When Can Museums Sell Their Works of Art? Lessons From the Berkshires

photo:  Gena Melendrez/shutterstock

photo:  Gena Melendrez/shutterstock

The Berkshire Museum located in Pittsfield, Massachusetts, is facing significant financial pressure. In response to that situation, the board decided to sell 40 artworks in its collection. The auction was scheduled for November 13, 2017, but has been postponed for at least 30 days due to action by the Massachusetts attorney general.

The museum has indicated that it expects to realize approximately $68 million from the sale and use these proceeds to strengthen its endowment and fund its New Vision plan. The New Vision plan would shift the museum’s focus to science and history. The organization currently indicates that its mission is to “spark creativity and innovative thinking by making inspiring educational connections among art, history and natural science.” Thus, the planned disposition of the artworks in order to concentrate only on science and history.

The first issue in this case concerns the items in the museum’s collection. A museum’s collection consists of the items it holds, protects and makes available to the general public for educational purposes. Collection items are very specific, and quite different from other assets such as buildings, tables, chairs, etc.

When the museum’s auditors certified the organization’s financial statements (under generally accepted accounting principles), they obtained confirmation that items identified by management as part of the “collection” were protected from deterioration, available for research and other educational purposes, and subject to a policy restricting the proceeds from collection sales to the purchase of other collection items.

The Association of Art Museum Directors (AAMD) code of ethics supports this view. The American Alliance of Museums’ (AAM) code of ethics also does so, although in addition, it allows proceeds from the sale of collection items to be used for the direct care of the remaining collection. In addition, the Financial Accounting Standards Board (FASB), which is responsible for identifying generally accepted accounting principles, rejects the view that collection sales proceeds may be used for direct care of the remaining collection. If such were the case, museums might continually sell collection items into private hands until only a few museum collection items remained in the public domain—although the remaining collection items would likely be well preserved! 

This example, although extreme, is useful to understand the conceptual foundation for a policy of restricting collection sales proceeds to replacement collection items. In this way, a museum is only selling pieces from its collection to acquire other collection items to build a more cohesive total collection. In addition, under such a system, it is more likely that the sale of collection items will be made to other museums rather than to private collections, where they disappear from the public view.

The Berkshire Museum does intend to use some of the proceeds for building its New Vision—an innovative 21st-century institution with a heightened emphasis on science and history. However, use of the funds to supplement the museum’s endowment is inappropriate, according to both the FASB and AAMD.

The second issue in this case concerns the donors. There are financial donors and art donors, both of whom have expressed concerns. Some believe that the idea that a museum can sell parts of its collection sends an inappropriate message to donors who have or are planning to provide financial support to the institution. The sale of collection items to provide operating support, even via an endowment fund mechanism, potentially sends the message to donors that their financial support isn’t really needed.

Donors of art are equally averse to the potential disposition of cherished objects that were cheerfully accepted in the past. This feeling is mitigated when the museum explains that the sale is being made in order to purchase a different item more in keeping with the main items in the museum’s collection, and that the donated item is moving to a museum with a collection more suited to the nature of the item.

Some of the artwork offered for sale by the Berkshire Museum are two paintings by local artist Norman Rockwell. One of these paintings was donated to the museum in 1958 by Rockwell himself. Some of his heirs have brought a court action claiming that he donated the painting(s) for the Museum’s “permanent collection.” The term “permanent collection” is probably insufficient to support a claim that the museum must hold onto the art permanently. There is little or no previous litigation on what the phrase “permanent collection” might mean.

In addition, in a subsequent court action brought by the Massachusetts attorney general—who comes to the fray late, as many AGs do—the judge questioned the AG extensively on the legal standing of the plaintiffs before concluding that the auction should proceed as scheduled. Legal standing has been litigated so frequently in situations like this that the AG should have known that a challenge to the museum was on thin ice and that the Rockwell family likely had no legal standing in this case. Luckily, the AG went back to court, and via a different tactic, won a “30-day pause” in the activities, which postponed the November 13 auction at least until December or later.

Another wrinkle worth noting is that in the Rockwell family litigation, some plaintiffs claimed to be museum “members.” Many charitable organizations encourage donations and refer to the donors as “members.” In almost all cases, this is merely a marketing term—the donors are not “members,” regardless of the privileges that “membership” bestows upon them.

A real “member” of a charity is one who belongs to a membership organization, and most public charities are not incorporated as membership organizations. In a membership organization, the members participate significantly in the management of the organization. At a minimum, the members are gathering at least annually to vote for the board of directors. In addition, other significant decisions are reserved to a vote of the membership.

This is certainly not the case with the Berkshire Museum. It is a Massachusetts non-business corporation established for the public good, but operated by a self-perpetuating board of directors; its corporate charter makes no mention of “members.” Donors would be wise to understand this concept and save themselves some legal fees when tempted to right some wrong by exercising membership rights. In most cases, there are no management rights for the “members” to exercise in court or otherwise.

The last issue I would like to address, here, revolves around the advice that the museum’s board received from its professional advisors as it decided to travel down this road. There is a very strong possibility that the courts will not allow the museum to complete the plan it devised for its future—a future it says will be non-existent without the infusion of cash that the artworks sale will bring. Hopefully, the board engaged competent (and well-insured) legal advisors who evidently gave them the green light to launch this project.

Those advisors will eventually present the museum with a hefty bill for legal services rendered. This invoice will further erode the museum’s financial condition. While I hold the board completely responsible for its actions and role in concocting this plan, the advisors who supported this plan, which evidence and historical precedent suggested was unlikely to withstand legal actions, should also be held accountable by the public, the ultimate losers from this waste of resources.

I fully expect the Massachusetts AG to prevail and that none of these pieces of artwork will be sold unless the proceeds are restricted to the purchase of replacement collection items. Someone other than the general public should bear the brunt of fiascos such as this.