University of Chicago
Type of paper: Thesis/Dissertation Chapter
Midwestern Art Museum
Background The present paper reviews a case study as written by Lewicky, Saunders and Barry in the text Negotiations titled Midwestern::Contemporary Art, case number 6. Its focus is on a financial crisis that the museum is facing due to a donors failure to pay a five million dollar pledge. The donor was the museums previous president of the board of directors who had a falling out with the museum director over financial matters and felt minimized by the lack support by board members. The museum is in the process of completing a major capital project and faces the near term possibility of bankruptcy if the pledge is not fulfilled.
Results Legal counsel for the museum recommends suing to collect the funding but that strategy presents several negative outcomes. First is that there are very few cases where a museum has sued a donor successfully so this is not a tested option and even if they were successful, collecting the amount awarded by the court may prove very difficult. Secondly, it raises the likelihood of creating negative public relations that could adversely affect future contributions. Lastly, some of the board members are opposed to this idea. Another course of action is to enter in to negotiations to secure the funding.
The current president of the board must decide on a course of action to obtain the necessary funding and unite the board in a functional manner. Conclusions A renewed focus on the future relationship between this donor and the MCA needs to be forged through skilled negotiations in a way that will benefit everyone involved. The legal route should not be the first course of action for the MCA to obtain the five million dollar pledge. The board should first try to implement a well planned negotiation strategy to include the legal option as the BATNA.
Situation. The Midwestern Contemporary Art (MCA) Museum opened in 1976 and is devoted to modern art. In January of 1989 the MCA hired Keith Schmidt as executive director, and due to his extensive experience much was expected of him. That same year a reputable lawyer from the area named Peter Smith was selected as the board president. He had been a board member since 1981 and was an avid collector of contemporary art along with his wife. Together they had acquired the largest art collection of this type in the Great Lakes area.
Peter Smith and Keith Schmidt had very different leadership styles and it led to disagreements on how to expand and grow the MCA. These arguments often became personal and led to animosity and mistrust. Most of their arguments had to deal with the speed of MCA’s expansion, which was pushed by Keith Schmidt. Peter Smith was more concerned about the finances and did not trust that Schmidt could operate the museum in the black. Smith presented his concerns about Schmidt to the other board members but they didn’t share the same feelings of mistrust since Mr. Schmidt’s performance had not proven deficient so far.
Due to problems between the two men, Peter Smith resigned from the board in December 1991. The Smiths disappeared from the art scene at the end of 1991 and missed all payments on their $5 million pledge to the MCA. This became a problem because the MCA was planning on constructing a new building. The Smiths’ pledge was a significant amount and the new MCA facilities completion depended on their pledge. Also, the Financial Accounting Standards Board (FASB) required all non-profit organizations to record pledges as income so the MCA had already accounted for the money.
This caused an even more financial hardship on the museum, and in late 1997, MCA found itself in a financial crisis due to high debt resulting from the construction and the Smiths’ unfulfilled pledge. The current board director is Peggy Fischer and she has just finished a meeting with the board to discuss the possibility of suing the Smiths for the five million dollar pledge. Although she is uncomfortable with several aspects of the legal route, she knows the museum may face bankruptcy without the pledge. She must decide if the MCA should try to pursue negotiations with the Smiths or legal action.
It is a big decision to make and the boards’ next meeting is in five days. Who is in Charge? Let’s consider the leadership crisis that got them in the situation to start with. First of all, Keith Schmidt as the executive director should be able to answer the board chairman’s questions in a clear and logical manner and should not expect an “unsigned check” regardless of how he was treated elsewhere. Beyond that, Peter Smith as the board chairman is clearly micromanaging the director and as a result, both men have let the business relationship become personal.
If you insist on micro-managing, you have a problem; if you believe you must check on every detail, your style is symptomatic of insecurity or paranoia. Your style is based on a lack of faith and trust in other people. And, it is repressive. It leads to little growth, it discourages any human resource development, and it focuses on problems of detail, and discourages teamwork. If you don’t trust your manager or his judgment, and you are unwilling to allow him to assume any responsibility, you are cheating yourself of the talent you are paying for.
As much as you may want to, you can’t build a one-person organization that will succeed in the long run. Micro-managing may work for a while, but in time, it acts as a brake on all progress. In this case, it is stifling the expansion and growth of the MCA. Mr. Smith doesn’t realize that he is working against himself by discouraging new ideas, new art exhibits, new talent and the push to move forward has been imprisoned in the mind of one person. The two men are experiencing a competitive conflict based on different viewpoints or perspectives. I think that they have the same goals; they just disagree on how to go about obtaining them.
Also, this organization is experiencing growing pains with the hiring of the director. Consequently, the roles and expectations of the organization’s members should be clarified. This one area of conflict can be the trickiest because when you are in charge, often perspectives different from your own are misunderstood or pushed aside. Managers and leaders must remember that at least some of their employees will likely have different perspectives. In fact, often different perspectives are where creative solutions are developed. There are ways to structurally reduce conflict in an organization.
The ost common and effective way is to provide people with a clear definition and understanding of their role, function, and responsibilities in the workplace. This will provide them with a good understanding of the job and tasks they are to perform as an individual and within any teams they are a part of. It also provides information on where they fit within the organization and who they report to, helping to avoid disputes and misunderstandings over authority. Failing to define workplace roles and responsibilities can create tension, miscommunication and inefficiency within your business (Bulleit, 2006).
People may be unsure as to what jobs are their own and who they are required to report to. Mistakes and omissions can also occur where people are unsure of what is required of them, therefore creating inefficiencies which cost time and money. If Peter Smith and Keith Schmidt understood this at the beginning of their relationship, much of the dispute would have been avoided. Once you have defined each person’s roles and responsibilities, you can record this in a “job description”. This can be as formal or informal as you prefer, however it is important to record the key information.
Job descriptions provide the opportunity to clearly communicate each individual’s roles and responsibilities and also serve as a way to measure performance. With the role of each individual in the organization defined, you can also create an organization chart. This chart is a tool that helps to define the inter-relationships between the board, the director and staff. It defines reporting structures and lines of authority and responsibility, providing a picture of how the organization functions. It can be very helpful when creating a new position in an organization to have people write their own job description.
This gives you insight in how that person views his responsibilities and creates buy-in on their part. People like to be part of decisions that affect their life as opposed to being told what to do. In this situation, the board of directors and its members should define their roles as well as the executive director and the staff since they are all very different. At MCA the roles are different since it is a not-for-profit organization and there are no shareholders to report to. The role of the chairman is to provide vision and outline the goals of the MCA.
The role of the director is to develop a plan of how to achieve those goals and the role of the staff is to execute or put the plan in to action. I’m not sure how large the staff is at MCA, but the structural organization should extend beyond Mr. Schmidt. When defining roles and responsibilities in the workplace, you may need to create a list of all of your staff and a list of all of the tasks and roles within your business. You can then assign the roles to each staff member. It is important to remain flexible and be prepared to modify your plan in consultation with your employees.
Peter Smith acted poorly when his advice was not followed by the board. It is his inability to “pass the torch” thinking that only he can win the race to success and that is largely what caused the whole situation. He is willing to “take his toys and go home” if he doesn’t get it his way. When Peter Smith’s advice was not followed by the board and he resigned he should have either withdrawn his pledge so the MCA could plan accordingly or honored his commitment. The Decision. Peggy Fischer as the current board chairman has some hard decisions.
She needs to consider any alternative approaches to collect the unfulfilled pledge as opposed to a direct approach of just calling and demanding the money. She should also consider what alternatives the Smiths may have. For any successful negotiation, there is a significant amount of homework involved. The legal option may not work out since it is largely untested as pointed out by legal counsel. If that doesn’t work, the MCA will be in even deeper financial trouble with no options left with the Smiths. Ms. Fisher should first clearly identify the goal.
I think that the goal should be to establish a positive relationship with the Smiths that will secure the five million dollar contribution soon and create a positive relationship that has future benefits. In addition to this goal, a Best Alternative To a Negotiated Agreement (BATNA) needs to be established. BATNAs are critical to negotiation because you cannot make a wise decision about whether to accept a negotiated agreement unless you know what your alternatives are. Your BATNA is the only standard which can protect you both from accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept.
For example, the Smiths may agree to assist in finding another source of money to make up the pledge. This is not what is expected, but it may be enough to meet the financial needs of the museum. There may be several options to consider in an agreement that would accomplish the goal without strictly adhering to only two possible outcomes. Get the five million now or sue. In the simplest terms, if the proposed agreement is better than your BATNA, then you should accept it. If the agreement is not better than your BATNA, then you should reopen negotiations. (Fisher & Ury 1991).
Along with establishing the negotiation desired outcome or goal and the BATNA, you need to determine the bottom line. A bottom line signifies the worst possible outcome that a negotiator might accept. Maybe it would be acceptable to obtain half of the pledged money with the idea that MCA could come up with the rest elsewhere. The bottom line is meant to act as the final barrier where a negotiation will not proceed further. It is a means to defend oneself against the pressure and temptation that is often exerted on a negotiator to conclude an agreement that is self defeating (Lewicki, Saunders & Barry, 2009).
Then the next step in this situation requires her to select a negotiation strategy based on the type of relationship MCA wishes to achieve with the Smiths if any. If the importance of the relationship is high and the importance of the outcome is high, then a collaborative style of negotiation is in order. Do they want to re-establish a long term relationship? If not, then a more competitive strategy is more suitable. In this situation the board members seem to be split on their strategy.
Some of the board members have made it clear that they have reservations about using the legal course, or competitive strategy, and at least one supports the chief counsels’ recommendations. If the MCA determines that they do not expect to deal with the Smiths ever again and they do not need their goodwill in the long term, then it may be appropriate to “play hardball”, seeking to win the negotiation while the other person loses out. Similarly, since there is a great deal at stake in the negotiation, it may be appropriate to prepare in detail and legitimate “gamesmanship” to gain advantage.
Anyone who has been involved with large sales negotiations will be familiar with this. Neither of these approaches is usually much good for resolving disputes with people with whom you have an ongoing relationship: If the MCA plays hardball, then this disadvantages the Smiths and may, quite fairly, lead to reprisal later. Similarly, using tricks and manipulation during a negotiation can undermine trust and damage teamwork. Attempting to manipulate the Smiths in a negotiation may backfire. Here, honesty and openness is the best policy. So let’s consider the basic strategies available.
The avoiding strategy is obviously not going to work since there is no clear way to obtain the funds elsewhere. The competitive strategy in this situation is comprised of the legal option that is recommended by the chief counsel and supported by at least one board member. The accommodating strategy would also require that MCA finds another source of funding since they are facing a short term crisis. A collaborative strategy is ideal but is difficult given the short time frame. The best alternative method to seek the cooperation of the Smiths and to collect the unfulfilled pledge is to use any existing relationships among the board member’s.
If this is not apparent, she may consider hiring a consultant even if it is only for mapping out a strategy. It may be well worth the money because some research needs to be done to determine the network of contacts which exist around the Smiths. I think that involving a third party at least initially is a good idea to break the ice. In order to collect the five million dollar pledge, the MCA clearly needs the help of influential people to ‘open doors’, make reintroductions and even to ‘make the ask’ when appropriate.
Someone is needed who will focus on reinforcing collaborations and partnerships and build on those strengths. Now is the time to put the right people in the right position to both grieve the loss of the Smiths relationship and honor their contributions. Since the Smiths were very involved in the community, the involvement of influential people from outside the museum that may be best to use in a networking and personal approach. The negotiator must be able to avoid focusing on the past and skilled at guiding the discussion to a positive view of the future.
Pointing fingers or histrionics are clearly inappropriate because they undermine the rational basis of the negotiation and because they bring a manipulative aspect to them (Phillips, 2011). The smiths need to be convinced that the MCA is important to them and the best person to do this is someone that they trust. Not lost in this situation is the fact that the Smiths are facing a significant life changing event; it may cause them to re-evaluate their relationship with MCA. If the Smiths are approached in a positive manner, they may choose to reclaim the part of their life that they invested so much time and money in as a legacy to Peter.
Leaving bequests to museums has a long history. The board should be involved in further discussions leading to a decision about whether or not to file a lawsuit and to this end, Peggy Fisher has some negotiations of her own to accomplish with the board members. The style of the negotiation is important because emotions are high due to the critical situation. Keep in mind that for a negotiation to be ‘win-win’, both parties should feel positive about the negotiation once it’s over. There are those on the board who want to sue and those who are in opposition and this has potential to evolve in to a destructive division.
Peggy has to unify the board in a way that will maintain good working relationships afterwards and also govern the style of the negotiation. Emotion can be an important subject of discussion because people’s emotional needs must fairly be met. Usually, emotion is best left out of negotiations but Peter Smiths terminal cancer should not be ignored. If emotion is not discussed where it needs to be, then the agreement reached will be unsatisfactory and temporary. I don’t think the museum should sue the Smiths as a first approach to this situation primarily because the relationship between a foundation and its donors is precious.
Suing the people paying the bills is not good public relations and this will definitely generate a lot of attention in the community. Even if MCA wins the lawsuit there is still the big question of how to collect. Will they have to hire a collection agency? Is there one that will even take the job? If for some reason the Smiths don’t have the money it is going to be very difficult to collect. Before going any further with this as the debt collection strategy, the MCA needs to look at this from a clear perspective. Have they given the debtor enough time and notice to repay the debt that they owe?
It is crucial that they attempt to contact the debtor directly before starting any legal procedures and suing for money owed. When the Smiths missed their payments, did anyone attempt to collect? This may be an issue in court. It is important to find out exactly why the Smiths have not paid because there could be some fairly legitimate reasons for the shortfall. The legal process may not produce results in the timely manner needed in this situation because it may lead to mediation anyway. Mediation is another debt collection strategy that uses mediators instead of going to court so you are back to a negotiating strategy.
A mediator is a professional, hired in order to settle a dispute outside of court. They may make it easier for an agreement to be reached, however this must be reached voluntarily between the two parties (Bailey, 2010). There is a better way for the MCA to attempt the collection of the money pledged by the Smiths however, I think that the sue option is a good BATNA and should be used in this manner as part of a well planned negotiation. Having a good BATNA increases your negotiating power and the trick in this situation is determining when to make that option known to the Smiths in order to strengthen your negotiating power.
The negotiation should be well thought out and executed properly. Care should be taken that the BATNA is not seen by negotiators as a safety net, but rather as a point of leverage in negotiations and again, determining when to bring it in the negotiations is a key part that a skilled negotiator must determine. In conclusion, the leadership dispute between Peter Smith and Keith Schmidt and the resulting parting of ways on supposedly bad terms should be put to rest.
A renewed focus on the future for the Smiths and the MCA needs to be forged through skilled negotiations that will benefit everyone in the very different situation that both parties now face. The legal route should not be the first course of action for the MCA. The board should first try to implement a well planned negotiation strategy to include the legal option as the BATNA. Peggy Fischer has some negotiation work of her own to accomplish with the board members in order to unify everyone and focus all their resources and efforts in accomplishing a collaborative, long term relationship with the Smiths that will benefit everyone.