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December 4, 2002

Chairman Gives the Guggenheim an Ultimatum, Then $12 Million


Peter B. Lewis, the philanthropist who recently stunned Cleveland, his hometown, by announcing a boycott of charitable contributions there, this week gave the beleaguered Solomon R. Guggenheim Museum a $12 million gift, but only after forcing the institution's ambitious director to accept a pared-down budget.

Mr. Lewis, who is chairman of the museum's board of trustees and its largest benefactor, said he had presented Thomas Krens, the museum's flamboyant and controversial director, with a "tough love" choice: he could either bring the museum's tangled financial affairs in order, or start looking for another job.

"In the last four or five months, I stopped cajoling and started seriously threatening," Mr. Lewis said, noting that just 10 days ago, he had rejected Mr. Krens's proposed spending plan for 2003. "I said, `Tom, either you go back and come back with a real plan, or we will have to talk about your leaving.' "

Mr. Krens came back with an amended $24 million budget, down about 13 percent from last year. It was adopted Monday by the board. Mr. Lewis's $12 million gift was used mainly to clear up old debts, pay off pending bills and reduce the principal on an outstanding bond issue, all done so that the Guggenheim next year can start off with a clean slate.

"The financial situation at the museum is solid, more solid than it has been in a long time, because its bills have been paid and it is operating on a balanced budget," Mr. Lewis said in a lengthy and candid telephone interview.

Mr. Krens, meanwhile, downplayed the difficulty he had in complying with Mr. Lewis's newly rigorous approach to the museum's finances. "What Peter has done is extraordinarily generous," he said. "We delivered the plan, and he found the plan so acceptable that he was moved to give $12 million."

Mr. Krens said that the budget anticipates no changes in the museum's scheduled program of exhibitions for the coming year, and no new round of layoffs, although he acknowledged that there had been a far greater shrinkage in staff than had previously been revealed. The 2003 budget adopted Monday was half the level of several years ago. Both men also said that given the financial difficulties, planning a much-anticipated Guggenheim branch designed by Frank Gehry for lower Manhattan was something that could be considered only far in the future.

But Mr. Krens continued: "This is a good-news story. "The model is working." Speaking of Mr. Lewis, he added, "It is his responsibility to challenge, to say this is the problem, this is the objective. It is his job to nail me down, but we are on the same page."

Mr. Lewis, who made his fortune in the automobile insurance business in Ohio, has contributed a total of $62 million to the museum since he joined the board in 1993. In those days, the Guggenheim was on a roll, expanding its operations overseas with new museums in Bilbao, Berlin and Las Vegas, and building new partnerships that have added to its international reputation. And Mr. Krens became an art world celebrity and a fiercely debated figure in the museum world in the process.

While the Guggenheim's international operations broke even, Mr. Lewis said that annual spending in New York, which in 1999 reached a peak of $48 million, was veering out of control. "In pursuit of its dreams and in operating its business, the Guggenheim in New York first used yesterday's reserves and then used tomorrow's optimism," Mr. Lewis said.

Mr. Lewis, who became the museum's chairman in 1998, said he agreed to lift the restriction on how his own gifts could be spent and, by his own account, directed some $30 million to pay operating expenses. "It was my money, my choice," he said. "But what you had was an institution that was overly ambitious, overly expansive. You get buoyed by success, and you begin to believe your own press clippings. And I was complicitous."

Last year, in the wake of the September terrorist attacks, the Guggenheim awoke to a financial crunch, as the number of visitors, particularly from abroad, plummeted, together with contributions from its patrons. At that time, Mr. Krens pushed through painful budget cuts and announced layoffs that by this summer, had totaled more than 90 people. On Monday, he confirmed that the number of staff positions at the museum had dropped from 391 to 181 in the last year.

But Mr. Lewis said those cuts were not enough. "The first thing is to cut costs, and then you have to operate going forward," he said. "When I first said to Tom and his people that there must be a plan, they didn't resist. They didn't know what I was talking about."

Now, Mr. Lewis said, the museum has a detailed strategic plan for the coming year, with "milestones" built into each quarterly budget that should flag any deviation.

"What I got, I got right on deadline, but I got it, and I believe it can be executed, because it is not a lot of daydreams," he said. "If not, I will know very quickly."

In Cleveland, Mr. Lewis withdrew his support of Case Western Reserve University and its ambitious business school and then, as a consequence, his contributions to other local nonprofit institutions in order to register his disgust at what he characterized as the lack of fiscal control imposed by the university's board of trustees.

At the Guggenheim, he said, he himself was part of the problem. "In this situation, I was not only on the board, I was the chairman," he said. "There was a mess and it got worse on my watch, so shame on me. I feel responsible."

Mr. Lewis's reputation for candor and outspokenness has sometimes landed him in trouble. In Cleveland, he said a disgruntled citizen recently put up a billboard, showing Mr. Lewis making an obscene gesture of contempt toward the city around him.

At the Guggenheim, Mr. Lewis said he relished Mr. Krens's high-risk approach to art and museum management. "He is a maverick, I am a maverick," he said. "I like Tom, but I am down to tough love. We are going to make this right this time, or else someone is going to have to go."

As for the Guggenheim's future plans for its downtown building, Mr. Lewis did not rule out helping to finance it.

"If Frank Gehry designs a public-service building that gets built in downtown New York, I am willing to contribute the last 25 percent," he said. "But there are conditions. First, that no energy is committed to do anything about this now. And second, that when the time comes, I have to have the money."

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