It goes without saying that museums and galleries in the UK are important contributors to the UK's economic development and educational growth. Yet latest government statistics reveal that 64 museums alone have closed since 2010, primarily due to cuts in public funding.
Historically ‘the arts’ have relied on public funding for their survival. However, with a reported 31% real-term decrease in such funding between 2010 and 2016 alone, ‘the arts’ are needing to be more ambitious and entrepreneurial to raise funds, with most now successfully seeking to maximise revenue via donations.
Whilst not all charities may be as fortunate as the anonymous charity which received a $4.6 billion donation from Bill Gates last month, the importance of donations to the preservation and survival of our precious museums and galleries cannot be underestimated. We will therefore explore the risks associated with donations and the ways in which those risks can be mitigated.
Donations - The Risks
Donations present a unique set of risks to other sources of revenue which can be broadly categorised as follows:
- Legal risk - as not all donors are motivated purely by philanthropy, care needs to be taken to ensure that accepting a donation does not breach, for example, the Bribery Act 2010, or anti-money laundering legislation. Allegations alone of a breach can be damaging, just as the Leonardo DiCaprio Foundation discovered last year when it was accused of accepting donations arising from a multi billion dollar embezzlement and money laundering scheme in Southeast Asia.
- Financial risk – some donors may not, for whatever reason, honour their pledged donation, either in full or in part. In the States, for example, a sum of $38 million was promised to the Smithsonian Institute and earmarked for a ‘Spirit of America’ exhibition, but was later withdrawn, thereby forcing the exhibition to be withdrawn also.
- Reputational risk – there have been a number of protests in recent years sparked by donations to ‘the arts’ by individuals or corporations which were deemed to be inappropriate or unethical. Take, for example, the protests here in the UK over the Tate Modern's relationship with BP and, further afield, the Sydney Biennale boycott caused by the international art event's sponsorship by Transfield, a company with contracts to operate offshore detention centres.
- Dependency risk – museums and galleries need to be mindful of not accepting a donation which would give the donor an undue level of influence over them and their trustees. Just last year the Art Not Oil coalition produced a well publicised report which identified, in relation to some world known UK arts institutions, “inappropriate influence by BP in three key areas: curatorial decision-making, security procedures and opportunities over policymakers”. The report prompted the Museums Association to investigate and formally respond.
- Independence risk - there is much concern in the art world that an increase in donations will lead to a loss of independence. For example, Julia Friedrich, a curator at the Ludwig Museum in Cologne, is reported as saying: “Sponsors want exhibits that are popular. I am not saying that popular artists are bad artists but the choice is not as independent as it is when the money is there already. Most sponsors think very carefully about what they want to connect their names and logos to.”
Donations - Mitigating the Risks
The National Audit Office (‘NAO’) has recently published a review of the due diligence processes for potential donations which recognises most of the risks noted above and usefully sets out how museums and galleries can mitigate the risks posed by the increased pressure to generate revenue via donations. Those mitigations are helpfully grouped by NAO into three thematic areas:
- Risk management
- Staff and stakeholder management
Trustees of museums and galleries should familiarise themselves with, and ensure compliance with, the mitigating strategies in the review which are summarised further below. By doing so, trustees can help ensure the viability of the museum or gallery that they represent and also avoid any challenge that they have failed to fulfill their core legal duties of, for example:
- Acting in the best interests only of their museum/gallery and beneficiaries (and not, for example, serving the personal interests of any donors).
- Promoting only the charitable purposes of their museum/gallery (and not, for example, the non philanthropical motives of any donors).
- Acting with prudence e.g. avoiding taking financial decisions which would expose their museum’s/gallery’s reputation and assets to undue risk.
The key mitigation takeaways from the NAO guidance are:
- Written policies encourage a consistent approach and ethical position in respect of donations management.
- Publication of the policies helps manage stakeholders expectations of the donations process.
- Policies should be reviewed cyclically to keep them up to date.
- Trustees should be aware of due diligence issues and approve the overarching policies.
- Ethics committees can be an effective forum for oversight of donations policies and advising on high-risk decisions on accepting donations.
The key mitigation takeaways from the NAO:
- Documented roles and procedures support a consistent, robust and evidence-based donations management process.
- Proper segregation of duties should be incorporated into processes to reduce the risk of bias, error or fraud.
- Risk assessment procedures should incorporate quantitative and qualitative risk factors tailored to a charity’s circumstances and ethical policies, so that effort and attention is proportionate to the level of risk.
- Due diligence procedures should encompass a potential donor’s reputation and associations along with the provenance and reliability of their funds.
- Decision-making procedures should be tailored, with more senior-level involvement for decisions on higher-risk donations.
- A range of external sources should be used where feasible to gather complete, reliable and corroborated information on a donor.
The key mitigation takeaways from the NAO:
- Appropriate training and guidance on the charity’s processes and on the legal aspects of fundraising should be provided to staff with key due diligence roles and awareness of these processes and legal aspects shared with other staff and trustees. This includes briefing on key legislation such as the Bribery Act 2010 and Money-laundering Regulations 2007.
- There may be opportunities for development staff to more formally liaise with their sector peers to share best practice and knowledge.
- Donor relationships need to be managed on an ongoing basis, starting with a written agreement (see below) and subject to periodic review for changing circumstance.
- Well-drafted agreements between donor and recipient mitigate the risk that a donor could put pressure on the recipient to carry out actions which are inconsistent with the recipient museum’s or gallery’s charitable objectives.They should also allow the museum or gallery to withdraw from the relationship if the donor subsequently acts in a manner which is incongruous with the museum’s or gallery’s objectives, harmful to its reputation or is inconsistent with the basis for the original decision to accept the donation.
Donations present museums and galleries with potentially serious legal, reputational, financial, dependence and independence risks. However, if those risks are managed appropriately, as explored in this article, donations also present museums and galleries with the opportunity to survive, and even thrive, during these challenging economic times.