows, in the year before this sad story occurred, MOA CEO Michael Henson was granted $619,313 in compensation. This included $202,500 in bonuses (ha) and $386,916 in base compensation. Compensation before retirement and other benefits was $589,416.

Yeah. What I’m saying is that, according to this article, Michael Henson could theoretically have saved the jobs of sixteen people and still had $139,416 plus benefits left over for himself. This figure is, of course, a good chunk higher than a musician’s base pay.

My reaction to this news, courtesy of Martin Freeman

My reaction to this realization, courtesy of Martin Freeman

I’m no businesswoman, but how is paying one man all that money a more productive use of organizational resources than keeping sixteen employees onboard? Was Michael Henson’s compensation the year before really more important than thirteen percent of the administrative staff? Who from the MOA wants to argue that point? And of course it begs the question: if this whopper of a bad decision was made, what others are lurking in the MOA’s closet?

The MOA’s greatest strength is supposedly the business acuity of its leadership. But upon analysis, that “strength” actually turns out to be a liability. If the lie of the MOA’s business acuity can be exposed – whether in media, state hearings, private conversations among influential people, etc. – the MOA will be significantly weakened. Once the MOA loses its fiscal credibility, it loses everything…in much the same way that the musicians would lose everything if their artistic credibility was ever seriously questioned. I predict that as more terrible business decisions come to light, board members will have to make increasingly outrageous excuses to themselves to justify all the craziness they rubber-stamped while they were apparently asleep at the wheel and Henson and his henchmen were drunk-driving the car. Yes, those other board members may be pissed at the musicians, and they’ll likely stay pissed at musicians for the rest of their lives. But they should be even more pissed at their current leadership for making so many easily avoidable mistakes, and in the process completely squandering the credibility of the entire board. The leadership created a situation where even if some board members have diamonds of ideas, those diamonds are marinating in so much BS that nobody wants to go digging. And unfortunately for board members, once people like Rep. Alice Hausman, Minneapolis mayor-elect Betsy Hodges, former Governor Arne Carlson, and their allies get involved, the MOA is going to have to play some serious defense in a way it hasn’t had to yet. It will be more challenging than ever for them to keep a united front once the curtain is yanked back and their professional reputations are put on the line. I’m not sure they’re prepared for any potential fallout. We’ll see.

But in short: if the public can make a loud enough noise about the financial failures of the MOA, eventually the board will start playing a high-stakes blame game (but quietly and behind closed doors, of course). Question is, how long will it take for the civil war to break out, and when will the public start to see signs it’s happening?

17 Comments

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17 responses to “Layoffgate? … or something like that

  1. Sandi Sherman

    Would that the members of the Board could even begin to understand our outrage at this. But they can’t precisely because they are all from the same class. They see nothing questionable about paying such a high salary to the chief executive of a non-profit arts organization. Because these are the kinds of compensation packages they all get all the time. I see the same glazed over expressions when I testify before the U of M Board of Regents about the economic conditions that the lowest paid workers at the U endure while the University president is paid over $610,000 a year and their response is to offer him a raise! They can’t put themselves in our shoes. For them, it is “let them eat cake.” And thankfully, at some point, they will face the same fate as those aristocrats that went before them.

  2. hyperchord

    I have a stupid question… (perhaps someone has answered this before?) –
    If the MOA’s 501(c)3 status is based on the existence of an orchestra, or at least *some* evidence of a music educational function, and there is no longer an orchestra or an educational function, how long before the IRS pulls their 501(c)3 status?

    And why isn’t anyone apparently concerned about an organization sitting on millions of dollars (increasing with investments & interest) and the ability to take in more donations (on trust that they’re supporting something however nebulous – and, of course, tax deductible) – all without paying taxes like a normal for profit corporation. But I’m not an attorney or arts manager/consultant so there’s probably a good reason this isn’t a scam. Like I said, it’s probably a stupid question.

    The MOA & those who continue to support it are beginning to remind me of the island whose inhabitants made a living by taking in each other’s laundry.

    • It takes a lot for a 501(c)3 status to be removed. Like, embarrassingly a lot. From the folks I’ve talked to, it being changed any time soon is not an option. But if someone else has legal knowledge on that, let me know.

  3. legal

    I suggest that everyone on the board read this article VERY CAREFULLY!
    The link is http://www.nonprofitrisk.org/library/articles/How_to_Lose_Your_Tax_Exempt_Status.shtml. The main risk seems to be that you should not pay bonuses of an unduly large size to employed members of the organization. There are other reasons which I will briefly list.

    Private benefit/inurement
    Lobbying
    Political campaign activity
    Unrelated business income (UBI)
    Annual reporting obligation
    Operation in accord with stated exempt purpose(s).

    Since orchestra hall was used recently for a presentation on union busting, on Oct. 7 for a lecture by former Indiana governor Mitch Daniels.
    This could easily be construed as political activity.
    Who is really in control of the Orchestra?

    • Performing Artist52

      I can honestly say I continue to be appalled about the shenanigans that seem to come forth from the MOA management. Emily, you have once again proven that Mr. Henson’s management style is faulty. How can the board continue to support him when he repeatedly makes these decisions? Can it be the board has collectively suffered some type of brain trauma that can explain the cognative reasoning behind all this?

      • GGSlade

        What I wonder about is the timing of those layoffs. Doesn’t this seem like further evidence of foreknowledge of the lockout? Or were these positions eliminated because they were related to house management issues during a period when there would be no house to manage?

    • jiverson

      I find this to be the most striking part of the link you shared:

      “Inurement: The concept of inurement states that no part of an organization’s net earnings may inure to the benefit of a private shareholder or individual who, because of the person’s relationship to the organization, has an opportunity to control or influence its activities.
      “A 501(c)(3) organization is prohibited from allowing its income or assets to benefit insiders (people with a personal or private interest in the activities of the organization),” said Crom. “Insiders are typically board members, officers, directors, and important employees.” He added that prohibited inurement includes the payment of dividends, the payment of unreasonable compensation to insiders, and the transfer of property to insiders for less than fair market value.
      If a 501(c)(3) organization engages in inurement or substantial private benefit, the organization risks losing its exemption. Additionally, insiders guilty of inurement may be subject to excise tax.”

    • When the Ordway Theatre opened, a couple of highly questionable events were booked by its inept initial president. Younger middle management quickly formulated a specific formal policy forbidding use of the theatre for political events or events involved with any current legislative actions. The activities of the current MOA demonstrate on so many levels how inappropriate and unqualified management is.

  4. I think they are vulnerable to loss of the 501 3C status. They have not operated in accord with their exempt status for over a year. From my researches a year is important and seems to be the yardstick the IRS uses when assessing this criteria. i think they are vulnerable on the private benefit/inurement over Henson’s salary and bonus. To me the political activity seems a stretch. The other two I think are solid.

  5. Les

    I highly urge IF/WHEN financial records are released that the musicians have a forensic accountant look at them.

  6. Do you suppose, in all their eagerness to replicate the Crystal Sugar labor lockout, which of course, was a FOR_PROFIT company, they (MOA board) neglected to engage an attorney familiar with NON_PROFIT laws? This feels like a major gap to me, and an opportunity to bring them to account for all their strange and questionable actions.

  7. hyperchord

    Right now, the IRS is particularly sensitive to governance of 501(c)3’s in general. This comes after the big blowup over alleged targeting of 501(c)4’s (specifically, IRS was accused of going after the tea party groups) and, more recently, the discovery of widespread embezzlement at 501(c)3’s (SEE: http://www.washingtonpost.com/opinions/nonprofits-need-protections-from-scoundrels/2013/11/11/e9836e20-426e-11e3-8b74-d89d714ca4dd_story.html)

    As citizens you have the right to petition the government (IRS) to investigate your suspicion. It’s true that the IRS can refuse to investigate or give it short shrift – but this is less likely if you send a copy of your request to your representatives in congress. Just give the history and facts leading to your suspicions, but leave out the rants & conjectures. Speaking from inside experience, if you include your reps in this you will NOT get blown off – they WILL take it seriously.

  8. getoutwhileyoucan

    While the employee cuts made in 2012 were many, small cuts were also made in 2009, two years after Mr. Henson began digging his hands into the Minnesota Orchestral Association. And although these cuts did come after a decline in the national and international economic climates, the work environment at MOA was already slipping…

  9. Old Man and the C

    So – volunteers, please, to get this petition to the IRS going ASAP? Please take one step forward! (I’ll bet Lee Henderson will help draft it!)

  10. A.Thompson

    Of economic times as we have now, music is the one thing that can get us through them. It is a sad day indeed when a band, orchestra or symphony has to cut back the number of members.

  11. First positive announcement form Orchestra Hall today. Lilly Schwartz the director of pop music has resigned and is going to California. Henson has praised her for “Broadening the Audience.” So now I have proof that the statement from Orchestra Hall over the last musician’s concert, that the MOA was ready to negotiate “to bring music to a wider audience,” does mean that phrase is a euphemism for more pop music.
    These clowns “running” the MOA really do need giving a wide birth. Now I’m more opposed than ever to negotiating with the these types if individuals.

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