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szrecul24

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Read the case study titled, "We Hear a Symphony….or do We?" in A Casebook on Corporate Renewal. Then, answer the following questions:

  1. Is the union being unreasonable?
  2. Should society subsidize the arts?
  3. Propose a solution to the negotiations.
Post your response to the discussion thread provided.

The case is page 265 - 275


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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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