Have you ever thought, “what else can go wrong?” Throughout 2020, many people asked themselves that question as new challenges continued to arise during the global pandemic. That was the case when Midland Center for the Arts suffered a flood in the midst of the COVID-19 crisis. We’re proud to share a wonderful client story where sticking to the long-term goals paid off. We sat down with our client, Terri Trotter, to discuss the impact of COVID-19, how their organization responded and how the Board’s commitment to governance helped to hold everything together.
Q: Obviously, the COVID-19 pandemic was not predicted and virtually nobody was prepared for it. What about Midland Center for the Arts’ governance structure do you feel prepared the Board and leadership for your organization’s response?
A: As the COVID-19 pandemic began, we didn’t know what that would mean for our organization in the long-run. But our governance structure, specifically our ongoing strategic planning, helped us position our Board and leadership to navigate the changes. We’ve been quite diligent over the last few years in making sure we have a strategic plan in place to meet our business goals. In fact, we’re annually setting goals and metrics that move us in that direction, so that the Board is focused on outcomes, rather than how we’re running the organization, pushing them into a good position to provide effective governance. The fact that we had processes and ongoing work in place as the pandemic began positioned us very well to pivot. When the pandemic hit, we took that same process and thought about it in the shorter term. We were able to focus on questions like how we were going to pay staff, what our financial position was going to be and how we would have to look at these things differently than we had under normal circumstances.
Q: While already dealing with the impact of the COVID-19 crisis, your organization experienced a second crisis when flooding caused significant damage to your facilities and art work. What were some of the highlights around how your Board responded to that?
A: A few months into the pandemic, the Midland Center for the Arts saw significant damages to our facilities due to flooding following severe storms. It was a surreal and bizarre experience for our organization and community in general, and it all happened while our state was under a stay at home order.
The diverse skill sets and relationships on our Board proved to be critical. They were involved in all aspects of the recovery, from physically helping to tear down dry wall, to leveraging their connections within the community to work with staff and find solutions, such as working with FEMA. The positive relationship between the Board and staff helped to facilitate recovery and foster an attitude of doing whatever needed to be done, then focusing on the strategic conversations after the initial damage control. This working relationship allowed the Board to support staff, while at the same time providing them space when they needed it to focus on specific issues.
Once the initial damage control was complete, we put together a Board task force to review the finance and building development opportunity. This helped us guide this process to see how we could find funding to move us forward to meet our goals. For example, the power system had flooded twice within five years, and now, with the Center closed due to COVID-19, we had the space and time to evaluate more strategic, long-term projects like upgrading the power system. Because our Board had always focused on strategic planning, and did a good job of looking at what’s going on around them and what makes sense, we were well-positioned to put in motion the same type of thinking we had used previously to plan for the future. The Board stepped up into their roles as community stewards, fiduciaries, and strategic thinkers with the utmost importance.
Q: You estimated that damages were between $8-$10 million dollars. How has that unexpected expense, on top of the loss of revenue from your museums being closed due to COVID-19, impacted your spending policies/budget for the rest of this year and for future years?
A: Working with FEMA, we estimated we had $9 million in damages, which was very substantial for us. We initially thought that with the flood and COVID-19, we couldn’t move forward with any kind of fundraising. But as we continued that conversation, the Board reframed our thinking. Our organization is fortunate enough to have multiple operating endowments that we work on with SEI. In addition to the potential for relief through FEMA, the Board has the authority to expend another disbursement for an extraordinary circumstance like this if they choose. Our goal through COVID-19 was not to make an extra draw. Over the years, we aim to be fiscally responsible by ending each year with a surplus because we have aging facilities. This approach meant we didn’t have to change our spending policy to accommodate the unexpected expenses.
In addition to budgeting for capital dollars, we use the surplus for capital projects and/or other special projects, giving us the ability to really invest into the community asset of the building. To get through this year, we didn’t do anything other than required maintenance and that allowed us to use all or most of the accumulated reserves that we had for capital for operating, rather than pulling anything out of the endowment. That said, if we do get through the pandemic, we will still need to get through the flood repairs, though since we’re all remote, there isn’t an immediate need to begin flood repairs.
We have really taken to heart that we can use the new time and space brought on by the pandemic to our advantage. We hope to get as much federal funding as available to us in order to implement a risk mitigation process moving forward. As we move forward with that, my goal is to use our investment fund. Rather than saying we’re using this fund to keep our operations running, I would like to go to the board and say “We have an opportunity to make an investment in the future of our organization by upgrading these specific things through federal funds and an extra draw on endowments and here’s what we get out of it.”
Q: Has navigating this crisis had any permanent effect on your governance structure and the way your Board operates? What would you recommend to other organizations that want to improve their governance structure?
A: Luckily, we’ve always been very focused on our governance structure so I don’t think much will change. However, navigating the crisis has had an impact on our management structure. Our forward-thinking Board had succession planning on the agenda even before the pandemic. They have also been asking very smart questions about how we take care of and grow our talent. When COVID-19 hit, we figured out how to operate the organization when earned revenue, which typically accounts for 40% of our overall operating budget, just stopped. In doing that, we, like others, had to look at some immediate cost savings and strategize with the Executive Team and Board on how we take care of our staff and what cuts we had to make. Governance wise, those two things dove-tailed and our directive to create a succession plan became a much bigger, robust and useful exercise through challenges brought about by COVID-19.
For other organizations that want to improve their governance, the first thing I’d recommend is a focus on strategic planning, which ensures the creation of metrics and follow up. If the Board is engaged in the outcome, I’ve found that their role focuses on governance rather than management, giving the staff the space they need to manage the organization on a day-to-day basis.
Second, I’d recommend a strong Governance Committee and support from third-party sources such as BoardSource and Strategic Partners. These resources can provide useful guidance on what a Governance Committee should be doing, such as setting up a yearly calendar to make sure we’re completing all of our annual responsibilities like Board recruitment, evaluation and policies. If we do these things, good governance follows.
This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company (SEI). Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results. This presentation should not be relied upon by the reader as research or investment advice (unless SIMC has otherwise separately entered into a written agreement for the provision of investment advice).
The opinions and views expressed herein are those of Terri Trotter SEI cannot guarantee the accuracy or completeness of the information and assumes no responsibility or liability for its incompleteness or inaccuracy. Midland Center for the Arts became a client of SEI in 7/24/2012.
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