My Q&A with President Daniel Weiss–Part I: How Did Metropolitan Museum Fall into Financial Hole? How Will It Climb Out?

Part II is here.

Last week’s revelations about the Metropolitan Museum’s disturbing financial reality check left a lot of unanswered questions, raising concerns about how prudently the museum has been managed under the seven-year leadership of its director and CEO, Tom Campbell.

The museum’s president, Daniel Weiss, who assumed his post last July, has dedicated himself to getting “a handle on how to control this behemoth of an institution in a way that’s financially sustainable,” as he told me in a wide-ranging phone interview on Friday. He again demonstrated the “analytic acumen, unforced candor and fluid articulateness” that had so impressed me during my first interview with him, directly after he was named to assume his Met post.

As I suggested in my previous post, Weiss (a two-time college president with an M.B.A. from Yale and an Ph.D. in art history from Johns Hopkins) had sounded the alarm about the “cascading effect” (his words) of the museum’s growing deficits. His analysis spearheaded the just announced plan for belt-tightening, which was presented to the staff in meetings last Tuesday and Wednesday. Robin Pogrebin of the NY Times broke the story online on Thursday.

Perhaps the most troubling question (and the first I put to Weiss) is: How did the Met manage to get itself into this shaky financial position? (The follow-up, of course, is: How will it attempt to make sure this doesn’t happen again?)

Below is Part I of our detailed two-part conversation, lightly edited for clarity. (The links and the italicized asides [in brackets] are mine, not his.)

ROSENBAUM: Regarding the financial situation you’re now in, the big question is: “Why was it allowed to happen? Where were the management and the financial controls?”

WEISS: The situation was the following: We have carried a modest deficit, off and on for a long time, and many cultural institutions and universities do that—everywhere I’ve ever worked. About three or four years ago, that modest deficit started to grow. [The projected $10-million deficit this year exceeds the $8.4-million deficit in fiscal 2009, in the depths of the Great Recession. After three years of modest surpluses, the Met ran deficits for the past three years: $4.4 million (FY ’13); $3.5 million (FY ’14); $7.7 million (FY ’15).]

When a deficit grows from $4 million to $8 million, even though the absolute magnitude of $8 million is not an enormous amount, it’s double. So we started putting all these financial components together—operating and non-operating—and that’s part of what I started to help to do. There’s a kind of exponential quality to the way these deficits can grow under certain circumstances. And that’s what we saw. There is a kind of “cascading effect” that can happen.

ROSENBAUM: Why is it “exponential,” as you called it?

WEISS: It’s a fairly straightforward mathematical proposition, which is true at a lot of places: If revenues grow at, say, 3% a year, and costs grow at, say, double that, it generates a gap and the bottom line number increases at the same ratio. So if you draw those curves on a piece of paper, and you take it out a couple of years, what was $2 million becomes four, becomes six, becomes eight. It grows quickly.

As we took a look at our situation, the board made a very prudent decision in 2015 to issue bonds [amounting to $250 million], because the interest rate environment had never been more favorable and because we knew we had to spend money on this infrastructure [heating and air conditioning, climate control, electrical systems, skylights].

The next step was to build the capacity to fund those bonds into the long-term plan. As you put all that stuff together, the cost profile was growing and at the same time revenues were softening. No one of these things was of significant magnitude, but as you take that out 24-36 months, it grows really quickly. So we decided we had to be proactive in reining in our expenses and balancing them with our revenues.

ROSENBAUM: I previously wrote that I suspected that you were the person who gave the Met this reality check. Is that correct?

WEISS: In fairness, I would say that the board and the senior administration recognized that there was a financial challenge that had to be addressed, and a key criterion that they applied to the [president’s] search was to bring in somebody very comfortable with financial management and restructuring. So I knew that one of my primary responsibilities would be to work with the board and top management to get a handle on how to control this behemoth of an institution in a way that’s financially sustainable.

ROSENBAUM: With the benefit of hindsight, what shouldn’t have happened?

WEISS: I think many, many institutions don’t take a long enough horizon in financial planning. If you’re managing Facebook or Microsoft, the business environment evolves on a month-to-month basis and you have no idea what the world is going to look like two or three years from now.

But the Met is a perpetual institution, like Harvard University: We’re going to be here. That means every decision we make now has to make sense in 10 years and has to be modeled so that we have a sense of where our costs and revenues are likely to go. We have to make prudent, incremental decisions. That kind of long-term financial-planning discipline is a useful thing to apply. And that’s what we’re doing now.

ROSENBAUM: What safeguards are being applied so that this doesn’t happen again? Going forward, what needs to be done to make sure that controls are in place?

WEISS: I think good management is both strategic and nimble, and responsive to the environment. That means that we have the long-term financial planning that I just talked about. So we would be able to say confidently, once we build that model, what we think the world’s going to look like in five years, given certain reasonable assumptions. That’s one. Two is having a financial reporting management system that allows the complexity of the Met to be discernible to senior people pretty readily. Three is a budgeting process that really engages the departments fully in the work that we do, so that we understand where they’re headed and what they need.

A lot of it is making sure we’re focusing on those basic principles.

ROSENBAUM: Speaking of the departments, you had a staff meeting. I assume that staff cuts were being discussed. Can you give me any sense of what happened at that meeting?

WEISS: Sure. We met with department heads on Tuesday. Yesterday [Thursday], we met with the entire staff. Our operating philosophy is complete candor, to treat our colleagues with respect and honesty about the challenge and to engage them in helping us to solve it. We won’t be able to address these challenges if we don’t work together as a team.

The response of the community was extraordinary. The people were of course disappointed, as we all are. But they stepped up and were very responsive. They had lots of ideas and they want to help.

ROSENBAUM: Can you give me any details on the ideas that they came up with?

WEISS: I can tell you that I’ve been getting a fairly constant stream of emails since that meeting from people all over the museum saying, “Would you like to have coffee? I have an idea for how my department can streamline.”

People love this institution. I have been astonished by how dedicated people are to the Met, and they want the Met to thrive. Everybody’s willing to do anything they can to reach that goal. It’s really heartening.

ROSENBAUM: What are some of the best ideas you’ve heard?

WEISS: I haven’t filtered them all yet, but there are lots of them.

ROSENBAUM: What about the staff cuts? I gather layoffs are your worst-case scenario if you don’t get enough by other means [attrition and voluntary buyouts].

WEISS: The last thing we would want to do is to reduce headcount and lay people off. So we have a whole list of activities that we’re engaging in to help us build revenues and manage and streamline our costs, to make us more efficient. After those steps have been taken, we’ll see where we stand.

[One potential revenue boost may come from the “full suggested admission” kiosks for entry tickets and audio guides.]

We have a soft hiring freeze in place. We will review every replacement position very carefully. And we’ll have a voluntary retirement program [i.e., buyouts], so that those who feel they’re ready to do that can take advantage of it.

After we do all those things, we’ll see what else is necessary. I don’t believe we’ll have to do significant involuntary staff reductions.

The core principle will be protecting the mission-central activities of the museum, which distinguish us in the world—the quality of our exhibitions, our scholarship, our conservation work, our educational programs. We will not compromise on being the institution that we expect of ourselves and that everyone expects of us. We’ll cut staff commensurate with that plan.

ROSENBAUM: What is the target amount you need to cut?

WEISS: As I’ve said before, the deficit we have now is not so substantial—on the order of $10 million. But because of the divergence of these two lines [expenses and revenues], if we don’t take action, proactively, over the next 18 to 24 months, that deficit could be $40 million. So what we have to do is not just cutting. It’s thoughtful planning. It’s growth management. It’s a proactive management step, more than it is a crisis step.

It’s not so much cutting $40 million out of the budget as it is anticipating where the growth will take us and managing that growth. So when I say we have to cut costs and streamline, it’s looking out over this period over the next 24 months and seeing where it takes us. The world isn’t standing still and costs increase in various ways. It’s not so much cutting to get $40 million out of the budget as it is managing so we’re $40 million more efficient in 24 months.

COMING SOON: How do the Met Breuer and the planned new Southwest Wing for modern and contemporary art complicate these plans to “cut costs and streamline”?