Museums USA

Legal issues for museums—the hot topics

Don’t accept every gift, don’t keep security footage forever and remember that portraits have a family history

Museums should remember that fundraising comes with strings attached

As museums and heritage organisations increase online access to collections, they may have to deal with privacy issues such as a family’s request to remove an embarrassing Great Depression-era image of an impoverished ancestor. Guidelines on how to handle this situation and others were the focus of the annual US conference on Legal Issues in Museum Administration.

Held in March in Miami and organised by the American Law Institute-American Bar Association, the Smithsonian Institution and the American Association of Museums, the conference attracted 175 delegates including museum professionals and lawyers. They debated a wide range of issues, including protecting the rights of museum visitors and staff, setting executive pay, tax-deductible gifts that come with strings attached, and the increasing risk of fraud faced by not-for-profit organisations in the US.

Right to privacy

So, what if someone objects to seeing a photo of their grandparents’ poverty-stricken face? Generally, the right of “publicity” to limit the use of one’s image ends at death, Hope O’Keeffe, a lawyer at the Library of Congress, told the conference. Or what if the FBI wants the museum’s invitation list and security camera footage for the opening of a new exhibition on Islamic art? The request may be subject to the US Patriot Act, they were told, and so museum staff should be trained in how to comply.

What if the museum installs security cameras in the exhibition space? Keep the information “only as long as you need it”, advised Christopher Runkel, a lawyer at the National Archives and Records Administration; a week might be enough to document theft or vandalism.

Federal and state laws create privacy rights for a museum’s visitors and staff. As new technologies develop, museums should put in place “best practices” to protect personal information. “Don’t collect more information than you reasonably need,” said O’Keeffe and Runkel. To protect itself, a museum should also adopt a social media policy, making clear that staff should have reduced expectations of privacy regarding their workplace, email or internet use.

What to do when an employee lets slip on Facebook that she keeps a bottle of vodka in her desk to cope with stress? “There may be reasonable expectations of privacy,” O’Keeffe said, but if the information is now public, the employee might be encouraged to seek counselling. If an employee launches a website such as “museumhunk.com” with content that could reflect poorly on the museum, they could be asked to take it down.

Executive pay

Marsha Shaines and Craig Blackwell, both lawyers at the Smithsonian Institution, Washington, DC, explained the opportunities and pitfalls lurking in the newly revamped “information return” required to be filed annually to the Internal Revenue Service (IRS) by non-profit organisations. “Form 990 is not just about tax any more,” said Shaines; the form asks if the charity has policies in place to handle executive pay and museum governance, conflicts of interest, gifts and whistleblowers. The IRS sees such policies, which are intended to guard against wrongdoing, as generating improved tax compliance. A negative answer “will not by itself trigger a full-blown audit, but might trigger a friendly phone call from your local IRS agent about compliance”, said Shaines. But the annual review may be “medicine that’s good for us”, she added. For example, in setting executive pay, museums should remember to look to comparable salaries in the non-profit sector, because the IRS will not favour pay scales based exclusively on the business world.

Beware gift horses

Should museums accept every gift of art? No, said Nancy Adelson, a lawyer at the Museum of Modern Art in New York. The museum should ask what the donor actually owns, and what it will cost to be able to use it. What about complex works such as new media art or a Sol LeWitt wall drawing? If you have to pay for the rights to migrate the work to other media or display it, or to transport the artist and 16 assistants to install it, it may not be worth it.

The enforceability of charitable pledges varies depending on state law, but often hinges on whether the museum has relied on the promise to its detriment. In one case, Adelson said, some heirs of a deceased donor argued that a promised gift was unenforceable. “We could demonstrate our reliance on the promise,” Adelson said, because the museum had spent money on photography and conservation, and the museum’s written policy prohibited fractional gifts of art unless the rest was also promised. With this evidence, the heirs were persuaded.

If a donor dies before paying an enforceable pledge, the estate’s payment will enjoy an estate tax deduction. If the pledge is not binding, and the estate still pays it without an express bequest in the will, there’s no deduction, said Stephen Knerly, an attorney in Cleveland.

If a donor makes a pledge to a capital campaign, and wants to delay it, what should the museum do? Knerly said that the donor cannot change the timing of a gift without the museum’s consent. But if the museum agreed, it should clearly document its reasons. In a case where this was done, the museum got the donor to increase the payment, so it had not improperly conferred any benefit on the donor.

Fraud squad

In this economic downturn, museum lawyers emphasised the necessity of vigilance and diligent oversight. Michael Peregrine, a lawyer in Chicago, said that government officials will hold non-profit board members more accountable than ever for “preventable harm”, because “we’ve never seen fraud against non-profits like we’ve seen in the past five years”. As a result, “it rests on the audit committee to enforce strong internal controls”. The current governance initiative by the IRS focuses on audit committees, Peregrine noted. But the audit committee can’t handle everything; for example, business risks, he said, should be anticipated by all committees, whatever their mission.

Michael Cooney, a lawyer in Rochester, New York, advised that the museum’s investment committee should have the right people and skills; someone who became very successful launching a software company at age 25 “may not be the best person” to sit on a committee responsible for long-term risk and growth. The investment policy should be reviewed annually, Cooney said, to take into account changing needs such as a capital campaign or a new building. And the investment committee should “know its holdings”, which did not happen with investors who lost out in recent fraud schemes: “It’s not enough to be told that ‘things are going on in Antigua’.” Be sure to diversify, he added, and beware risky gifts, such as shares of stock that the owner said to hold on to because “stuff is going to happen”. (Is that an illegal tip-off?) The committee should also make sure that the information it relies on is current: have there been multiple changes of staff at the company that manages your investments, and were details lost in the shuffle? “Don’t take your investment policy from the web,” Cooney advised; it should be particular to your museum.

For more information, Legal Issues in Museum Administration is available from www.ali-aba.org

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