Nonprofit Board Fiduciary Duty of Care

[Mike Burns]

The following Wall Street Journal article is about a lot of topics in the nonprofit governance world. I thought framing my own thoughts around a nonprofit board's fiduciary duty of care to be one area of focus but beyond this subject is a rarely displayed "what can happen" when there's a new chair "in town" and when there are questions of competency (re paid staff) and transparency (financial and program) and the board's own fulfillment of its duty to provide complete oversight. Certainly I'm not the one to predict how this will all shake out (new exec?; new board members; changes in policy and practices?) but I'm hoping the article's authors will be able to follow-up and let us all know.

At the very minimum, it's heartening to watch so much passion, by board members, in play.
Allegations by the music hall’s chairman, Ronald Perelman, have sparked a boardroom dispute

By
GREGORY ZUCKERMAN and JENNIFER SMITH
Updated Sept. 16, 2015 7:52 p.m. ET

NEW YORK—A simmering clash between leaders of New York’s Carnegie Hall boiled over on Wednesday as financier Ronald O. Perelman, who recently became chairman of the hall’s board of trustees, accused the prestigious music institution’s executive director of improprieties and said the hall has operated with poor oversight.

The allegations include operating the hall with limited transparency and entering into “related-party transactions.” In such transactions, the individuals involved have a relationship prior to the deal.

Mr. Perelman said his criticisms, which he sent in an emailed letter to members of the Carnegie Hall board on Wednesday, were raised earlier in the summer and led to the brief suspension of the director, Clive Gillinson.

The claims have embroiled Carnegie Hall’s board, which includes some of the most powerful players in New York’s financial and cultural worlds.

Through a Carnegie Hall spokeswoman, Mr. Gillinson said: “In serving Carnegie Hall for 10 years, I am very proud of everything we have achieved together. I love the hall and everything it stands for, and will continue to give it my all.”

Mr. Perelman, who built a fortune with corporate acquisitions and investments, is no stranger to high-profile battles. The billionaire has sued investment bank Morgan Stanley, art megadealer Larry Gagosian and a key former business partner, among others.
ENLARGE
Chairman Ronald O. Perelman PHOTO: SHAHAR AZRAN/WIREIMAGE/GETTY IMAGES

Mr. Perelman’s letter, which was reviewed by The Wall Street Journal, serves notice that he may be prepared to bring the bare-knuckle tactics of a corporate raider into the genteel precinct of one of America’s most august cultural institutions. Such disputes generally are handled discreetly and kept out of public view, much as they usually are at orchestras, museums and other art organizations.

In the letter, Mr. Perelman, who succeeded philanthropist and former Citigroup Inc. leader Sanford I. Weill as chairman in February of this year, said he detected in the spring “a troubling lack of transparency and openness in the way Clive Gillinson was interacting with me and the Board.”

Mr. Weill couldn’t immediately be reached for comment on Wednesday.

Mr. Gillinson, a British cellist who joined the prestigious London Symphony Orchestra and rose up to become its managing director, has served as Carnegie Hall’s executive and artistic director for more than a decade.

“My concerns initially arose because of an inability to obtain a full picture of Carnegie Hall’s financial operations, especially as it related to profits and losses involving performances,” Mr. Perelman wrote. “I was told that such financial information was never shared with the Board or even the Chairman.”

Specifically, he continued, he was concerned about “the manner in which related-party transactions were being identified, vetted and approved.”

In the letter, Mr. Perelman said “issues arose” in Mr. Gillinson’s handling of the Warner Music Prize, something Mr. Perelman describes as a “related-party transaction.”

Established in 2014 to honor a promising young classical musician with a cash award of $100,000, the prize is presented in association with Carnegie Hall.

The prize was created with support from the family foundation of Len Blavatnik, the Warner Music Group owner who serves on hall’s board.

In Mr. Perelman’s letter, he said that “in light of various issues,” Mr. Gillinson was instructed to put the prize on hold. He went ahead and “executed a contract” for the prize, the letter said, “without the approval mandated by New York law.”

“These matters implicate Carnegie Hall’s obligations as a nonprofit organization and as a public trust,” according to Mr. Perelman’s letter.

Such lack of transparency, he said in the letter, fails to meet the standards of the New York State Nonprofit Revitalization Act, which mandates that board members take an active oversight role over staff action and, he wrote, “imposes greater restrictions and approvals in connection with related-party transactions.”

It wasn’t clear in the letter exactly what the related-party issue was.

On Aug. 18, Mr. Perelman and Edward Forst, the hall’s treasurer, suspended Mr. Gillinson, according to the letter, and called a meeting of Carnegie Hall’s executive committee. During the meeting, held the next day, Mr. Gillinson was reinstated by the executive committee, the letter said.

Emanuel Ax, a pianist who performs at Carnegie Hall and serves on its board, but not the executive committee, said the letter from Mr. Perelman was the first he had heard of the dispute.

“My contact with Clive has always been fantastic,” he said. “He’s a great guy. As far as I could tell, he was running everything wonderfully.”

Founded by Andrew Carnegie, the hall opened in 1891 and has since become a destination for top musicians and ensembles. Artists who have appeared there include Maria Callas, Jascha Heifetz and Gustav Mahler, as well as major orchestras and jazz musicians such asBillie Holiday and Miles Davis.

The hall was put up for sale in the mid-1950s and was saved from demolition when it was purchased by New York City in 1960 at the behest of the Committee to Save Carnegie Hall, led by violinist Isaac Stern, who later served as the venue’s president. Over the next few decades, its physical condition deteriorated to the point that “the bathrooms were leaking into the boxes,” Mr. Weill said earlier this year.

Mr. Perelman took the reins from Mr. Weill, who held the role of chairman of the hall since 1991. During Mr. Weill’s tenure, the famed music venue underwent a series of renovations and grew its endowment from $4 million in 1991 to $320 million. The hall also expanded its educational program and in 2003 opened Zankel Hall, a third auditorium that was previously used as a cinema.

The hall has embarked on a $125 million campaign to support its educational and performance offerings and develop digital initiatives.

—Pia Catton and Jennifer Maloney contributed to this article.