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Have museums been too generous with naming rights?

26 March 2018

The culture sector is increasingly reliant on private philanthropic giving. But what does it mean to put a wealthy donor’s name on a museum’s door – and should public institutions exercise more careful judgement when accepting donations?

Tanya Tikhnenko
Director and Partner of Montabonel & Partners

With art institutions under intense pressure due to cuts in public funding, philanthropic giving from the private sector has become an essential lifeline. But, as ever more aggressive fundraising strategies are employed, norms are being questioned and power is constantly shifting. Are we getting the balance right between increasing demands for transparency and commercial reality?

The furore around the Sackler family, a name that has become synonymous with philanthropic activity, neatly encapsulates the dilemma and highlights the risks that are faced by institutions reliant on a single, private-sector donor. Critics have called on recipients to stop accepting donations from those branches of the family (specifically, the families of the late Mortimer and Raymond Sackler) that control a large stake in Purdue Pharma, a company that has been implicated in the opioid crisis in the US. Some are even urging them to return previous funding.

It is imperative that institutions worldwide review their position on naming rights and the due diligence they conduct when receiving and commemorating philanthropic donations.

Across cultures and time philanthropy has been synonymous with public benefit. The ancient Greeks considered it to be one of the cornerstones of democracy and the word translates literally from Greek as ‘love of mankind’. Selflessness is at the core of the act. Maimonides, the 12th-century Jewish philosopher, claimed that giving anonymously to an unknown recipient ranked highest on his Golden Ladder of Charity.

These sentiments are fully in line with the ICOM’s definition of a museum as ‘a non-profit, permanent institution in the service of society and its development, open to the public…’ that safeguards the ‘heritage of humanity and its environment for the purposes of education, study and enjoyment’.

Philanthropists have always brought with them their own history and set of personal motivations. For many, the philanthropic act is a chance to make their mark on the world. Numerous institutions were founded on acts of private philanthropy, such as the Tate, the Smithsonian, and MoMA.

Attaching a donor’s name to a building, courtyard, hallway, gallery or even a restroom in return for a significant contribution has been a growing practice since the 20th century, primarily influenced by the philanthropy culture of the US. Legacy has become a product that can be bought. Institutions are able to offer their patrons something concrete in the form of a dedicated named space, rather than a pure ‘intangible’ such as public benefit.

Today, in a media-driven world, the practice of naming rights is pervasive. It has become a commercial transaction thriving on a new type of major donor that is especially invested in branding culture, where a name is the ultimate commodity. For these investor-philanthropists, legacy is tightly bound up with visibility.

By moving away from the anonymity Maimonides valued so highly, institutions are inviting scrutiny. If an individual wants publicity and an organisation is willing to provide it for cash, the public has a right to ask who the donor is and where their cash has come from. Tainted donations will always be detrimental to the publicly minded ideals that museums are supposed to uphold. Institutions can only avoid being judged if they themselves apply judgement.

The field of ethics is not static, but a continuously altering arena of active concerns, responsive to social change. Institutions must ask themselves if their previous unquestioning relationships with major donors require reassessment in the light of changing mores. They must also put in place the procedures needed to give them the information on which to make those all-important judgements.

Questions of vetting and due diligence must be addressed. The Sacklers’ case is particularly pertinent as it involved an international group of recipients. One asks oneself, what were the vetting procedures, if any? And what is the position of the museums and public galleries that have benefitted from the donations? Was the unethical source of funds scenario accounted for in the naming-rights agreement? In the long run has their lapse of judgement cost them both economic and ethical capital?

In the current difficult political and economic climate, the smooth functioning of the exchange between private-sector donors and museums is essential to the wellbeing of cultural heritage, as, so far, no realistic alternative has presented itself. However, a strong and clear position when accepting donations is vital. If the gift resulted from a disservice to society, how can it be accepted by an institution that is permanently bound ‘to the service of society and its development’?

Linda Sugin
Associate Dean for Academic Affairs and Professor of Law at Fordham Law School, New York

 Museums and other cultural institutions in the US know that naming rights are useful for attracting donors, and can often be the most important benefit they offer in order to land a big donation. In New York alone, it’s impossible to miss the names of wealthy patrons: the David H. Koch Plaza directly in front of the Metropolitan Museum of Art, for example, or Stephen A. Schwarzman’s name which flanks the entrance to the New York Public Library. At MoMA, almost every gallery has the name of a donor prominently displayed above the art.

But if museums have become too generous with naming rights, the law deserves part of the blame. Under US tax law, any donation to a museum receives favourable tax treatment. But the donor is not supposed to get a tax deduction when he or she gets a benefit in return. Astonishingly, naming rights do not figure in this equation. This encourages donors and institutions to undervalue them, leading to long-term problems.

Naming rights are good for charities because they promote very large donations, while potentially imposing fewer costs than other types of gift contracts. Philanthropists compete for the prestige and honour that accompany naming gifts, and charities can use them to maximise donations. Naming rights are useful for starting fundraising campaigns because large initial gifts encourage other donors to participate. Compared to gifts with restrictions on charitable activities, naming rights do not interfere with charitable governance, generally do not require recipients to operate new programmes, or otherwise divert institutional attention. It is easy for donors to monitor a charity’s promise by walking by. Naming rights can impose fewer costs on charities than alternative donations.

However, naming rights to buildings are scarce assets that charities need to deploy carefully because once a building has been named, a charity cannot simply create more to attract future donors. Buildings are unlike university scholarships and faculty chairs. Naming rights can be costly for charities. Over time, a naming gift can easily turn into a liability, making it harder for charities to raise funds. Donors and their heirs burden institutions by preventing them from tearing down named buildings or granting new names to refurbish them: the heirs of Avery Fisher extracted $15 million from Lincoln Center in the renaming of a concert hall.

Perpetuity is the central problem with naming agreements. When museums and other charities promise a name forever, they are too generous. No gift given today will seem so large in a hundred years. Because they are controlled by mortals, charities fail to sufficiently value their futures. They are willing to give up the naming rights forever for dollars received today. Perpetuity robs charities of a very valuable asset they should rightly control, and perpetual naming rights discourage future donors. The law should establish perpetuity as the exception, not the rule. Government has used its power to limit the duration of naming rights where it has had an interest – the Koch Theater is owned by New York City, and the name will expire after 50 years. The $100 million gift from Koch that renamed the theatre paid for renovations and an operations endowment, and in 50 years, the theatre will need a fresh infusion of capital.

In a forthcoming article in the Ohio State Law Journal, I propose that US tax law do more to increase the value of naming rights to charities, reduce the race to the bottom that charities are currently engaged in when they compete against one another for large gifts, and celebrate a culture of competitive philanthropy by favouring gifts that encourage others to exceed your generosity.

The best philanthropy encourages future philanthropists. Donors who insist on perpetuity in naming rights should not be entitled to the same tax benefits as those who agree to limited-duration naming rights. Donors who relinquish their names should be recognised with tax benefits. Tax benefits for philanthropy should reflect the balance of benefits and burden to the charity. The law could do more to harness the power of naming rights to the benefit of museums and other charitable institutions.

From the April issue of Apollo. Preview and subscribe here.

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