Opinions regarding the Carnegie mess are indeed divided

As I suspected, there are two radically different schools of thought regarding the Great Carnegie Hall Governance War. The first is expressed well by Norman Lebrecht, who wrote:

When Ronald Perelman took over as chairman from Sandy Weill in February, he announced he wanted changes – more rock music and contemporary culture, less of the classical stuff. Sir Clive, and the rest of the board, ignored him. Perelman was a billionaire. His job was to pay up and shut up, as his predecessor had done.

But he didn’t. Discovering that the executive director had failed to get board approval for one of his initiatives, Perelman suspended Gillinson and demanded legal action. The board failed to back him. Last night, Perelman announced he was leaving. Sir Clive, America’s highest paid classical executive (earning $2,235,308 in 2013), appears to have won.

The battle, that is. The war is not over. No chief executive can ignore his board twice. Sir Clive, 70 next March, is on a warning.

The opposing view is delineated, equally well, by Drew McManus at Adaptistration, who wrote:

…whenever calls for increased transparency are heard, it should be a welcome message but it seems that an exception to the rule is unfolding at Carnegie Hall.

In this instance, Carnegie Hall board chairman, Ronald O. Perelman, became the focus of public attention following the release of an email he wrote to fellow board members asserting a “troubling lack of transparency” related to “an inability to obtain a full picture of Carnegie Hall’s financial operations, especially as it related to profits and losses involving performances.”

…it is becoming increasingly clear is that Perelman is apparently using his chairman position to advance a personal agenda against another board member and fellow billionaire, Len Blavatnik, who outbid Perelman in 2011 for control over Warner Music Group.

That piece of recent history becomes important in light of the fact that much of Perelman’s motivation for increased transparency stems from unspecified process related concerns related to Carnegie’s involvement with the Warner Music Prize, a $100,000 award given to a young classical musician. The prize, and related gala ceremony, is funded by the Warner Music Group and the Blavatnik Family Foundation.

During his brief tenure as chairman, Perelman has drawn considerable negative attention that includes campaigning for increased pop/rock programming and making statements that Millennials have a general distaste for classical music.

Consequently, even though his stated concerns over a lack of board access to concert event expenses seems like a good thing on the surface (and really, every board should have access to that data), it isn’t difficult to imagine that his motives have less to do with stewardship

…How anyone involved in the dispute doesn’t see this as the billionaire’s version of “I’m going to take my ball and go home” is a mystery. With any luck, Carnegie will manage to minimize the damage and put these issues to rest sooner rather than later.

One notable aspect of this dispute is the use of the press to get one side of the story out. We’ve all become accustomed to this in political coverage, but I suspect that many people who consider themselves industry insiders don’t think of coverage of our business in the same light. As someone who has been on the receiving end of some – shall we say motivated? – press coverage, I’ve come to realize that coverage of our business is no different. Stories such as this are not generally the result of months of digging by intrepid reporters. They are usually the result of insiders wanting their point of view in the public eye. They get it there by leaking stories to friendly media outlets before the opposition does.

I have zero doubt that Mr. Perelman took his story to the Wall Street Journal. And I have equally little doubt that the speculation in the Times article about a “feud” between Perelman and Len Blavatnik, whose foundation was the “related party” in the Warner Music Prize issue, was fed to the paper by the pro-Gillinson side.

But the core question here is not who leaked what, but the one I asked in my previous post: who’s in the wrong here? If Perelman was pursuing a personal agenda through his board service, that’s clearly not good. But I think Drew McManus misses the point when he asks “is it morally praiseworthy to do the right thing for the wrong reasons? (spoiler alert: no).” That’s what’s known in Rhetoric 101 as an ad hominem argument – criticizing an argument by raising questions about the person making that argument.

It may be that Perelman had a personal reason for going after Gillinson and, less directly, Blavatnik. But that doesn’t mean he was wrong about the issues. The idea that a CEO doesn’t have to provide financial information to the board is, quite literally, indefensible. The notion that questions of conflict of interest on a non-profit board – and most certainly a board with the kind of resources to deliver to potential vendors as has the Carnegie board – do not merit the closest kind of board scrutiny is equally untenable.

Perelman was not made chair of the Carnegie board as a result of an armed revolt. He was elected, and it appears he was hardly an unknown quantity to the board who elected him. That doesn’t mean that he is entitled to run rough-shod over the staff or the rest of the board (the hasty suspension of Gillinson, without apparent input from the executive committee, certainly appeared “rough-shod”.) But he is entitled to get basic financial data from the staff, and he is entitled to have his concerns about conflicts of interest taken seriously. Those aren’t matters of “morality.” Those are basic principles of non-profit governance. Staff who violate them are treading on very thin ice indeed, regardless of what they think of the motives of their institutional overlords.

There are good reasons that non-profit staffs report to volunteer boards and are supposed to be held accountable by them. Gillinson’s reported salary of $2.2 million provides a good example. A salary like that is in itself a kind of conflict of interest – even thought it may well be necessary to attract and retain top executive talent at an institution like Carnegie. The desire to keep earning a large salary can (and often does) lead CEOs to take decisions that will prolong the CEO’s tenure rather than serve the institution’s best interests. (This does not make CEOs bad people of questionable integrity, by the way. It makes them human beings.) That’s why the board’s single most important job is to hire and fire the CEO – the board can afford to put the institution’s, rather than the staff’s, priorities, first and foremost.

The fundamental problem at Carnegie Hall now is that apparently the CEO can fire his own boss – which almost inevitably will morph into “can hire his own boss” as well. Anyone who thinks that situation is defensible, or indeed sustainable, hasn’t read much history.