Many may be aware, and some may be annoyed, that I’ve been wrestling a lot with the concepts of “capital” — what it is, how it works, and what it does in the context of the nonprofit arts. The issue draws my focus for three broad reasons. First, it’s a big, recurring, juicy issue for arts boards, leaders, funders, and policy makers. Second, those same people lack a useful frame and language for engaging the issue productively. And third, the frame and language we’ve borrowed from the commercial world often seem more elusive than illuminating.
cc Flickr Alan Cleaver
No matter which way I wander to discover “capital,” I run into a wall called “ownership”. In much of the available research, the two concepts of capital and ownership are so deeply intertwined that they are almost codependent. Durable resources are aggregated, applied, and evaluated by an owner, or by an entire marketplace of owners observing each others’ successes and mistakes. Resources find their best use in comparison to all other possible uses by those who control them, and through the lens of optimal return (of money, of mission, of public good).
When we talk about capital among nonprofits, however, we rarely acknowledge that ownership is fundamentally different. If you don’t recall how it’s different, here are some short and sloppy bullet points to remind you:
- In the PRIVATE sector, assets are owned by somebody
- In the PUBLIC sector, assets are owned by everybody
- In the NONPROFIT sector, assets are owned by nobody
And yet we talk about “capital” in each of these sectors in strikingly similar terms.
In The Ownership of Enterprise, Henry Hansmann defines “owners” as “those persons who share two formal rights: the right to control the firm and the right to appropriate the firm’s profits, or residual earnings…” The word “formal” is important, since often an individual with a formal right to control has no effective means of control (a minority stockholder, for example, can’t control very much other than their inconsequential vote for corporate board members, or their inconsequential vote for merger or dissolution). But still, owners have rights (whether or not they can execute them). They have the larger right to enter or exit their ownership status in response to their assessment of its worth. And they feel the consequence, rather viscerally, if they choose well or poorly.
Yet, for a sector without any formal owners, the nonprofit arts talk about “ownership” a lot (consider those quotation marks to be air quotes). Or, rather, we talk about building a “sense of ownership” — a phrase that’s like air quotes, but with most of the air let out. The difference between “ownership” and a “sense of ownership” is similar to the difference between “danger” and a “sense of danger.” One has serious and immediate consequence. The other offers narrative value, and an occasional nudge to behavior.
When I share this point with my successful practitioner colleagues, several have said it’s a matter of semantics rather than deep concern. Boards essentially act as the owner, they say, even though the board members don’t always know whose interests they represent, and don’t feel direct consequence for bad decisions. They also say that good boards know to drive resources, impact, and leadership — which is most of their job. And that good executives can navigate them over the tricky bits. But I think the problem is beyond such jerry-rigging.
I’ve posted before (and others have argued better than me) about the missing value of equity investment in the nonprofit arts (not better than other values, but a useful one in certain circumstances). I’ve also posted about the unique challenge of dissolution, when there are no owner incentives or consequences to inform the difficult choice. But now I’m wondering more broadly about ownership, and the dynamics that come from removing ownership from control — both contractually and effectively.
And again (as ever), I’m not calling for ownership in the nonprofit arts. I’m just exploring the unique challenges of governing, managing, and supporting an ownerless enterprise. That’s what nonprofit arts leaders do, after all. So we might as well know, with some clarity and conviction, what that work entails.
Equity markets are deeply flawed (and certainly not perfectly efficient). However, there’s a beautiful simplicity to stock prices as a metric. As reductive as they are, they’re nonetheless accurate indicators of the investment market’s collective assessment of a company’s performance and prospects. They give boards something to monitor and they provide easy levers for management incentives.
It’s a problem that we have nothing like this in the non-profit universe. Compared to public investment markets, our capital markets are inefficient, illiquid, and disastrously slow to adapt to new information. And compared to venture capitalists, major donors and funders are irrationally (or rationally?) conservative because they can be embarrassed when an investment fails but have little to gain when it succeeds (as compared to the immediate and enormous personal gains from a successful “exit”).
I know there are some efforts to establish quasi-markets with proxy metrics on non-profits, but I’m skeptical they’ll ever function as more than a very poor imitation of the real thing.
• In the PRIVATE sector, assets are owned by somebody
• In the PUBLIC sector, assets are owned by everybody
• In the NONPROFIT sector, assets are owned by nobody
This could be taken step further. In non-profit organizations no one owns the art. In publicly owned and operated organizations, everyone owns the art. That might be why Europeans feel closer to the arts. They own them. They are paid for by their community and represent their community. In the States, by contrast, no one owns the arts. A few wealthy donors might feel like they do, but they don’t. And so few care about the arts.
And in relation to what Adam Huttler says, in Europe there is true accountability in how arts organizations are managed because the politicians are responsible and answer to the people.
Who represents us at the Met? And we don’t even have to ask about a more local opera company because in contrast to Europe it probably doesn’t even exist. Why build and fund a house when it doesn’t belong to anyone? Is that why the NYCO evaporated before our eyes? It didn’t belong to anyone so no one cared enough to do anything and no one was genuinely answerable. We begin to see why the American non-profit concept for the arts is such a bad idea – something clearly proven by the conditions of our cultural lives and many if not most of our cultural institutions.
Never mind. We’ll solve the problem of our poor international comparisons by not making any international comparisons. Presto! Problem solved.
At the risk of hijacking Andrew’s comment section…
William, I’m pretty sure I understand your position on publicly funded arts organizations. Believe it or not I’m even sympathetic to it. However I’ve never understood how you imagine we might get from where we are today to that place. Is there a road map that you’re willing to propose? How much would it cost and where does the political will come from? Because the reason I don’t dwell on the international comparisons is that I don’t believe they are helpful or actionable. There are many sweeping changes to US policy and economics I would make if I had the unilateral power to do so, but I don’t, so I try to work creatively and effectively within the system as it actually exists.
Adam, I wasn’t at all referring to you when I mentioned our lack of international comparisons. It’s a country-wide problem that is very notable. Even if public arts funding is not a current political reality, the knowledge of how we compare internationally is still valuable in itself. It provides important perspectives about our situation, including the idea that when nobody owns our arts organizations we are too often inherently headed toward trouble, and that we the people should be the owners of most arts organizations.
I have a concept of how we can move toward better public funding systems based on my belief that knowledge lights the darkness and awareness brings change. Most Americans have no idea about how poorly we compare. They don’t know, for example, that the USA only has 3 cities in the top 100 for opera performances per year. They don’t know that the regularly recurring bankruptcies of orchestras is not a norm and is something unique to the USA.
To change this, we have to educate key groups about Europe’s public systems and how they compare to the USA. These key groups are:
1. Artists
2. Arts administrators
3. Music educators
4. Journalists
5. Politicians
Framed this way, the Internet and discussions such as ours become very useful. Even through my small efforts, I’ve noticed some changes in how some of these groups view our situation. As their consciousness grows, they will pass the ideas on to a wider public.
I think of it as similar to the very long process it took people to change racist views in the USA. We are currently about where they were in perhaps the early 20th century. It will still be a long time before we reach a full blown movement like the civil rights movement of the 60s, but important work often has to start with small and slow beginnings. And in the end, we have no choice, because our system of funding the arts by donations is largely unworkable and beyond repair or reformation.