01/17/2012 02:46 pm ET Updated Mar 18, 2012

New York City Opera: A Cautionary Tale

The current plight of the New York City Opera is an unfortunate case history in not-for-profit mismanagement. In the latest of a decade of missteps, the Opera's leadership decided to resolve a labor dispute by proposing a 90 percent pay cut for its employees and instituting a lockout. This gasoline on the fire could be the last gasp of a once-glorious organization.

Certainly, some of the Opera's woes were a result of the recession, but the majority of them were self-inflicted. Here are some of the managerial lessons I derived from this operatic saga:

Lesson #1: Act decisively in the face of growing operating deficits.

Deficits at the New York City Opera have been growing since 2003. Although not-for-profits are not businesses and can sometimes sustain operating deficits for short periods of time as long as they have healthy endowments or good lines of credit, it is hard to imagine what was going through the minds of the trustees as the deficits mounted. Some say that the trustees thought of the endowment as a cookie jar. Having worked with and for many not-for-profits, I can tell you that I have seen this mentality, and it frightens me. The urgency to fundraise and increase income in other ways is diminished, and it often does not end well.

Lesson #2: Do not make unreasonable promises to lure new leadership.

In 2006, the trustees hired Gerard Mortier with the promise of a $60 million budget to reimagine the company, when the budget the year before was only $31 million. What were they thinking? How could they promise this doubling of the budget in a year, when they were already deficit spending to the tune of $8 million? If Mr. Mortier was not going to be happy inheriting the situation as it was, perhaps the trustees should have considered another candidate.

Lesson #3: Hire leaders who can be on site all the time, particularly during a crisis.

Mr. Mortier spent four days a month in New York from May 2007 to November 2008 -- four days a month! He lived most of his time in Paris, where he was Director of the Opéra National de Paris. I am sure that Mr. Mortier is an excellent opera director. But to think that he could possibly give the New York City Opera the attention it needed in four days a month is another example of supreme denial on the part of the organization.

Lesson #4: Hold off on major capital outlays that will disrupt your programs when you have no good plan to replace the income from them.

Thanks to David Koch, the major philanthropist, the City Opera had the chance to do expensive renovations on its Lincoln Center home in 2008, making it impossible for the opera to perform there. Although publicly the trustees said there would be concert performances in other venues during the season, it is rumored that they always thought they could raid the endowment if necessary (See Lesson #1). There were no other performances, and, with the permission of the Attorney General, the trustees raided the endowment to the tune of $23.5 million. That money could have kept the opera going for almost a full season in the old space.

Business school students of average intelligence could come up with a least 10 more reasons for the opera's woes, but these are the highlights. I am incensed by the mismanagement of City Opera, a real New York gem, over the past decade. It is important to learn as much as we can from its travails to avoid the ruin of other cultural treasures.