Friday, December 20, 2013

Detroit Institute of Arts and the debate over monetizing collections

Photo  Maia C

We've all been hearing about the saga over the Detroit Institute of Arts (DIA) collection and the fine mess the city of Detroit is struggling to claw its way out of. When I originally chose the DIA as the topic for this blog post I struggled to find something meaningful to say about it. It’s been well covered by the media and most people seem to understand that it sucks that the museum and the people of Detroit might lose the collection. I thought perhaps I might talk a little bit about the debate over monetizing vs. not monetizing the collection and provide some insight for non-museum folks who might not be aware of the pros and cons of the arguments. But then I was like, blah, that’s boring and again, it’s pretty straight forward, and most journalists have touched upon the basics of the topic already in their general discussion of the story. I was about ready to give up and move on to another topic, when all of a sudden, in the middle of the night, the answer came to me as I lay in that mystical space between wake and sleep. So prepare to be astounded with my genius plan to save the DIA and museums everywhere from financial ruin. And no, that’s not a lofty statement – just wait until you read my solution.

First, a brief background:

There is a debate within the museum world whether or not monetizing a collection is good or bad. Most museum professionals say bad, most business-minded people say good. Monetizing the collection essentially means setting a value and listing it as an asset on the statement of financial position (this is what a balance sheet is called when the organization is a nonprofit). Now, museum professionals are uptight about monetizing the collection because, if we are truly abiding by the real intent of our professional code of ethics and the museum’s mission, then collections accessioned (formally added) into the permanent collection are not purchased with the intent to resell. This means they are not acquired as investments but as permanent additions to the collections and the assumption is that they will remain with the museum for the foreseeable future. So essentially from this perspective the collections do not represent assets because there is no intent to sell, ever, and non-cash assets are all about monetary conversion (liquidity). Now, as a side note because this may give people the wrong impression I want to clear some things up. Museums do sell collections objects and they do know their collections are worth money. It’s not like if someone asked how much that da Vinci is worth we’d be like “Oh I donno, money is so passé.” We do insure our collections and that involves appraising the collection as a whole and in certain cases individually, but those figures are used for insurance and other internal purposes only. We do sell collections pieces but only after the piece is considered no longer appropriate for the collection and deaccessioned. Proceeds from those sales are strictly regulated and cannot be used for general operating expenses or to cover debts.

On the other side of the argument are people who say that collections should be monetized because it more accurately represents the worth of the museum and its ability to cover all its debts, it increases the museum’s ability secure loans, and it enables some ROI calculations for collections. You know business type things that museums are mostly bad at.

So now you’re wondering what my opinion is, to monetize or not to monetize. Well I am of the opinion that museums should list their collections on their statements of financial position. Crazy right? I’m a museum professional, have I no ethics? Did all those business classes warp me? Well let me explain, I do think that collections should be listed on the statement of financial position, however, I think they should be listed as liabilities rather than assets. BLAM! Right out of left field – didn't see that coming, did you? I am sure everyone is wondering what I am talking about, since obviously a painting worth $1 million dollars is clearly an asset – I mean it’s worth $1 million. A museum owns it, they sell it and they get $1 million. Asset. Well yes, if you ask any accountant they will clearly label collections as non-cash assets. But if we view collections the way a museum professional would, collections are actually liabilities. Why?

1. Collections are forever

As I previously mentioned, when a museum accessions an object into their permanent collection it is intended to be a part of the collection into perpetuity. This means that the museum is responsible for providing a level of care for that object that protects it from theft, damage, destruction, decay etc. This is considered the duty of the museum, to provide adequate care for object that they hold in the public trust. As you can imagine, this isn't cheap.

YOU: Don’t museums make money by exhibiting their collections?
ME: Yes.
YOU: Isn't it enough to cover the expenses of preserving the collection?
ME: No.

Collections are an obligation, like a loan. Unlike other assets that may cost money to maintain, like buildings, the collections cannot, if we’re being A+ professionals and museums, be sold. So if there is no potential or ability to sell an object for unrestricted financial gain, and the care of that object is a large financial burden that cannot be shirked, then that is a liability, not an asset.

2. Collections are heavy

So, I hope I communicated how expensive collections are for museums to maintain. Logically it follows that the larger and higher value the collection, the more expensive it is to maintain. Now of course not every museum has state of the art, climate controlled, fireproof, and burglar-alarmed storage. However, if the museum owns high value objects then their collections storage space will be commensurate with that value. Well, ideally. So if a museum curates a collection then there is an assumption of ongoing commitment for the adequate care of the collection. Since the care of that collection is proportional to the collection’s overall value and the museum can never convert the collection to unrestricted cash, shouldn't that commitment be accounted for somewhere in the financial records for the institution? Because it’s a pretty big investment. Listing the cost of collections on financial reporting documents would give a much better picture of the actual, long-term, financial position of the institution then if collections were completely absent, like they are now. Additionally it would ensure that museums give more thought to the size of their collections in relation to their financial capabilities. Can a museum with an operating budget of $500,000 properly care for a collection of over 2 million objects valued at $45 billion dollars???? No, but you’d be surprised at how many institutions think they can. Museums need a reality check, we cannot curate everything, both literally and financially. Museums need to be more intentional and responsible when accessioning objects because those object represent large, long-term liabilities therefore need to use our resources more wisely. Listing collections as liabilities is a way for museums and the public see the overall health of the organization in very real terms.

3. Collections are museums

Last time I checked, curating collections were a pretty important part of being a museum. So why, if collections are so central to the museum, are they mostly invisible on our financial statements? The cost of maintaining collections gets lumped in with general operating and building expenses even though the ongoing care of collections is one of the biggest reasons museums are granted non-profit status. Furthermore why doesn't the public, in whose name we curate and care for collections, deserve to know how much we are spending to maintain those collections? Nonprofits are required to disclose the highest earning staff members at their institution but not how much they spend on collections care. Really? Zoos, aquariums, etc. list how much they spend on food and healthcare for their living collections so why shouldn't we disclose the cost of keeping our object based collections? I am sure people would care if they saw a museum spent $600 caring for their $82 million dollar collection because that wouldn't really be proper care, would it? The converse is also true; $440,500 on a $7,500 collection might be a bit high. Why shouldn't museums be more transparent about their collections costs? We need to be better accountants for our activities.

So I hope I've made my argument and reasons clear; collections are long-term liabilities and let’s account for them in a way that recognizes their value and our obligation for their care. Now I’m sure that some accountants will be able to cite some specific reasons why this would never work, because accounting has rules and is one of the top 10 most real professions. All I have to say to that is, if the rules don’t allow us to be more transparent, more accurately reflect the role of collections in museums, and give a more accurate view of the financial health of the organization then those rules don’t work. The rules should fit our needs and not the other way around. Perhaps the lack of accounting for collections is one of the reasons why museums are so often struggling to make ends meet.  Museums need a mechanism for accounting for collections that is in alignment with our professional responsibilities and not some jerry-rigged version of a balance sheet.

In conclusion I have solved another one of museums’ biggest challenges. Looks like my MBA did pay off! Oh no wait, I will never be able to pay that student loan off.

© 2013 Patricia Lord

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