Finance au naturel

A wise person* once observed that it isn’t until that the tide goes out that one knows who’s been swimming naked. After the “Great Recession,” it became apparent that many of us invested in something other than swimwear. I have served as Seminar Director for the NAS Finance seminar since its launch in April 2009, during, but not in response to, the economic crisis. As destructive as the macroeconomic environment has been, finance is a topic that is equally relevant to cultural managers in both buoyant and scary times.

Having just wrapped the fifth presentation of the seminar in Minneapolis, I’ve had occasion to think about the concerns participants bring to the subject and what engages them in improving their skills and elevating their organization’s performance. In the last four years, I’ve seen participants come to the seminar with a wide variety of financial backgrounds: newly promoted leaders with first-time financial responsibility, senior financial officers, board members who are also venture capitalists and chief executives with decades of experience leading sophisticated organizations. Board and staff members articulate a variety of motivations for their interest in the subject. What they share is a concern with ensuring a sound and sustainable financial footing for their organizations. They have cited difficulty in doing so for many reasons: declining audiences, competition from other leisure options, shrinking philanthropic pools exacerbated by the economic crisis and uncertainty whether they’ve experienced a passing storm or are on a new and permanently lower plateau.

Over time, I have seen some senior leadership teams emerge from the more frenzied and fearful environment of a few years ago to either an acceptance of their “new normal” or a tentative optimism that things will improve. As in politics and real estate, these concerns are all local. I’ve seen mature organizations managing extensive fixed costs and younger organizations striving to institute new systems to successfully manage programs experiencing double-digit growth in revenue. I’ve had the pleasure of working with teams representing organizations that have made significant investments in developing capabilities such as sophisticated systems for project management and accurately tracking staff time, an IT architecture that generates data needed for real-time decision-making and an integrated system of scorecards and dashboards that drives both planning and reporting to diverse stakeholders.

A significant number of organizations of all sizes are keenly interested in new financial models. While there are any number of new forms for new organizations (L3c, B corps, etc.) in addition to the traditional 501(c)(3), we are right to remember Clara Miller’s assertion (paraphrased here) that these are tax statuses, not business models, and that the only sustainable business model is one where reliable revenue exceeds expenses. I firmly believe many who articulate an interest in new financial models are less in actual need of a new model than commitment to a rigorous examination of the mix of revenue and expenses will make this difficult – but simple – equation sustainable given their mission and ability to obtain sustainable resources.

Professor Greg Reilly, founding faculty for Finance, speaks of finance as a language: an objective one which can be used to discuss the activities and (some of) the outcomes of the organization. I’ve seen participants use a similar metaphor, understanding the story that finance tells. For example, budgets are the story of the priorities of the organization. Many teams find a rigorous examination of what value their organizations create and how to be a critical step in employing finance as a critical strategic tool. After gaining a deeper understanding of full-cost accounting, for example, many organizations find that a more rigorous and consistent use of this tool in their work enables making difficult resource allocation decisions with a higher degree of confidence. This can be an objective analysis of a legacy program to determine whether it is still meeting its original goals or the ability to determine if an activity assumed to be less “on mission” but subsidizing other key programs is in fact serving either purpose. Finance aims to enable arts and culture leaders to understand the key drivers that affect the health of their organization, achieve and articulate an understanding of how their organization creates value in its community, assess and manage risk and ultimately make more effective strategic decisions and communicate them to their stakeholders. Running an organization with “multiple bottom lines” is more challenging than ever, but a keen understanding of finance is a critical tool and one that cannot be delegated.

* Warren Buffet
 

Nine teams attended the October 11-12, 2012 seminar, representing organizations from the Minneapolis-St. Paul area and around the US as well as a diverse array of disciplines: visual arts, children’s museums, natural history, architecture and artists’ services. Here, representatives from the attending organizations discuss the different ways in which they approach financial issues.

What do you think? Does everyone on your team share in “owning” the finances of the organization? Is there a shared conception of the value a financial lens can create, or is this seen as better maintained solely by those with the domain skills or ultimate responsibility for the organization?

 

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