One of the biggest orchestra-related news items over the past few weeks has been the announcement that the Philadelphia Orchestra is filing for bankruptcy (Chapter 11, to be exact). Given all of the negative finger pointing often associated with these types of proceedings, I wanted to take a quick look at how organizations can use bankruptcy as a legitimate—and positive—means of change.

Don’t get me wrong, I love the Philadelphia Orchestra as much as the next person (full disclosure: I attended concerts at the Kimmel Center on a nearly-weekly basis when I was in college), but it’s not that surprising that the orchestra is struggling, especially when one considers the general state of the industry and the perfect storm that has been circulating over Philadelphia the last few years. In the mid-2000s, the orchestra experienced an unprecedented lacunae in administrative, board, and artistic leadership (i.e. near-simultaneous vacancies for executive director, board chair, and music director). The resulting uncertainty was exacerbated by new venue growing pains and a conservative and at times disinvested listening public (i.e. some concerts last year were reported only 60% sold). The orchestra is now filing for bankruptcy in order to protect itself from mounting costs that will inevitably continue to grow, given current business practices and contract agreements. According to the orchestra’s management, “Our operating funds are rapidly dwindling and will be exhausted by June 2011, [and] while the Orchestra does not have any debt, we are operating at a significant loss with a structural deficit of $14.5 million.”

One could certainly ask why local foundations, donors, or the board itself is not stepping up to bailout the orchestra, but there is a relatively simple explanation: they’ve done it before, and it doesn’t solve the broader issue at hand, which is now too large to ignore. The Pew Charitable Trusts have recently provided the orchestra with emergency funding, but these grants were predicated on an understanding that such “rescue aid” would not become an annual crutch. Bailing out the orchestra is, in essence, prolonging a problem that will require further fixing down the road. I’m sure the orchestra’s administration knows this, and I suspect that their filing Chapter 11 bankruptcy is a clever way to begin the necessary strategic change process (by renegotiating their pension responsibilities, contracts, etc).

Chapter 11 is usually used as a conduit for reorganization (as opposed to Chapter 7, which is essentially a liquidation of assets and erasure of debts), but filing for bankruptcy comes with lots of baggage that will surely impact the Philadelphia Orchestra’s reputation and the health of its brand—something that the ensemble’s musicians are very much aware of and, of course, opposed to. But the whole picture is more complicated than that (isn’t it always?). As the first major orchestra to file bankruptcy in recent history (or maybe ever), Philly is entering uncharted waters. From the musicians’ point of view, the orchestra has plenty of cash to spare, including a $120 million endowment from which to drawn on ($140 million if you include the Academy of Music’s assets, which the orchestra still owns). From management’s perspective, however, dipping into the already-restricted endowment would only postpone an inevitable day of reckoning caused by the continued growth of the “structural deficit” mentioned above.

In other words, their current way of doing business is unsustainable, and in order to right the ship, the board has declared bankruptcy in the hopes that the orchestra can renegotiate its current contracts with musicians and various long-term partners and vendors (the Philadelphia Pops, the Kimmel Center, etc).

Some have said that such “preventative” bankruptcy measures are shortsighted, but I think it’s just the opposite. This isn’t about near-term cash flow problems, it’s about long-term stability. True, musicians will take a severe pay cut that is largely undeserved, and management’s intention to reorganize its current pension agreement will hit musicians even harder, likely leading to a loss of some serious talent. But the goal (arguably) is to put the orchestra as an institution in a better place financially so that it can excel artistically in the near and not-so-near future. Whether the bankruptcy will proceed as planned remains to be seen, but to shrug it off as a self-serving attempt to cheat musicians of what is rightfully theirs is both overly simplistic and needlessly antagonistic.

Will Philadelphia’s decision reverberate across the country? Is it a clever or sneaky way out? Is Philadelphia no longer the city of brother love? Tell us what you think!

NOTE: For a decidedly different take on the subject, check out this article, and for some great source readings see this and this.

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