to Nicholas Johnson's Coralville Rain Forest Web Site
New England Aquarium: How Does a Non-profit Come Back After Hitting the Wall?
The aquarium switched architects midway through the planning. The budget
for the second wing grew from $70 million to $125 million. And the aquarium didn’t kick off fund-raising until it was already committed to the project. As a result, when the aquarium abandoned the expansion in November 2001, it was left with millions in sunk costs for the uncompleted project.
The Philanthropic Initiative, Inc. includes a section called Karoff''s Corner, where Peter Karoff includes, among other things, "Invited Commentary." Following his graduate seminar on the Future of Philanthropy (UEP 294A) at Tufts University in May 2004 he included four student papers there, one of which is Mary Knoble's. As of August 2005 it was available in pdf format at http://www.tpi.org/karoffcorner/Invited%20Commentary/Mary_Knoble.pdf. The paper is copyright by Mary Knoble and is included here as "fair use" for non-commercial, educational purposes only.
Back in 1957, Boston businessman
David B. Stone brought together a group of business
associates to raise the funds necessary to build a public aquarium. The Aquarium
Corporation was chartered and fundraising began. The building was financed completely
through individuals, corporations and foundations throughout the New England region. In
1965, the Corporation acquired Central Wharf, then part of Boston’s Waterfront Urban
Renewal Plan, and began construction. Long before the facility was completed, staff
members fanned across three continents to examine aquarium procedures and collect
marine and freshwater specimens. The official opening of the New England Aquarium was
June 20, 1969.
For 35 years, the New England
Aquarium has been the cultural icon of Boston, providing
visitors with educational and recreational experiences. By engaging visitors with the
wonder of aquatic life NEAQ seeks to awaken the desire to be environmentally
responsible in visitors from all over the world.
New Realities facing NEAQ
A confluence of external
factors created The Perfect Storm…an event that had never
been recorded in history when a group of dangerous conditions came together to create a
lethal mix. The saga of the New England Aquarium is like The Perfect Storm. In this
case, not a rare and unique combination of cold and warm air currents and their
interaction with water but a combination of the post September 11, 2001 world of
uncertainty, The Big Dig, and the loss of accreditation due to unhealthy financials. The
New England Aquarium has found itself on the brink of financial disaster.
The major life-changing event
which dramatically altered New York City’s economy
affected cultural institutions across the country. The terrorist attacks of 9-11 kept paying
visitors from attending exhibitions due to fear of being the target of bombings or
assaults. The Aquarium, located in the heart of Boston on the waterfront was affected in
the aftermath by lagging visitor turnout and sagging gate receipts. The Big Dig forced the
closing of the Aquarium’s T-stop for two years and created no public transportation
access. For the 35 year-old Aquarium, losing the revenue from the Admissions gate was
a financial crisis but losing accreditation from the American Zoo and Aquarium
Association for its shaky financial situation was devastating. This confluence of factors
all but brought the world-famous institution to its knees.
What happened and how did NEAQ find itself hovering on the brink of financial disaster?
The non-profit got into fiscal
trouble in the mid nineties under previous
management by spending $73 million for capital projects for which the funding had not
been raised. Under former President, Jerry Schubel, “the first step was the construction
of a new wing, opened in 1998, at a cost of $21 million. At the same time, Schubel
embarked on a plan to build another wing that would greatly expand exhibit space. But
the project was plagued with problems from the start.
Schubel and other aquarium
officials had difficulty deciding what the new wing should
look like. The aquarium switched architects midway through the planning. The budget
for the second wing grew from $70 million to $125 million. And the aquarium didn’t kick
off fund-raising until it was already committed to the project. As a result, when the
aquarium abandoned the expansion in November 2001, it was left with millions in sunk
costs for the uncompleted project. It also had to return million in donations and pledges
earmarked for the East Wing. That put the aquarium in technical default on its loans, as
it didn’t meet various capital ratios.” (Krasner, The Boston Globe )
Capital costs were incurred
with the construction of a new wing, the West Wing to the
tune of $30 million, the building of the IMAX Theatre - $25 million, the purchase of a
High-speed catamaran - $4 million, and $12 million was spent on the engineering,
design and planning costs on what was to have been an East Wing addition. It was
cancelled after $12 million in costs accumulated. Normally a non-profit would have
raised that amount ahead of time; NEAQ only raised $25 million out of the $75 million,
borrowed $30 million, depleting their endowment, and raising issues of governance and
decision-making ability. An additional $4 million was paid off the backs of vendors
adding to the over-leveraged position.
Following the departure of
Schubel, a new Senior Management Team was brought in as
part of the restructuring process to try to restore financial health to NEAQ. A new leader
who had previously served as Chief Operating Officer, Ed Toomey, was chosen to steer
the ship through rough waters. Ed Toomey has a background that he says lends a real
continuity to what he is doing in his leadership position at NEAQ. He spent 20 years in
private Jesuit institutions and another 20 years in public education. A former Associate
Chancellor of UMass, Toomey was at Boston College and St. Louis University (both
Jesuit institutions) at a time when they were experiencing governance changes.
A respected quiet man of
conscience, Toomey got deeply involved in racial issues in
Boston and became a person well-connected to the movers and shakers throughout the
greater Boston area. Toomey is a person who understands the Boston community, and he
is a place-holder to get the organization connected again during this time of re-building.
Toomey has a reputation for knitting people together while quietly keeping himself in the
background. A constituency builder, he is there to structure the external supports and the
internal operations and to put the Aquarium back to its financial health. He may well be
the right person for the organization at the right time.
President Toomey is actively
involved in speaking engagements. He gives a national talk
entitled “Red Carpet to Red Ink” to non-profits explaining that the crisis that happened at
the Aquarium did so in a short time frame. He reminds organizations that it could happen
to them at any time without warning. The Red Carpet is his metaphor for the award
presented to him in 2002 (it had been scheduled to be given on 9-11-01) by the White
House representing the Aquarium as the finest educational institution of its kind for the
quality of outreach projects to the community. The Red Ink was a headline that ran in the
Boston Business Journal entitled “Awash in Red Ink” and was a story that broke about
the New England Aquarium’s fiscal crisis at the same time Toomey was giving a speech
in New York City.
As he tells it there are
“ Four Faces of Re-structuring”. Toomey is quick to add that
when he was COO in 2001, he went to the Board of Trustees with a $600,000 budget cut
proposal stating that if we don’t take steps, we w ill be in the red. That is the first face
(not phase) and eleven people were actually let go, 10 empty positions were never filled,
therefore 21 fewer positions existed. At that point the President and the VP of Finance
did focused and targeted thinking without the involvement of staff, making sure they
were not affecting the core mission programs.
The second “face” happened
on 9/11/01. Immediately the Aquarium lost 100% of the
event business and 60% of the gate revenue. That December, the IMAX Theatre opened
and with it a lot of cash to bolster the bottom line for that fiscal year, along with some
accelerated pledges. But, in order to get there, Toomey says in strong Jesuit fashion, “we
robbed Peter too pay Paul.” The third “face” became a strategic diagnosis of what was
going on. Forced into it by the New Realities of 9/11 and the loss of gate, their level of
debt, the amount of deferred maintenance, lack of effective involvement by the board,
and burgeoning Accounts Payable they determined to cancel the East Wing addition to
the building. They were many millions of dollars into the planning of the addition when
it was halted.
With the diagnosis that this
was their illness, the next question was what shall we do
about it? At this point they involved everyone at all levels from the Head, the board,
senior management, staff – everyone. When a leader takes people through difficult
change, they often challenge what people hold dear – habits, loyalties, ways of thinking.
And in return, people often push back. When asked about this, Toomey clearly stated
that he met no heat or resistance. Everyone was generally concerned about cutting back
and they dug right in.
The fourth “face” of restructuring
includes the prescriptive and tactical part of dealing
with the fundamental mission and infrastructure issues. According to Toomey, this phase
is a more difficult experience that just laying people off. With Lay-offs, you know there
is a certain dollar figure that you need to get to. The aspect of dealing with the
infrastructure is very draining on Ed Toomey. Like the Loneliness of the Long-distance
Runner, there is the loneliness component of executive leadership, even with the most
supportive and trusting governance group like he has at NEAQ. Toomey said that when
you’re managing risk all the time, you need two things daily – perspective and humor.
He needs to find something to laugh at each day. In addition, he said you need
transparency and truth in order to recapture trust.
Changes to Board Governance and Management
Susan Solomont has been on
the Board of Directors since 1995. Three years ago, she
was made President at a time when there were 125 members and little accountability. In
2001, according to Ed Toomey, led by the trustees themselves and two individuals in
partnership with management, they realized things had to done and they did it. Originally
the board consisted of people who had a strong interest and, for that reason, could stay on
indefinitely. Solomont now runs a 25 member fiduciary board, all members have
different strengths and are committed. They are informed, operating in a number of
different ways, and she also manages a group of Overseers of about 65 or so individuals.
The Overseers have a great affinity for NEAQ but don’t wish to make as deep a
commitment as a member of the board must. For the past year and a half, there is a
governance structure in place which Solomont refers to as “a work in progress.” She
feels that the Management Team under the leadership of Ed Toomey is “what we needed
now.” Toomey brings real leadership, management expertise and he is a real team
builder. The Aquarium had operated in silos in the past – alone.
In addition to adding a new
president and a Chief Financial Officer, Walter Flaherty, a
restructuring of the top level management swept the organization. Flaherty is a strong
person of character and he is smart, stated Toomey. He brings to the table a corporate
background from working in the energy sector. External consultants from the firm TRG,
a recovery group that helps corporations go through turnaround and restructuring, was
brought in to review the system. They began by completely restructuring the aquarium’s
financing which was in technical default. New terms needed to be negotiated on bank
borrowing since there were significant interest payments due on the debt which included
restructuring credit agreements on a pool of tax-free bonds. In particular, the Senior
Management Team needed to restore confidence with all their constituencies – lenders,
vendors, donors, employees and those with interest in the New England Aquarium.
According to Flaherty “work-out” is a term used by companies when they are faced with
liquidity issues. Consultants are hired to come in, assess the situation and find ways to
cut costs in order for the business to become more efficient. NEAQ went to work on refinancing,
making a reassessment of all leases, consolidating office locations, outsourcing
services such as Design, Project Management (primarily construction projects
and up-grades), and Food & Beverage (which already had been out-sourced), and selling
off assets. Among the assets was the $4 million Catamaran. For Whale Watching, they
sold boats to an independent operator who will continue to run the program –
independently. Another asset peeled off was a small paved parcel of land adjacent to the
Rose Kennedy Greenway which went for $1.2 million with the promise that it will be
make into open space parkland. The next step was to cut back every department making
restructuring initiatives widespread throughout the institution.
A budget review of each department
was requisitioned by this team and every aspect of
operations was evaluated. They asked tough questions: Do you really need this
function? Do you really need this item or piece of equipment? If not, let’s sell it?
Benefits were modified, certain benefits for new hires were eliminated, salaries for any
Director-level or above position were reduced by 3 or 5%, and contracts with auditors
and financial advisors were renegotiated which will reduce operating expenses by about
$4 million. This leaves a controllable operating budget of $14 – 15 million.
The extraordinary budgeting process was very detailed, members of the Senior
Management Team met with other representatives across the institution in this process.
They involved employees who were less high up on the management chain but who were
considered to be knowledgeable about NEAQ and known to be good thinkers. This buyin
came from areas such as Education, Animal Care, and other parts of the organization,
addressing issues like hours of operation and what could be done about costly exhibits
like the popular sea lions.
According to The Boston Globe,
job cuts, which included Vice Presidents, were part of a
series of program cuts intended to reverse the financial tide. They eliminated two VP
positions – the Vice President of Planning (there is no longer a Planning Department) and
the Vice President of Communications was re-configured to a Director of
Communications (a different level position) and kept or added Vice President of
Research, Finance, Conservation, Programs and Exhibits, and Marketing. A VP of
Development is currently being sought. CFO, Walter Flaherty, who was brought in from
the business sector took on and played a very effective role as facilitator in this process.
It was decided early on that there were no sacred cows; everyone agreed that
management issues needed to be tackled and that that cuts were necessary across the
institution in order to keep the aquarium from drowning in red ink.
Vested Values & New Values
A relentless process of exploring
every option was made before the case was laid out.
Dealing with financial realities, they looked at ways to stabilize the operation on both the
Revenue and the Expense side. How to reduce operating costs is not easy in an
organization where there are considerable fixed costs, as there are in the Education and
Program area operating under Bill Spitzer. Bill started as Director of Education at NEAQ
in 1996, moving up as VP of Programs & Exhibits two years ago. He explained, for
instance, that animal food costs is not a big part of the budget – only about $125,000/year
out of the $1.5 million Education budget. One exception, however, are the two sea otters
whose diet consists of restaurant quality fish, making them very expensive internal
consumers. NEAQ arranged for them to go to the Port Defiant Zoo in Washington State,
determining that in terms of getting the bang for the buck, they were not getting it from
the sea otters.
Labor is a big component
in an organization with 220 full-time employees and an
additional 20- 30 summer hires. However, you can’t just cut staff because you can’t layoff
animals. Live animals require care and feeding and the staff to manage that full-time
activity. A lot of time was spent reviewing all the programs and staffing issues to
determine where cuts could be made. The Education Program includes an activity center
for parents and children that is used by approximately 50,000 people per year. The core
exhibits include: the giant Ocean Tank, Penguins, Sea Lions, the changing West Wing
Gallery, and the hands-on touch tank, the Tide Pool. Scaling back on Education and
Outreach included closing the Library, a specialty library that was used by staff,
volunteers and graduate students – since the restructuring, the aquarium is now working
with a university to provide on-line search capabilities because the major asset of the
library was not the books, rather the access to current information through abstracts, fulltext
searches and research.
The exposure for visitors
has not changed dramatically although one exception may be
the popular Sea Lions exhibit. The Discovery, a floating barge which houses the exhibit
is a maintenance disaster waiting to happen. Discovery is rusting, has pumps which will
require significant maintenance, and the relocation of the Sea Lions may be a fundraising
impossibility due to the decision time-line the organization is currently operating
A number of programs within
the Education Department are subsidized and fee-based
including the Interpretation Program for Visitors, the Resource Center for Teachers and
the Outreach Program for Public Schools which includes Summer Camp. All fee-based
programs cover their costs so there is no sense in cutting them back. Staff consolidations
had to be considered.
Staff cuts have been very
tough on the organization. From November, 2003 to Spring,
2004, the Aquarium has had to lay off over 20 percent of its staff – there are 60 fewer
positions. On the day-to-day level, one wonders how this has impacted the operation.
With any lay-offs it’s tough for people to see their friends leave, it’s tough for people to
grasp where the institution is going. The salaries and benefits have been frozen so there
are no raises while the organization is asking employees to work harder. Possibly for the
reasons of uncertainty and fear, some people just decided to leave and seek employment
elsewhere. The NEAQ employs many with a strong attachment to the institution; the
reason they are there is that they intrinsically love what they do. The demoralization of
losing friends and co-workers is most likely an undercurrent that has run throughout the
dark days when senior management wondered if they would be able to keep the doors
open and may be an underlying distress signal for the institution to be wary of.
Potential and Current Revenues
The great new Jellies Exhibit
has brought a sense of temporary stability to the shaky
scene, increasing both attendance and gate revenues. Jellies was a proven winner in 1995
and NEAQ has continued to mine the success, placing it on the traveling exhibition
circuit. Three years ago, when they began to plan this particular exhibit, they could not
have forecast the strategic position that it is now unfolding. Since Jellyfish are indicators
of health in the oceans, they integrate both conservation and out reach issues and tell a
story about the oceans that is very environmentally appropriate. As Bill Spitzer said
“We couldn’t anticipate the timing and this happening.” Publication of a book on Jellies
by Bunker Hill Publishing has been updated in a $5 -7 small format which can be used in
Development and Stewardship efforts, and is selling handily in the store.
Current corporate sponsorship
has come from Sovereign Bank. The New England
Aquarium boasts the largest and most comprehensive youth program among the cultural
institutions in greater Boston. The youth program ladder provides opportunities ranging
from pre-school classes, hands-on science learning for elementary/middle school
students, internships for teens, and work-study internships for college students. Programs
include summer camps, school vacation week programs, environmental leadership
programs and Outward Bound expeditions. School Outreach Projects pay in the range of
$100,000 per year, many funded directly by the schools and the PTAs. Travelling
exhibits can typically bring in revenues of $10,000 per month – they are rented on a six
month basis – with most of the exhibit funding comes from NSF (government grants).
This constant source of revenue allows NEAQ to adhere to its core mission without
Board President, Susan Solomont
refers to the Aquarium’s “three-legged stool” or the
financial picture which consists of: a stronger development effort ( the old Development
Department worked on a membership model not Major Gifts), ability to manage debt and
controlling expenses. The goals and objectives are to make sure that the mission of the
organization is intact while working under a sound operation plan. NEAQ is currently
seeking a VP & Chief Development Officer to ramp up the fund-raising. Their plan to
increase development includes bringing on new leadership, hiring new staff and to not
work as isolated silos in fund-raising.
Exhibit Design issues were
ones that NEAQ had handled internally before the
restructuring. The new strategy is to outsource the functions with design and planning
staff reductions turning fixed costs into variable costs. One full-time position was recreated
on that basis and in the end, they may have more flexibility on an out-source
basis using free-lancers. An integrative thinker, Spitzer explained that projects have
different phases, in the beginning, for instance, there is a need for good design. At the
nuts and bolts stage, there is no more need for design – rather, drafting. There is a need
to transition from one phase to the other. So bringing in a free-lance, creative designer is
key for the first 9 months - the rest is a balancing of the workload.
Looking to the Future: What
are the Adaptive Challenges Facing the Organization so that
it doesn’t decline?
Spitzer is always looking
at where the exhibits should go, how much light is needed and
how interactive should it be. The Education program is organic, changing due to the
primary visitorship, young children, whose senses play a different kind of role than they
do for adults. The Aquarium moved from “the picture frame” mimicking natural habitat
to reproducing what you see underwater. More exhibits involve sight, touch and are
interactive. The media of film also plays a big role in the learning process for today’s
youngsters. Since 1969, education has served as the cornerstone of the New England
Aquarium’s mission to present, promote and protect the world of water. The Aquarium
recognizes that learning occurs in many different settings: in exhibits and on-site interpretive
programs; during after-school and summer camp programs; through internships; during
community outreach programs; and through films and the Internet. Aquarium education
programs strive to create powerful learning experiences that nurture an interest in science
and inspire a lifelong commitment to environmental stewardship.
Research at the New England
Aquarium focuses on the interactions among marine species,
their habitats and human activities. Scientists in the Aquarium’s Edgerton Research
Laboratory (ERL) conduct basic and applied studies on habitats worldwide, from Boston
Harbor to Africa. Researchers include staff in ERL, as well as aquarists, veterinarians,
biologists and the New England Aquarium Marine Animal Rescue Team. The Global
Marine Programs Division works to identify, understand and resolve aquatic conservation
issues by linking community efforts, policy development and public education.
Aquarium personnel publish widely, reaching the scientific community, government
agencies, wildlife managers and the general public through peer-reviewed publications,
presentations, reports, newspapers, magazines and other media. Increasingly, the
Aquarium is integrating research findings into the exhibits, conservation policies and
other educational efforts of the Aquarium. Key to research and conservation efforts are
aquatic forums, where people on all sides of an issue can come to hash out solutions to
some of the most pressing aquatic conservation problems.
The Unrestricted Pool covers
the research functions and it is supported principally by
government and private foundation funding. In fact, 2003 was a record year for grants to
the institution. The public benefits from these grants because they promote the principal
mission of the aquarium. The unrestricted funds have not been affected by the financial
crisis. When queried about developing national partnership opportunities, President
Toomey agreed that it is an active topic- the effective partnership is on the table. By
effective partnership he means something that is “going to make a difference, make the
Aquarium better able to present our mission and make us more financially sound.”
Other changes have come about in new sales/marketing strategies: The firm that does
NEAQ visitor satisfaction surveys was changed. The new firm looks at a number of
institutions nationally, utilizing more analysis of the data with the belief that “if you’re
not going to act on the data, we won’t ask it” theory. Spitzer looks at institutions through
out the country such as the Monterey Bay Aquarium in Monterey Bay, CA, the National
Aquarium in Baltimore, Shedd Aquarium in Chicago, the Audubon Aquarium of the
Americas in New Orleans.
Volunteers. The volunteer
staff has been stabilized: some left including the head of the
Volunteers Program, and have been replaced. The volunteer component is huge: take
100,000 volunteer hours and divide by 2,000 to get the FTE of 50 people. Ongoing
discussions have formed around the question: should volunteers be combined with
Human Resources? They concluded that the system is working so leave it alone.
A Real Life Leadership Success Story
By all accounts, Ed Toomey’s
transition to the leadership position of the New England
Aquarium appears to be successful. Did he become the target during this process?
Apparently not, by facing the situation together ( Senior Management, Board of Trustees,
Staff and Supporters) and by having everyone accept some share of the responsibility, it
protected Toomey from being vulnerable to attack.
Did using the local Boston
press present a strategic advantage? Toomey is quick to say
that “yes, we involved the Press and the Press involved us.” His motto is Don’t think the
media is your enemy, use them strategically not in a stimulus-response way. And you
should never be afraid or embarrassed. The Boston papers’ accounts of the financial
trials of NEAQ have been both positive and negative and have raised the visibility of the
organization at a much-needed time.
How did Toomey get people
to make sacrifices for the sake of the organization? Ronald
Heifetz and Marty Linsky, who wrote a practical guide on the art of leadership,
Leadership on the Line, state “it becomes critically important to communicate in every
way possible, the reason to sacrifice – why people need to sustain losses and reconstruct
their loyalties. People need to know that the stakes are worth it.” Toomey must have
convinced employees by his own actions that he needed each and every one of them to
realize that the changes needed to be made were difficult and that he sympathized with
them. Perhaps his positive vision made the difficult situation worthwhile to the masses.
Like Martin Luther King in the “I Have a Dream” speech, where he envisioned a dream
for black and white children to be able to walk together, Toomey has tried to elucidate to
the New England Aquarium what the future might look like. By his own admission, it is
a lonely place sitting at the top of executive management. If I were a consultant coming
into the process, I would remind Ed Toomey that he is managing risk all the time and that
the old days of people staying at the helm of the institution for years are gone. The shelf
life of people in top positions is shorter and shorter. I would make sure that he takes time
for himself because NEAQ would like to have him around for a while longer to keep up
the positive work.
My sources of information
for this research paper come from interviews with Ed Toomey,
Walter Flaherty, Billy Spitzer, and Susan Solomont. Supplemental information provided
by Lucy Seche of the Public Relations Department at NEAQ, Conversations with Peter
Karoff of The Philanthropic Initiative, news article from The Boston Globe and other
sources as cited.