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How far can museums go to stay afloat during the current crisis?

27 April 2020

One key question for museums boards, management, and their supporters to ask right now is this: what do they actually want to accomplish when the Covid-19 crisis subsides and the lockdowns end? Is a museum its collection, its location, its staff or its visitors? Until recently we had the comparative luxury of asking these questions one museum crisis at a time. Should a small museum (for example, the Berkshire Museum in Pittsfield, Massachusetts) survive at all costs without the collection that created its very importance? Should it seek a better home for its collection but perhaps lose some of its unique character or even its individual existence (see the Corcoran Gallery of Art’s merger with the National Gallery of Art in Washington, D.C.)? Or should it evolve in a way that is perhaps contrary to its founders’ specific desires (the Barnes Foundation’s move to Philadelphia from the truly sui generis yet remote home in Lower Merion created by Dr Barnes)?

Now, with the complete disappearance of visitors and revenue in every museum around the world, the situation is quite different. The Metropolitan Museum of Art in New York recently announced projected losses of $100m–$150m; while large museums like the Met are tallying up the losses they expect to suffer, many small museums will likely have to close their doors for good. The stakes are not theoretical. The public nature of museum collections is far from foreordained, and decisions made in the next year could determine the accessibility of their objects for the next century.

For those governing and supporting museums, the old standards about the use and disposal of collections and endowments are rapidly risking obsolescence. Museums are, of course, property-rich in a manner unlike any individual, or a company with a profit motive. Works of art and endowment funds (typically cash and investments held to generate income, not to be spent) are both, in the eyes of the law, the property of museums, but there are critical distinctions. Art collections generally do not appear on balance sheets but endowments do. The basic organisational question of which property is an asset that can be legally used to cover liabilities is unique to cultural institutions. Museums on either side of the Atlantic come at this challenge from slightly different starting points.

The practice of deaccessioning objects in a museum’s collection is categorically forbidden in UK and European state museums absent specific authorisation (for example, following a recommendation of the Spoliation Advisory Panel), yet their public funding may also be suddenly at risk (Germany has notably and laudably stepped into the breach with considerable funding pledges for arts institutions). In the US, the vast majority of museums are private charitable institutions. As such, the typical museum board must address a number of overlapping considerations including the specific terms of any object’s acquisition or donation, any general rules in the museum’s charter or governing instrument, the non-profit governance law of the state in which it is located, and museum association ethics and guidelines – the Association of Art Museum Directors (AAMD), the American Alliance of Museums (AAM), and the International Council of Museums (ICOM) in particular, which all condemn the use of collection sale proceeds for anything other than the acquisition of new art.

In rare occasions a gift will have restrictions (in particular forbidding an object’s deaccession, or restricting what can be done with the sale proceeds) that can be enforced as a matter of contract by the donor or their heirs. Most of the time, however, adherence to such restrictions is overseen by the attorney general of the charity’s state. So, for example, when the Corcoran or the Barnes wanted to deviate from their chartering documents in order to move their collections, they had first to obtain the blessing of the requisite attorney general. Running afoul of the museum associations and the sanctions that they can impose – like a ban on receiving loans from other museums, or collaborating on exhibition projects – is a more complicated topic.

With regard to endowments and fungible assets held purely for the financial benefit of the institution, the rules are slightly different once again. Endowments are, at the most basic level, money and easily liquidated assets like stock investments usually acquired from donors and bequests. They are fundamentally for the financial foundation of the organisation – held to generate income, not to be spent. However, like for-profit boards of directors, non-profit directors or trustees in the US typically enjoy the benefit of the Business Judgment Rule; so long as there is no question of self-interest, if a decision has been made to spend certain endowment funds in the legitimate exercise of business judgement, a court will not second guess it. Also relevant is the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which lays out guidelines about how and when trustees may spend an endowment’s principal (the amount held to generate income). That only describes what a trustee can do, however, not what he or she should do.

In normal times museum associations – the AAMD in particular – supervise their guidelines vocally, and in recent years have sanctioned museums ranging from the National Academy Museum in New York in 2008 to the Berkshire Museum in 2018 for using the proceeds of sales of art for operating expenses. Earlier this month the AAMD issued temporary guidelines allowing the spending of income earned on such proceeds (earned after the sale, not the capital gain on the object relative to its purchase price), but it remains very much to be seen how great an impact that can have. And like many crises, it is hard to imagine the old rules sliding neatly into place afterwards.

Nicholas M. O’Donnell is a lawyer in Boston. He represented certain members of the Berkshire Museum in their efforts to prevent the deaccessioning of art from its collection in 2017 and 2018.