Ice Bowl

Long orchestra strikes come to resemble a labor relations version of the infamous Ice Bowl; a painful and slow grinding out of points in horrible conditions that caused almost as much pain to the spectators as to the players on the field. Detroit shows some signs of becoming almost as infamous in the history of our industry as is the Ice Bowl in the history of the NFL.

There were a few yards gained or lost last week. Last Monday the musicians withdrew the unfair labor practice charge they had filed with the National Labor Relations Board against the management, upon receiving notice that the regional office of the NLRB was going to dismiss the charge. None of this was a surprise; it takes a lot to get the NLRB to pursue a ULP charge in a strike situation, in part because the law is so bad and in part because the consequences of declaring a strike to be the result of an unfair labor practice dramatically change the dynamics of a strike in the union’s favor. The whole Proposal B business should have been an unfair labor practice; it’s hard to imagine that declaring an impasse over a proposal that had been on the table for all of 24 hours was really done in good faith. But it seemed likely to me that DSO management had competent labor lawyers who had vetted the strategy for legality.

While disappointing to the musicians, I doubt that the charges being kicked by the NLRB came as a surprise to the musicians or that they were placing a lot of stock in the NLRB actually being much help to them. The NLRB has seldom made much difference in a labor dispute in recent years in any industry.

The day before the charge was withdrawn, Crain’s Detroit Business reported on the status of negotiations between the DSO and its lenders over $54 million in debt, used to build the Max M. Fisher Music Center, held by the five banks:

The DSO has been talking with the banks since fall 2008, said Elizabeth Twork, DSO director of public relations.

It was around that time that the orchestra fell out of compliance with two covenants on the loans: First, that the DSO’s unrestricted endowment exceed the principal of the loan; and second, that the DSO run annual operating budgets that break even or nearly so.

To offset operational deficits the past two years and another projected for fiscal 2010, which ended Aug. 31, the DSO has been pulling money from its endowment for operations and debt service.

The endowment’s value was $56.8 million at the end of fiscal 2008 but now is down to about $22 million, Hogle said.

“Given that we’ve been operating outside of our covenants for a while … we are hoping that the banks will not call in the loan,” Twork said.

Why did the DSO take out $54 million to build the Max when it was putting lots of money into its endowment at the same time? Arbitrage: in English, the belief that they would make more money in endowment earnings than they would pay in interest on the debt:

“The plan was the $54 million we owed to the bond holders would come due in a balloon payment in 30 years; up until then, we’d pay interest only,” [DSO Executive Vice President Paul] Hogle said.

Obviously that’s not a decision that looks great in retrospect. But, as a wise historian once wrote, it’s very hard to make predictions – especially about the future. And calling in the loans can hardly be an attractive proposition for the banks. For one thing, what are they going to do with the Max? And it’s not as if banks need to be seen as closing down symphonies; they’ve got enough PR troubles already.

But the big play from scrimmage came on Wednesday, when nine hours of bargaining didn’t produce more than a yard or two:

The musicians rejected a new offer that would have added $1 million toward the musicians’ three-year comprehensive economic package, the DSO said in a statement. The additional money would have brought the total offer to $34 million.

The musicians countered with their own offer of $38.9 million. The musicians also demanded a return to nine weeks of paid vacation and no health-care co-pays or deductibles.

…

“We are very disappointed,” Anne Parsons, the DSO’s chief executive said in a statement.

Hayden McKay, a spokesman for the musicians, also cited disappointment in not reaching an agreement.

“We thought we were making progress” Mr. McKay said in a statement.

The musicians’ take on this on their website was somewhat harsher:

The November 24 negotiating session aimed at ending the nearly eight-week-old strike at the Detroit Symphony Orchestra instead raised serious questions about how the dispute will ever be resolved. When management came to the table with some small salary improvements in its three-year offer, a door seemed to be opening. The musicians countered with a revised proposal offering further cuts in salary and health insurance. A typical back-and-forth process leading to real progress seemed to be underway. Before even returning to the room to reject the musicians’ counterproposal, however, management had contacted the media to spread a mischaracterization of the musicians’ offer and to close the door on further talks. Management described itself as “insulted” that the musicians offer did not include deeper cuts and the management attorney ended the day by spitting out a sarcastic “Happy Thanksgiving”.

This serves as a good illustration of how bargaining in the orchestra environment has some deep asymmetries. Boards and orchestra bargaining units typically have very different ways of defining their bottom lines, in my experience. Boards often seem to set concrete limits on what the management negotiating teams can do, while the musician negotiating committees generally don’t formally – or even informally – define a firm bottom line in advance.

In many situations, that can be an advantage for the management team. But when the bottom line is miscalculated, as I believe the DSO’s bottom line was, and the musicians prove more resistant than expected, it can be very hard for the board to reset the bottom line to a more realistic figure. (Certainly management being “insulted” would suggest some discomfort on their part in going back to the board with nothing to show after 8 weeks of sticking to their guns.) As critics of traditional bargaining point out, the problem with such bargaining is that positions become more important than interests.

Why was the DSO’s “last, best and final offer” a miscalculation? A good final offer, in zero-sum bargaining, just clears the bar of being unacceptable to the other side. A bad final offer convinces the other side that rejecting the offer is worth a high cost. And a total miscalculation, as this one may prove to be, silences any dissent on the other side about the value of resistance.

An orchestra as unified as Detroit appears to be, this far into a strike, means that management either has to substantively recalibrate its position or drive even faster towards the brink. I doubt that’s what they thought would be happening only 20 or so shopping days before Christmas.