Governance fail at Carnegie Hall

Added to the age-old question – “how do you get to Carnegie Hall?” – may be a new one: “how do you run Carnegie Hall?” It look as if the answer might turn out to be “don’t serve on the board of directors.”

Two days ago the Wall Street Journal reported on a dispute between Ronald O. Perelman, the chair of Carnegie Hall’s board of directors since February of this year, and Clive Gillinson, Carnegie’s executive and artistic director for over 10 years. In an emailed letter to the board of directors made available to the WSJ, Perelman wrote that:

…he detected in the spring “a troubling lack of transparency and openness in the way Clive Gillinson was interacting with me and the Board …my concerns initially arose because of an inability to obtain a full picture of Carnegie Hall’s financial operations, especially as it related to profits and losses involving performances,” Mr. Perelman wrote. “I was told that such financial information was never shared with the Board or even the Chairman.”

Specifically, he continued, he was concerned about “the manner in which related-party transactions were being identified, vetted and approved.”

In the letter, Mr. Perelman said “issues arose” in Mr. Gillinson’s handling of the Warner Music Prize, something Mr. Perelman describes as a “related-party transaction.”

…In Mr. Perelman’s letter, he said that “in light of various issues,” Mr. Gillinson was instructed to put the prize on hold. He went ahead and “executed a contract” for the prize, the letter said, “without the approval mandated by New York law.”

“These matters implicate Carnegie Hall’s obligations as a nonprofit organization and as a public trust,” according to Mr. Perelman’s letter.

Such lack of transparency, he said in the letter, fails to meet the standards of the New York State Nonprofit Revitalization Act, which mandates that board members take an active oversight role over staff action and, he wrote, “imposes greater restrictions and approvals in connection with related-party transactions.”

… On Aug. 18, Mr. Perelman and Edward Forst, the hall’s treasurer, suspended Mr. Gillinson, according to the letter, and called a meeting of Carnegie Hall’s executive committee. During the meeting, held the next day, Mr. Gillinson was reinstated by the executive committee, the letter said.

These are, on their face, very serious issues (assuming, of course, that the facts are indeed as presented in the article). The notion that a CEO would refuse to share financial data with the board chair would be, in every non-profit I’ve worked for, grounds for immediate termination of the CEO. For Gillinson to defy a directive of the board chair not to sign a contract with what amounted to an outside vendor closely associated with another board member would likely be another such offense in most non-profits; perhaps even a more serious one, as it comes with potentially grave legal consequences.

Things work differently at Carnegie Hall, it seems:

…Mr. Perelman told a group of his fellow trustees on Thursday that he would step down next month, rather than run for re-election.

His swift announced departure, after tangling with members of the Midtown Manhattan hall’s board and staff, leaves bitterness — and serious charges about the governance at Carnegie — in its wake.

The climax came on Thursday afternoon at a joint meeting of the board’s executive and audit committees, when Mr. Perelman told his fellow trustees that he believed some of the laws governing nonprofits were not being followed at Carnegie and expressed frustration that no investigation into his concerns had been initiated, according to someone familiar with the proceedings, who was granted anonymity to describe what happened at a confidential meeting.

Mr. Perelman criticized board members for placing “a premium on avoiding tension and disagreement,” the person said, and told them that while he would serve out his term, he would not run for re-election as chairman at the board meeting next month. The board then agreed to hire a lawyer to examine his concerns, which involved how Carnegie vetted what Mr. Perelman called “related-party transactions” in looking at deals that posed potential conflicts of interest.

…One member of Carnegie’s board said Mr. Perelman might have decided to step aside next month because he was unlikely to be re-elected. The board member, who spoke on the condition of anonymity, said the trustees had felt blindsided this summer when Mr. Perelman briefly suspended Mr. Gillinson. The board member added that while they would investigate the concerns he raised, they did not believe that Carnegie had governance or transparency problems, and denied that the board had been dragging its feet on hiring a lawyer to investigate.

It’s possible to read the reporting on this story and come to one of two completely opposite conclusions. In short, either Mr. Perelman is a rogue board chair, or Mr. Gillinson is a rogue CEO. But it’s impossible to believe that this dispute emerged from simply thin air. One hint about possible underlying issues came later in the New York Times article:

In February, when Mr. Perelman succeeded Sanford I. Weill, who was Carnegie’s chairman for nearly a quarter-century, he raised some eyebrows in classical music circles by admitting that he was not much of a classical music fan, and by suggesting that he would push for the hall to stage more pop acts, as it did decades ago.

I wonder if Perelman’s request for financial data relating “to profits and losses involving performances” was seen by Gillinson as preliminary to trying to change the direction of Carnegie’s programming. Even if it was, though, simply refusing to hand the data over seems indefensible under the American model of non-profit governance, of which a fundamental tenet is that the staff works for the board, and not the other way around. There are plenty of ways for a savvy CEO to get his/her way on policy matters in the face of opposition from the board chair.

Unfortunately, it appears as if Gillinson took a more… direct… approach. I know that, if I’d been board chair of anything and was faced with such a refusal from staff, I would have felt that war had been declared, and not only on me but on the role of the board as the body that is ultimately responsible for the health of the institution. What’s surprising about this war is who lost; it’s not often a board will jettison both a very generous donor and its oversight role at the same time.

That’s not to say that making Gillinson the person that ultimately sets policy at Carnegie is necessarily a bad thing. He’s been successful at Carnegie for a reason, although I personally don’t care for many of the choices he’s made. Unfortunately, though, winning this fight with the board chair makes him effectively his own boss, and that seldom works out well in the non-profit world. It will certainly make it almost impossible for the Carnegie board to find someone to replace Perelman who is both able and willing to carry out the single most important function of a board chair – which is to hold the CEO accountable.