(Welcome to Createquity’s summer rerun programming! Over the next few months, we’re reaching into the archives to pull out some of the best articles and most underrated gems we’ve published since 2007. This week, we’re starting with the “Thoughts on Effective Philanthropy” series. “Thoughts on Effective Philanthropy” was really the reason why I started Createquity. I wanted to have an excuse to write down some of the ideas that had been bubbling around in my head after five years or so of working in the arts, and I ended up publishing six essays in the series over the fall and spring of my first year in business school, in 2007-08. Reading over these posts, I’m struck by how much of my thinking in those early days still reflects my thinking today, even though my perspective was far less informed back then than it is now. -IDM)

When we left off last time, I was advocating for funding agencies to adopt a spirit of experimentation in their philanthropic strategies for the arts. However, I haven’t yet talked explicitly about an idea that goes hand-in-hand with that strategy: diversifying grants across many different (and often smaller) organizations, instead of concentrating them in a few very large ones.

It’s not that I don’t think large arts organizations do good work, or that they don’t deserve to be supported. What I’m going to argue instead is that there is a tendency among many institutional givers to direct their resources toward organizations that have well-developed support infrastructure, long histories, and vast budgets, and in a lot of ways it’s a tendency that doesn’t make much sense (or at the very least, could use some balance).

For one thing, those well-developed support infrastructures don’t come cheap. Consider the case of Carnegie Hall, which due to union constraints (the subject of a current strike over on Broadway) routinely pays its top stagehands north of $300,000 a year. The astronomical salaries that symphony orchestra conductors make (up to $2.5 million annually; and that’s not counting guest conducting gigs with other ensembles) are being paid for by someone, after all. If those kinds of numbers seem a little insane to you, well, you’re not the only one. This is one of the dirty little secrets of the arts—very few people seem to be aware that their local orchestra conductor might be making bank on par with their favorite NFL players. And yet this information is all publicly available on government forms thanks to the incomparable Guidestar. (pdfs; registration required)

An important thing to note is that the forces driving these compensation figures into the stratosphere cannot be described as “nonprofit” in any meaningful way. The labor unions, for example, are not particularly interested in giving Carnegie Hall some sort of break because of their IRS status. From their perspective, this is the top gig in town and they should be remunerated accordingly. Similarly, the conductors and soloists extracting huge appearance fees from the major orchestras are being represented by for-profit management agencies such as IMG and Columbia Artists. Another large expense for many arts organizations is the rent for their office buildings that ultimately winds up in the hands of property-owning for-profit corporations. Foundations that are truly interested in “effectiveness” should ensure they are aware of the extent to which their charitable dollars may ultimately be making rich people richer.

Those are only perhaps the most egregious examples of money ending up where it may not be doing the most public good. The administrative overhead costs of maintaining such a budget can get quite high as well. The more money that needs to be raised for the organization to maintain a certain level of operation, the more fundraising staff need to be hired to support that activity. And, of course, since fundraising professionals know damn well that their services are in demand, they know to ask for a substantial salary from an organization that clearly has the resources to give them what they want. Which they then have to figure out how to pay for by raising yet more money. Do you see how this can become an upward spiraling process?

In contrast, small arts organizations are extraordinarily frugal with their resources, precisely because they have no resources to speak of. It’s frankly amazing to me what largely unheralded art galleries, musical ensembles, theater companies, dance troupes, and performance art collectives are able accomplish with essentially nothing but passion on their side. A $5,000 contribution that would barely get you into the sixth-highest donor category at Carnegie might radically transform the livelihood of an organization like this. Suddenly, they might be able to buy some time in the recording studio, or hire an accompanist for rehearsals, or redo that floor in the lobby, or even (gasp) PAY their artists! All of which previously had seemed inconceivable because of the poverty that these organizations grapple with. Foundations concerned with “impact” should remember that it’s far easier to have a measurable effect on an organization’s effectiveness when the amount of money provided is not dwarfed by the organization’s budget.

The best part of giving more money to smaller organizations is that it actually reduces the risk for the funding agency by diversifying its portfolio. Think about it like this: if you were investing stock in each of these companies instead of grant dollars, your broker would call you crazy to divide a million dollars among four of them rather than forty, or better yet four hundred. Sure, some of them will fail, but think about the missed opportunities with the ones that succeed. To only fund the largest organizations would be akin to confining one’s endowment investments to the blue chips on the NYSE while completely ignoring emerging markets.

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  • Ian – thanks for another compelling post. One of the key differences between larger culturals and smaller ones is that bigger entities actually produce less art. This is true both on a cost basis (where each piece tends to cost more to show) as well as a program basis (where larger organizations tend to act as presenters and producers rather than creators). The generative power of the cultural sector really comes from small culturals who feed new works into the system, with a few “successful” artists having their work installed or produced at major venues. One of the major challenges for funders are the “inefficiencies” of giving lots of small grants as opposed to fewer larger ones. For my ruminations on the topic, folks can check out my blog post here: http://wp.me/p1MK9x-8q. Suffice it to say, as disparities between very large culturals and the rest of the field widens (just as we see a wealth gap spreading in the rest of the economy), funders will need to be rigorous in finding strategies that keep their portfolios diverse and impactful in supporting the creation of new works.

  • Bethany

    I know this is a rerun, but considering the current climate, I can’t let it pass without commenting. This binary infuriates me. Yes, it takes more money to run large organizations, and can result in less ‘art’ – but far more reach. I work for an organization on the lower end of the biggies, and in addition to the hundreds of thousands of people walking through our doors each year, we also serve over 20,000 students (many of whom, since we target title-1 schools for our outreach, are low-income). We introduce more young people to art than any ten small organizations in our area. Are there inefficiencies? Sure. Is it worth it to exponentially increase the reach of our art? For the future of art, I say yes.

    I deeply believe that both small and large organizations are vital to any arts ecosystem. Our organization has lost three major funders over three years due to new caps on budgets; and two large organizations have folded in our area just in the past two months. I understand your points, but I cannot believe this is an either/or situation.

    • You make a fair point, Bethany. When I originally wrote this piece I don’t think I was fully aware of the scale of the population that can be reached by very large organizations. Some of that of course is a self-fulfilling prophecy – the bigger an organization is, the more attention it gets, and thus the more likely it is to reach casual arts consumers. But large organizations’ roles in the arts education infrastructure in particular shouldn’t be ignored.