Change in the arts sector. Can we speed it up or must we wait it out?

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Devon Smith has written a smart, provocative post on a debate she engaged in at the recent Americans for the Arts Conference in Nashville. It’s called We Should Allow Failing Arts Organizations to Die and it has lit up the arts blogosphere, Twitter, and Facebook the past few days. So much so that she has added a second post responding to the internet comments. This topic is close to my heart. In 2009 I was on a panel at the Grantmakers in the Arts Conference alled Graceful Exits,What Can Funders Do When It’s Time to Pull the Plug. In 2011 I was interviewing Rocco when he made his now infamous supply and demand comment. And over the past few years I’ve written four Jumper posts on the subject.***

While one could argue that I’ve had more than my say on the topic, Devon’s terrific post, along with a recent academic article recommended by one of my PhD advisors, has inspired me out of an extended hiatus from Jumper (during which I’ve been working on my dissertation). I thought I would reflect on the following issues related to ossified organizations that fail to change or die: (1) why organizations arise in the first place; (2) why inertia sets in; and (3) how organizational change happens.

The academic article that I’m referencing is called Structural Inertia and Organizational Change and it is by Mike T. Hannan and John Freeman (who work in a realm of the social sciences known as organizational ecology).

Why organizations arise in the first place:

One of the many provocative points that Devon makes is that a lot of what counts as culture, captures our interest and imagination, and gives meaning to our lives does not, necessarily require an arts organization to be created or delivered. She writes:

I don’t have the stats to support this, but for every hour of “traditional” nonprofit arts that a consumer experiences this year, they’ll spend 20 or 30 times times that experiencing “nontraditional” arts and culture. Those experiences that reveal or question our humanity. That enable us to see the world and each other in a new light. Those experiences that delight our mind and our senses. That teach us about other cultures and expand our capacity for imagination. Because for me, those “nontraditional” experiences include going to a folk music concert, funding a poetry book on Kickstarter, appreciating the aesthetic design of an especially beautiful video game, the art of a pulling a great shot of espresso, and the craft of a great pair of raw denim jeans. All things that I’ve done these past 3 days in Nashville. And none of those experience required an arts organization to support them.

Many of them did, however, require organizations (video game companies, coffee houses, fashion houses and manufacturers, etc.). This raises a couple interesting questions. Why do organizations arise, generally? And why do we see a sector made up of arts organizations more so than a sector made up of artist collectives that are not permanently structured into organizational form?

If I asked a room of arts conference attendees this question they would probably answer that you can only get grants if you are formed as an organization and this may, indeed, be a significant part of the story. At the heart of it, organizations are means by which a collective of individuals can pursue common goals and also aggregate resources. While economists tend to explain the emergence of organizations in terms of efficiency organizational ecologists looks at it differently. They argue that organizations are favored over loose collectives because they are reliable (i.e., they can reproduce a given product at a certain level of quality) and they are accountable (i.e., they are able to rationalize their decisions and account for their actions to customers, investors, governments, et cetera).

The nonprofit organizational form, in particular, was not heavily utilized in the US until the mid-twentieth century when it became authorized (the IRS began to approve its use among arts organizations), legitimate (donors and others had begun to recognize arts organizations as having a valid educational or charitable social purpose, worthy of contributions), and materially beneficial (there were actually sources of funding that opened up that made the nonprofit form preferable to the LLC or other forms).

Why inertia sets in:

In the article mentioned above, Hannan and Freeman make the case that structural inertia (meaning a failure to change, or change fast enough, in response to changes in the environment) is an outcome of a system that tends to select organizations (over unincorporated collectives) and certain kinds of organizations (those perceived as reliable and accountable) over others.

In the arts sector, with the emergence of grants from government agencies and funders came the emergence of eligibility requirements: the presence of managerial staff, minimum number of years in existence, minimum number of weeks of programming per year, track record of producing good works as demonstrated by positive reviews, a minimum level of annual operating budget, stable operations (lack of turnover), a persuasive mission statement, clear organizational goals, and a long-range plan. These are basically signs of reliability and accountability.

And it stands to reason that within a given field it is often the oldest organizations that are perceived to be most reliable and accountable. So funding tends to gravitate toward them–funding which enables them in many cases to build buildings or hire staff, which further contribute to their structural inertia.

Not only does structural inertia increase with age and size but transformation is a gamble for organizations as it may jeopardize their perceived reliability and accountability. Big change seems to have paid off pretty well for Diane Paulus at American Repertory Theatre, but not so well at New York City Opera, where attempts to reinvent in the final years (when the organization was already in a weakened state financially) resulted in a loss of confidence among stakeholders.

For this reason, large, old under-performing organizations often resist transformation. This is the idea at the heart of the book, Permanently Failing Organizations, in which the authors essentially ask why low-performing organizations persist. They answer that it’s largely due to the fact that those who rely upon the organization for a livelihood and also have the power to make decisions (i.e., managers) keep organizations alive (so they can continue to earn a living) but fail to make necessary changes that might lead to higher performance because doing so is a gamble that could result in outright failure.

Other internal factors that contribute to structural intertia are sunk costs; political alliances; and the tendency for precedents (things that worked once) to become norms (the way things are done around here).

There’s much more I could write as it’s a complex subject but these are the key points that seem relevant for the current conversation.

How organizational change happens:

So if inertia is a consequence of these external and internal factors, and seems almost inevitable, how does change happen?

I’m oversimplifying things, but there are basically three major points of view on this: individual organizations can make conscious decisions to adapt to their environments (rational adaptation); individual organizations do change but often such change is random, rather than in rational response to goals or the external environment (random transformation); and that change tends to happen at the population level, rather than at the individual organization level. Meaning, change happens with the death of some organizations and their replacement by those with different traits (more suitable or favored in the current environment).

The last perspective is that of population ecology and the one advanced by Hannan and Freeman.

While these are divergent points of view on organizational change it is also fair to say that all three types of change can be observed. Those who advance the idea of population ecology, for instance, also recognize that there are types of organizations, and points in the life cycles of organizations, when organizations can and do change individually. A population ecology perspective would also suggest, however, that this type of change can be challenging and risky (as noted above).

So if I put this all together and reflect on Devon’s post, here’s the picture:

• Generally speaking, organizations are favored over those entities that are not organized.
• Selection systems also tend to favor organizations that are older as they are perceived to be both more reliable and accountable.
• Structural inertia is a consequence of both this selection process (which favors older organizations) but other internal factors.
• While it is possible for arts organizations to change, generally speaking change (particularly in attributes of an organization that are deeply tied to identity) is likely to be resisted. Why? Because of the expectations of funders, donors, and audiences for reliability and accountability, because of investments in large concrete venues, because managers and musicians want to keep their jobs, because board members want to protect their investments and social standing, and because the general lack of risk capital in the sector makes it less likely that any change that is attempted will be successful (and more likely that the organization will fail).
• Thus, it is perhaps more likely that change in the arts sector will happen at the population level, with the death of old forms and the birth of new ones.

Can we facilitate or speed up the death of old forms?

The short answer, from what I’ve read, is that permanently failing organizations are hard to kill. Having said that, I do wonder whether there are changes that could be made at the field level that might influence the pace of evolution in the sector.

Here are a few ideas:

(1)    Shift grants away from large organizations to midsized and smaller ones: If you are an avid reader of the annual Grantmakers in the Arts funding reports you will have noticed a couple stagnant trends the past ten years: the “average” arts grant is (and has been for some time now) around $25,000 per year and the majority of contributed income tends to flow to the largest organizations in the sector. When I was still at Mellon I began to wonder whether the arts sector would look different today if (over the past 30 years) arts organizations with budgets over a certain threshold (say $10 million for argument’s sake) had not been eligible for grants from government agencies or foundations.

The rationale for such a norm in the arts sector is that if an arts organization has been able to grow its annual operating budget to $10 million (perhaps larger in some disciplines) it has most likely done so either through increased earned revenues or individual contributions. This leads me to a normative proposition: organizations that have the capacity and stature to attract financially and socially elite board members, large individual contributions, corporate sponsors, or large levels of earned income should cease to be the recipients of grants from government agencies and private foundations. Instead, such funding should be channeled to organizations that do not yet have the stature or size to garner such support from their communities or whose mission prohibits earning large revenues.

If such a threshold (as I’m proposing) were normalized then donors would not interpret the loss of NEA and foundation grants, for instance, as a demerit or loss of legitimacy (which is often the rationale for maintaining tiny NEA grants to big organizations); they would see such as loss as a natural consequence of growth. Funds redistributed to smaller organizations could help to encourage the scaling of artistic innovations and the development of new forms of organization (which often fail to gain traction because they are unable to capture significant grants). And in the long run, perhaps such a rule would also act as a counterweight to the general incentive toward growth that is embedded in the system. How many organizations might cap their growth at the $5-$10 million level if such a norm were to be enacted?

(2)    Taxing the assets of the big and redistributing in the form of income to the small: I’ve just started Pikkety’s Capital in the Twenty-First Century and so am thinking quite a bit about assets versus income, the problem of inequality, and (related to this post) how a small number of organizations in the arts sector accumulate signicant assets while the rest of the sector is living in relative poverty. In the nonprofit arts sector, in many states, 501c3 organizations are freed from the burdens of both property tax and income tax. What if a property tax on arts facilities were instituted, paid to the local authority, and then redistributed in the form of grants to organizations that do not own buildings but do pay rents. As a side benefit such a shift might provide a nice disincentive for continued facility expansion in an already overbuilt arts sector.

(3)    Term limits in most organizations: What if the following positions were all limited to 7 years: artistic leaders (once the organizational founder has left), managing/executive leaders (once the organizational founder has left), board members, foundation program officers, and government agency program directors? The benefits of term limits are not only the opportunity for a fresh perspective in the organization but also an opportunity for “gates” in the system to open to those not favored under previous regimes. Funders and artistic directors amass considerable power (whether by design or not) and term limits are a way of dealing with that inevitability. This is a sensitive proposition (particularly given that not many people working in arts organizations have pensions); but if we are resistant to it I think it is important to put on the table the reasons why, beyond job security (which is valid, but may not be a sufficient reason for avoiding term limits).

***

So after thinking through these options, and possible reactions to them, it occurred to me that there is another option.

We could wait out the change that is coming.

Population ecology theory tells us not only that change often happens at the population level (rather than at the individual organizational level) but also that it often takes a long time.

So here’s an alternative vision.

There will continue to be the occasional deaths (and I suspect they will increase over the next 15-20 years) and new organizations will continue to be born. And some of those new organizations will have different traits–traits potentially more suitable for the 21st century. There is and will continue to be turnover at foundations and government agencies. There will also be an inter-generational transfer of wealth. New people—with new perspectives and views on the world–will be hired to run organizations, or will serve as grants managers and board members, or will have significant personal resources to invest in the sector. Some (maybe many) will see the merits in new organizations that are cropping up and will choose to redirect money to them. Dynamic leaders running these younger arts organizations will garner attention and legitimacy and either their organizations will grow in stature and size, or they will be hired to bring their values, ideas, principles, and new modes of operating to larger organizations already in existence.

It wouldn’t be entirely smooth and it wouldn’t be fast. There would be failures, tragic deaths, and some zombies would go on stalking the landscape. But change would happen.

So am I suggesting we just wait it out?

While I tend to be in favor of making structural changes to influence both the direction and the pace of change (I’d love to see all three of the ideas above explored and debated) I also recognize how difficult such changes (and those Devon suggests) would be in reality.

Waiting it out may be the only realistic option.

Does this depress me?

Not really–in large part because I have tremendous faith in the younger leaders that I see coming up through the ranks of larger institutions, or leading their own enterprises, or stepping into influential policy and funding positions. Last week I gave a talk on Civic Leadership for the fellows of the renowned Clore Leadership Programme in the UK. I was utterly impressed by the work these fellows are doing, by their deep thinking, and by their energy and courage. I see that young leaders have (in spades) the motivation and desire, networks, and capacity to potentially lead the changes that are needed. Smart boards and organizations are already investing in these young leaders (and young, in my mind, ranges from 25-45) and implementing their ideas.

In the meantime, I think that Devon has given us such great food for thought.

We are all accountable for the shape of our sector. 

Whenever a permanently failing organization is allowed to continue cranking out mediocre programming while capturing precious sector resources it should trouble us. I imagine that many of us recognize these organizations in our midst. Some of us shrug our shoulders and some of us blog about them in the abstract. But perhaps these are cowardly moves. It’s easy to criticize in the abstract and it’s easy to shrug off truly discouraging developments in organizations as inevitable. I’ve been guilty of both.

Calling out the zombies (in the blogosphere, in any event) seems mean and destructive and I’m not sure it would lead to any positive developments.

Perhaps a better route is to ignore them entirely, trust that they will die or change eventually, and (as Devon suggests) turn our attention and channel our resources to the those that are knocking our socks off. I think if foundations, government agencies, corporate sponsors, high profile artists and arts leaders, traditional arts media, bloggers, and influential board members led the way, and shifted their attention and resources, they would have tremendous influence on others.

And such a shift doesn’t have to happen en mass.

One person at a time will work, too.

*** Previous Jumper posts related to this topic: 

• Overstocked Arts Pond: Fish Too Big & Fish Too Many;
• Supply and Demand Redux: Rocco’s Comment and the Elephant in the Room;
• Nonprofit Arts Orgs & the Boards That Love Them; and
• Are We a Sector Defined by our Permanently Failing Organizations?