Arts groups need to set up their governing boards for long-term development. Artists who are not accustomed to working with a management structure might fear that their artistic freedom might be compromised. However it is time our arts groups learned more about sustainable teamwork and the sharing of responsibilities. The governing bodies of the arts organisations assure disciplined corporate practice and responsible management. In the long run, efficient and devoted arts boards can have a very positive impact on the sustainable development of the art scene in Hong Kong.

Names and Nature

Depending on their incorporation, the governing bodies are called Board of Directors, Committee of Management, Council of Trustees or simply an Executive Committee. An incorporated arts organisation carries a Constitution or the Rules (for incorporation association) of a Memorandum and Articles of Association (for incorporated companies). These stipulate the legal responsibility of the governing board and its objectives. The board has the power to raise money, seek loans and invest, as well as to employ staff and expend resources.

An arts board must have a mission or a set of objectives for the organisation such as innovation, excellence, promotion, education, development of a new art form or heritage preservation. The objectives must be prioritised or even codified in order to nurture the lifeline of the organisation.

A Nonprofit-making Accountability

Arts organs are usually registered as nonprofit distributing organisations; owners or shareholders of which do not expect to derive profits or dividends from their investment (in money or labour terms). They are usually not expected to contribute to the organ, but they have to carry some liability risks such as residual debts or lawsuits (this can be avoided by a constitution or reduced by insurance). Nonprofit arts organs are publicly funded and/or privately sponsored. They owe a moral obligation to its sponsors and will be publicly accountable if they accept taxpayers' money.

The Board achieves public accountability through:

Certifying to the funding body that public funds were properly expended for the purpose for which they were given.

• Reporting to its members and corporate regulatory bodies that its financial affairs have been properly conducted.
• Demonstrating how its activities meet the organisation's mission and contributes to public and community interests.
• Meeting any special conditions attached to the provisions of public funds.
• Justifying its continued public funding.

Who Makes Good Board Members?

Some businesspeople demonstrate their business accomplishment by spending more time in acts of philanthropy than money-making. The coveted status symbol among the rich in the United States is being a trustee of a cultural or education institution. In most societies, to serve on the board of a nonprofit is an honourable thing. The return is pleasure and prestige. Whether or not they are rich, good board members must have the following qualities:

• Integrity - Allow no shady or slick dealings and actively avoid conflict of interests.
• Open mind - Able to contribute to and follow group decisions. Able to tolerate and respect the artistic director's judgment and give sensible comments in arts matters.
• Competence - The board welcome business leaders of large corporations, fund-raisers, lawyers, chartered accountants, peers of the arts, leaders of voluntary associations etc. Each bring their special expertise to serve the organisation.
• Sense of humour with good taste - This inspires people in good times and consoles people in not so good times.
• Most important of all, enthusiasm for art - Generous to serve and devoted to the cause. Avoid "board hoppers", who sit on many boards but serve none.

It is advisable to start with a small, efficient and devoted arts board.

The Art of Being "Businesslike"

Nonprofit organs are exempted from taxes: their gains are not subject to income tax and they can receive tax-deductible donations. Tax exemption is a privilege to be respected rather than a right to be abused. Any money gained is called "surplus" rather than profits. Surplus funds are treated as reserves to support future activities (or to be returned to the donor, if so unfortunately conditioned). These distinguish nonprofit arts organs from business firms, though they both must operate in a businesslike manner.

Though businesses can have a (sometimes genuine) philanthropic side, philanthropy is not their core business. Though nonprofit organs have a corporate structure, may sell products and run promotion campaigns, they are not doing business. A business company may aim at charging the highest price with the lowest cost. But the pricing of a nonprofit arts organ carries a socio-cultural aspect: sometimes the pricing allows non-paying beneficiaries to come. Business directors may allow some conflict of interest if the "connections" reduce transaction cost and benefits the shareholders equally. But nonprofit boards may have to codify bylaws and prevent all conflict of interest.

Decision-making in a business may be made inside the chamber, but an arts board's decision-making may stretch to consider community opinion. A word of caution for trustees is never superfluous: don't try to uncritically apply business practices and the governance structure of for-profit companies to non-profit organisations.

In management terms, nonprofit arts organs suffer from a number of constraints. First of all, a nonprofit arts organ does not have venture capital input. Instead it relies on public or private sponsorship and competition for a limited pool of sponsors is usually fierce. The arts business is labour intensive and may not benefit too much from technological innovation, which may rub off the human side of presentation. Its output capacity is constrained; too little repetition will lose income and disappoint the waiting fans, while too many repetitions of the same presentation may wear off the innovative edge. Sometimes production has to be carried out in a way that it reduces money returns (e.g. carefully preserving materials for archive purposes).

Though the arts may cater for the market, the production is product driven rather than consumer driven. Artistic standards and cultural concerns sometimes outweigh market gains. In services addressed to the whole community, such as a public statue or open concert, no finite consumers can be identified.

How to Achieve "Efficient Losses"

A nonprofit art board should not manage with the usual business principle of "profit versus loss." Rather it should monitor "costs versus benefits." Donations and funds are due to be expended but the financial loss will be made good with artistic and cultural gains. Consultants call this "efficient losses," to be achieved with:

• Realistic budgets - Foreseeable losses must be contained within specific manageable limits. Trim recurring expenditure. Control cost by clever purchase and inventory keeping, co-ordinated rehearsals etc.
• Performance monitoring - Evaluate performance of the staff and presentation by mutually agreed yardsticks and indicators.
• Income maximising - Define your market. Use marketing and promotion skills to boost the box office, sponsorship and private donations. Good market response means good audience recognition and good art. Shakespeare lived on this too.
• Compliance with funding conditions - Non-compliance prejudices an organisation's chances of securing further funding support, while full compliance does not itself ensure continuous funding. And artistic achievement is always the lifeline.
• Maintenance of artistic standards - This is the raison d'?re. No arts organisation can be regarded as effective unless it achieves this primary purpose. The board does this by recruiting the best people, and above all a good artistic director. It should make artistic decisions only in situations which jeopardise either the organisational or financial stability of the organisation, or its public support. The extent of intervention is an art to be cultivated by the board members over time. And by no means should the board, instead of the artists, come to the stage and perform to amuse only themselves.

Some artists do not like trustees and wish to do without them. But who is to replace them? A crazy patron? Cold-hearted Government officials? No one can replace the Board. It's better to have a caring trustee sitting at your arm's length (uneasy as it may be) than have paper-churning bureaucrats in their ivory tower.