264
Financial Issues
price at $3 million plus, but future events would show that not a single
vid was received after three months. Buyers were skittish because of
the rapid fall in unit price and the apparent lack of customer loyalty.
As of that morning, 47.7 million out of 50 million authorized
shares were outstanding, so that at most 2.3 million shares were avail-
able to redeem the remaining debenture in a conversion. Continued
losses and allegations of shorting by the debenture holder resulted in
the price of common stock falling to about $0.25 per share. Partial re-
payment and some conversion reduced the size of the outstanding
debenture to $1.3 million. At the low stock price 5.2 million shares
would be needed to redeem the loan assuming the price did not fall
further.
21. We Hear a Symphony ...
Or Do We?
Joseph Stimple Inc.'s Objectives
The case is prepared as a two-part role play because some of the is-
sues to be addressed involve the power, personality, and perspective
of the symphony's leadership in relation to the musicians. If the user
wishes to highlight other issues presented in the case, one of the roles
may be eliminated.
The Board's Position
The bank wanted to get its money back but of course also wanted to
inaximize its return on this investment. So far, the investment had
paid off handsomely. The two options available to the bank, (i) con-
verting to equity or (ii) accepting a new debt instrument, had various
risks and rewards. If the bank converted its debt into equity, there
was a risk that it would not be able to dispose of those shares for
some time if the conversion upset the equity market and sent the
stock price downward. On the other hand, an 11 percent or greater
equity position in JIC might have extra value. Accepting a new debt
instrument would lock the bank into a relationship with JIC at a time
when the company's future seemed doubtful, while a new debt secu
zity would preserve the bank's relative ranking in a possible bank.
ruptcy filing. The only valuable asset that JIC had that interested the
pank was its patents, which might have potential in other commercial
and industrial applications.
At this time, a private shareholder of JIC approached a major
jaw firm about the possibility of suing the bank since the shareholder
felt that the investor had shorted the stock, in violation of the agree
ment. Shorting would have lowered the price of the equity, thereby
increasing the number of shares received in a conversion, but would
potentially invalidate the agreement. Coincidentally, the law firm also
represented the bank. Though it is not known whether the share
holder's inquiry was communicated to the bank, not long afterward
the investor adopted a more conciliatory tone in discussions with the
company.
The tension could be felt almost as soon as one entered the room.
The negotiating committee for the Symphony Orchestra (union) had
been locking horns with the negotiating committee of the Symphony
Association (management) since their contract expired last August
31. It was now into the new year, and it seemed as if negotiations had
gone from bad to worse. The winter season had been canceled, and
the public was outraged at the financial chaos facing the Symphony
Association and the problems associated with the viability of the or-
chestra, in particular.
In the fall of 1975, the Symphony Association began nine years
of ambitious expansion under a succession of board presidents. In
1984 the board decided to purchase a downtown theater, restore it,
rename it Symphony Hall, and establish it as a permanent home for
the Symphony Orchestra. A capital fund-raising drive culminated
with a gala opening of Symphony Hall a year later but fell nearly $2
This case was prepared by Miriam Rothman.
265
266
Financial Issues
We Hear a Symphony... Or Do We?
267
million short of its $6.5 million goal (i.e., $4.8 million was raised to
acquire and restore the old theater as the symphony's new home).
In early 1986, symphony board president N. E. Morgan shocked
the community by announcing the need to raise $2 million in order to
eliminate a $1.8 million deficit that had accumulated over a ten-year
period. Three days later he publicly stated that the symphony had ten
days to raise the $2 million. If this amount was not raised, the organ
ization would file for protection under Chapter 11 of the federal
bankruptcy laws. In the interim, a consortium of four local banks de
clared the symphony in default on its $4.5 million loan for the reno-
vation of Symphony Hall.
Local business and political leaders expressed concern over a
history of financial mismanagement at the symphony. Nonetheless,
the community responded. From contributions large and small, the
emergency fund-raising drive netted $2.4 million, apparently staving
off the need for a Chapter 11 bankruptcy filing. Hopes soared that the
symphony would begin the 1986-87 season "in the black for the first
time in 10 years," as Morgan put it.
Two weeks after the emergency fund-raising drive, more bad
news emerged. The executive director of the symphony announced
that, despite the fund-raising, the organization might end the year
with an $820,000 deficit. The public was outraged. The executive di
rector asked musicians to take a 10 percent pay cut in the middle of
the last year of their contract. However, shortly thereafter manage
ment retracted its controversial request for a pay cut, noting opposi
tion by the musicians and skepticism by the public. After eighteen
months in office, the executive director resigned his position.
The summer of 1986 found major changes at Symphony Hall,
Mel Brown was hired as the new symphony executive director. His
reputation as a “turnaround man” for troubled orchestras held great
promise for managing the turbulence at Symphony Hall. In addition,
a new president of the symphony board was installed, and prepara
tions were under way for negotiations with the musicians' union,
whose contract was set to expire August 31, 1986.
Negotiations between the association and the American Federa
tion of Musicians, which represented the symphony players, contin
ued through September 15. On that date, symphony musicians re-
ceived their last paycheck and announced that they were “locked
out” of negotiations by the management. Management wanted a
thirty-eight-week contract and no pay raises; musicians wanted forty
five weeks and a raise. The most volatile issue, however, involved
artistic control of the orchestra by music director Kendall Adams. A
month later, deadlocked in contract negotiations, management called
off the first three weeks of the 1986–87 season.
Brown publicly confirmed the dire predictions of his predeces-
sor, stating that the $877,000 deficit from 1985–86 was projected to
grow to $1.8 million by the end of the 1986-87 season. There was also
a $2.36 million shortfall in the capital fund.
Still deadlocked in bitter negotiations, the Symphony Associa-
tion management canceled the second three weeks of the winter sea-
son and on November 11 canceled the entire 1986–87 season. Man-
agement promised full refunds within sixty days to subscribers who
sought them, but two months later they acknowledged that the Sym-
phony Association could not pay the $400,000 potential cost (over
half the subscribers asked for refunds).
A state mediator was called in to help resolve the labor dispute.
After several attempts, the musicians and the association could not
agree on a new contract, and a deadline for scheduling a spring
miniseason passed. On January 12, 1987, symphony management dis-
solved its relationship with the orchestra and formed a committee to
pay off $6 million in debts. The community became the only city in
the nation with a symphony association board of directors and a sym-
phony hall but no symphony orchestra to play in that hall.
Representatives of both sides in the labor dispute agreed to ne-
gotiate a contract for 1987-88 and meet and confer in sixty days.
Role for Symphony Board Negotiators
The board of directors for the Symphony Association is facing rough
times. The symphony's reputation, credibility, and financial viability
are being questioned in the press every day and discussed on the
streets by politicians and citizens alike. How this happened is not as
important as what can be done to solve the crisis facing the sym-
phony and the city. Negotiations must be held with the musicians'
union because of overwhelming pressure from the community. The
community wants a symphony orchestra and will not suffer this blow
to its civic pride in silence.
Brown, the executive director, has worked overtime to over-
come the financial problems besetting the association. Among the
most notable changes will be a reduction of the annual budget from
268
Financial Issues
We Hear a Symphony ... Or Do We?
269
$7.9 million in 1985–86 to $5.7 million in 1987–88 and a leaner office
staff reduced from forty-five to twenty-four. Thanks to liberal
donors who have agreed to provide $1.25 million in necessary start-
up funds to pay off current debts, there will be no carryforward
deficit for the first time in years.
As with orchestras nationwide, ticket sales provide only 50 per-
cent of required income. About 18 percent of the orchestra's income
is from government support and miscellaneous sources such as hall
rental and concession sales. At least one-third of the symphony's
budget must come from contributions to the sustaining fund; nation-
wide, the sustaining fund requirement of symphony orchestras aver-
ages about 45 percent.
In the meantime however, the Symphony Association will try to
sustain itself by renting out Symphony Hall to local and out-of-town
musical groups-performing as a presenter of concerts rather than as
a producer.
Before negotiations broke down between the association and
musicians' union, there seemed to be three main unresolved issues
left on the table: artistic control, wages and terms and conditions of
employment, and scheduling of rehearsals.
Symphony Hall and at the Christmas Pops Symphony. Both of these
events received a great deal of media coverage and were considered
very successful from a public relations/fund-raising perspective.
Adams wants greater artistic control over the audition and re-
view procedures. With regard to the audition procedures, he wants
the screen removed behind which aspiring symphony musicians per-
form during the preliminary and final phases of the audition process.
The removal of the screen would allow observation of the perform-
ance of the musician, which otherwise is hidden from view. The per-
formance of the musician is important because symphony musicians
not only play music but perform on stage as well. The removal of the
screen will allow better selection decisions.
The review process over which Adams wishes greater control is re-
seating. That is, a musical director can reseat (demote) a musician (e.g.,
from principal to associate or associate to assistant) if the musician is
not measuring up to the standards of the symphony. As director, it is
his
responsibility to maintain the highest standards possible and to en-
sure that the musicians perform to the best of their ability at all levels
within the orchestra. If a player is not meeting those expectations, then
it is the musical director's responsibility to demote him or her and pro-
mote someone else who can. The musicians, however, demand that re-
seating decisions be subject to review and be made part of the collec-
tive bargaining contract. The board fully supports Adams in making
reseating decisions without review by the musicians and does not want
any review procedures included in the next contract.
Artistic Control
Wages and Terms and Conditions of Employment
The artistic direction of a symphony is the responsibility of the con
ductor/music director, who has the expertise to make decisions as he
or she sees fit. About five years ago the symphony was delighted to
get the highly respected and talented Kendall Adams to assume that
position. The board and musicians were pleased to get a conductor of
his quality and stature, and his most recent salary contract was set at
$250,000-plus per year.
Because the purpose of a board of directors of a symphony as
sociation is fund-raising, artistic control is left to the discretion of the
music director. The board, while appreciators of fine music, are not
professional musicians, and therefore they fully support any decisions
made by the person hired to lead and conduct - Kendall Adams,
They have full confidence in his ability and understand that as with
any leader, there will be individuals (musicians in this case) who will
disagree with his decisions. Thus far, the board has been pleased with
his decisions. For example, they enthusiastically endorsed Adams's
decision to bring in entertainers to perform at the gala opening of
Given the financial difficulty of the symphony and loss of public
confidence, the board would like to keep the length of the 1987-88
playing season to a minimum so as to (1) avoid the costs of putting
on performances for small audiences, (2) give the symphony time to
win back its supporters through some innovative programming, and
(3) rent out Symphony Hall during the weeks when the symphony
does not have a performance scheduled in order to gain some much-
needed revenue.
The musicians had a forty-five-week playing season in their
1985-86 contract and earned a minimum of $470.00 per week. The
board offered a thirty-eight-week playing season and no pay raises
when negotiations stalled. The board is willing, however, to give pay
270
Financial Issues
We Hear a Symphony... Or Do We?
271
raises in exchange for a reduction in the number of playing weeks.
They are aware that the salaries of the musicians are not as high as
elsewhere, and they want to be reasonable. They are offering up to a
25 percent pay increase with a commensurate reduction in the length
of the playing season.
The musicians also want the Symphony Association to pay for a
dental plan for the musicians and increase contributions to the pen-
sion plan from 512 to 6 percent. The board is reluctant to take on any
extra financial obligations.
Scheduling of Rehearsals
When Symphony Hall was acquired two years before, the sellers in-
tended to build Symphony Towers, a $150 million hotel and office
twin-tower project flanking Symphony Hall. As previously arranged,
construction is scheduled to allow evening events in the hall. In order
to accommodate the construction of the towers, the board would like
the freedom to schedule symphony rehearsals around the construction
schedule. That is, rehearsals could be scheduled on weekends or dur-
ing the evening, if necessary, so as to avoid noise associated with con-
struction. Currently the musicians have daytime rehearsals. Rehearsals
are at 10 A.M. and 1:45 P.M. on days when the musicians don't perform,
and there is one rehearsal on days when a concert is scheduled for that
evening.
As members of the management negotiating team, you must
prepare for your first meeting to negotiate what you hope to be a
two-year contract with the musicians' union. Sixty days have passed
since you terminated your relationship with the musicians.
In the fall of 1975, the Symphony Association began nine years
of ambitious expansion under a succession of board presidents. In
1984 the board decided to purchase a downtown theater, restore it,
rename it Symphony Hall, and establish it as a permanent home for
the Symphony Orchestra. A capital fund-raising drive culminated
with a gala opening of Symphony Hall a year later but fell nearly $2
million short of its $6.5 million goal (i.e., $4.8 million was raised to ac-
quire and restore the old theater as the symphony's new home).
In early 1986, symphony board president N. E. Morgan shocked
the community by announcing the need to raise $2 million in order to
eliminate a $1.8 million deficit that had accumulated over a ten-year
period. Three days later he publicly stated that the symphony had ten
days to raise the $2 million. If this amount was not raised, the organ-
ization would file for protection under Chapter 11 of the federal
bankruptcy laws. In the interim, a consortium of four local banks de-
clared the symphony in default on its $4.5 million loan for the reno-
vation of Symphony Hall.
Local business and political leaders expressed concern over a
history of financial mismanagement at the symphony. Nonetheless,
the community responded. From contributions large and small, the
emergency fund-raising drive netted $2.4 million, apparently staving
off the need for a Chapter 11 bankruptcy filing. Hopes soared that the
symphony would begin the 1986-87 season "in the black for the first
time in 10 years," as Morgan put it.
Two weeks after the emergency fund-raising drive, more bad
news emerged. The executive director of the symphony announced
that, despite the fund-raising, the organization might end the year
with an $820,000 deficit. The public was outraged. The executive di-
rector asked musicians to take a 10 percent pay cut in the middle of
the last year of their contract. However, shortly thereafter manage-
ment retracted its controversial request for a pay cut, noting opposi-
tion by the musicians and skepticism by the public. After eighteen
months in office, the executive director resigned his position.
The summer of 1986 found major changes at Symphony Hall.
Mel Brown was hired as the new symphony executive director. His
reputation as a “turnaround man” for troubled orchestras held great
promise for managing the turbulence at Symphony Hall. In addition,
a new president of the symphony board was installed, and prepara-
tions were under way for negotiations with the musicians' union,
whose contract was set to expire August 31, 1986,
The Musicians' Position
The tension could be felt almost as soon as one entered the room.
The negotiating committee for the Symphony Orchestra (union) had
been locking horns with the negotiating committee of the Symphony
Association (management) since their contract expired last August
31. It was now into the new year, and it seemed as if negotiations had
gone from bad to worse. The winter season had been canceled, and
the public was outraged at the financial chaos facing the Symphony
Association and the problems associated with the viability of the or
chestra, in particular.
272
Financial Issues
We Hear a Symphony... Or Do We?
273
First and foremost is the struggle with Kendall Adams, the conductor,
over artistic control issues. Second is the dispute over wages and
terms and conditions of employment. Third is the underlying dishar-
mony between the board and musicians concerning lack of respect.
Relationship between the Board and Musicians
Negotiations between the association and the American Federa-
tion of Musicians, which represented the symphony players, contin-
ued through September 15. On that date, symphony musicians re-
ceived their last paycheck and announced that they were “locked
out” of negotiations by the management. Management wanted a
thirty-eight-week contract and no pay raises, musicians wanted forty-
five weeks and a raise. The most volatile issue, however, involved
artistic control of the orchestra by music director Kendall Adams. A
month later, deadlocked in contract negotiations, management called
off the first three weeks of the 1986–87 season.
Brown publicly confirmed the dire predictions of his predeces-
sor, stating that the $877,000 deficit from 1985–86 was projected to
grow to $1.8 million by the end of the 1986–87 season. There was also
a $2.36 million shortfall in the capital fund.
Still deadlocked in bitter negotiations, the Symphony Associa
tion management canceled the second three weeks of the winter sea
son and on November 11 canceled the entire 1986–87 season. Man-
agement promised full refunds within sixty days to subscribers who
sought them, but two months later they acknowledged that the Sym-
phony Association could not pay the $400,000 potential cost (over
half the subscribers asked for refunds).
A state mediator was called in to help resolve the labor dispute.
After several attempts, the musicians and the association could not
agree on a new contract, and a deadline for scheduling a spring
miniseason passed. On January 12, 1987, symphony management dis
solved its relationship with the orchestra and formed a committee to
pay off $6 million in debts. The community became the only city in
the nation with a symphony association board of directors and a
symphony hall but no symphony orchestra to play in that hall.
Representatives of both sides in the labor dispute agreed to ne
gotiate a contract for 1987–88 and meet and confer in sixty days.
In 1980, the symphony was named a major orchestra by the Ameri-
can Symphony Orchestra League. As such, they consider themselves
a first-rate professional ensemble, with a full contingent of eighty-one
players, and not a part-time orchestra. Yet given this stature, on a per-
centage basis, less of the symphony's total budget goes to musician
salaries than anywhere else. That is, when compared to major city
symphonies with budgets of comparable size, this orchestra's mem-
bers receive less money as a percentage of the budget than colleagues
elsewhere. In addition, the board's use of discretionary monies to lure
high-priced guest conductors and soloists at what the musicians per-
ceive to be their expense (i.e., citing their minimum salaries) has cre-
ated resentment among the players.
A case in point was the gala opening of Symphony Hall. For the
event, movie stars and famous musicians were flown in and highly
paid by the Symphony Association while the musicians were greeted
with warm sodas and packaged cookies in the basement of Sym-
phony Hall before the performance. Moreover, although many pre-
and postopening parties were held in honor of the event, musicians
claimed they did not receive invitations to any of them. The general
feeling among the musicians about the association is that it is
grandiose in everything except its respect and support for the players.
The musicians believe the board members are too involved in the
day-to-day operations of the symphony and not involved enough
with fund-raising, which is typically the backbone of the board mem-
ber function.
Role for Symphony Musician Negotiators
Artistic Control
Over time, the quality of the relationship between the symphony
board of directors and musicians had deteriorated, yet no one ever
anticipated these serious consequences. The formal dissolution of the
board's relationship with the symphony orchestra stunned and an
gered the musicians.
From the musicians' point of view, there are three main areas of
concern to be addressed in the collective bargaining negotiations,
The board is, and has been, 100 percent behind Kendall Adams, who
receives an annual salary of $250,000-plus as music director and con-
ductor of the symphony. When Adams came to the symphony about
five years ago, the musicians were pleased to get a conductor of his
quality and stature. As time went on, however, a division in the sym-
phony occurred
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