To regulate or not…

logo_salander.jpgThe apparent failure of a prominent gallery in New York this week (NYT, NYO, Bloomberg) is causing ripples within the international Art community. Whether the truth is about weaknesses in financial management (as suggested by Salander’s lawyer) or something more sinister is beside the point. Many are now asking whether, with the growing number and size of transactions, a more formal, and compulsory, oversight system is necessary for the Art world to protect individual buyers and sellers.

At various times on this site we have discussed the relative lack of transparency of the Art market and talked about some of the mechanisms that exist in other markets. For example financial institutions that take deposits and make loans are required, in most countries, to keep a minimum reserve in hard cash to allow for problems. In quoted markets for publicly traded assets, whether company shares, pork bellies or barrels of oil, every transaction must appear on a public register and be open to all bidders. No transactions are allowed to take place that do not appear on the register/exchange. In addition any market maker or analyst must declare any interest they have in assets being sold by them or through entities associated with them. None of this, of course, happens in the Art world. But all of it could.

What do you think? Do we need some of these rules? Has the Art market now reached the stage that it NEEDS regulating to protect individual buyers and sellers? Or should we continue to rely on members of the community outing their peers before things go bad? Are there less cumbersome alternatives that could be put in place? I once suggested a public register for all transactions of works by major artists. The register would be a standard for the industry. Galleries and Artists could choose to be on the register or not. If on, ALL works traded must be listed, with the date and verifiable transaction price. If not, they don’t appear on the register at all. Ultimately all quality artists and galleries would probably opt to be visible; because anything not on the register would be considered a “lower grade investment”. Views?

6 thoughts on “To regulate or not…”

  1. Thank you for this post. I have strong opinions on this as a gallerist.

    I believe we do need to rely on our peers for this kind of information. The art market is like the Wild West and there are no regulations. All terms are made between galleries/collectors/curators and terms vary from gallery to gallery. Even Sotheby’s and Christie’s got away with colluding for a while – and they are somewhat in the public eye.

    I spoke with someone two days ago about the
    S O’R situation. This person is “in the know” and has worked for years in an uptown New York gallery that specializes in Masters – Old and Modern. He said that he felt what contributed to the S O’R downfall was that the Dutch second market is in big trouble. S O’R was selling sub-standard works for A-list prices just because they were Dutch paintings. And then they didn’t pay the consignors. He said S O’R has been in trouble for a few years and it is only now that it comes to the forefront.

    I think some kind of registry is a great idea. Although I do not work in the second market, I wonder why a situation like this had to go so far and for so long for it to be brought to light. This problem should not take years for it to finally shut someone down. Why weren’t the consignors speaking up?

    My own gallery is now dealing with three situations at the moment that, had we known, we would have never entered into:

    1) A US gallery who is unable to pay us for a painting they took on consignment, then sold and for which they have been paid – by their own admission. They will not pay us and our artist is threatening small claims court. Yet this gallery is shelling out tens of thousands of US dollars to participate in art fairs in London and Miami. Now, a year later, we are hearing from others who are speaking up who’ve are in the same situation with this gallery.
    2) An artist who we’ve recently begun to represent took someone to small claims court two years ago – and won – because the deadbeat never paid the balance. But the deadbeat still hasn’t paid! Because we now represent this artist, we feel we need to try to rectify the situation. The painting in question is now worth three times what this person owes so we do have an interest although not a monetary interest.
    3) Another collector who bought a painting over two years ago called yesterday because she says her painting is damaged. She just unwrapped it (after owning it for this long) and claims that the damage is our fault and what are we going to do about it?

    And these are just recent problems, but they take months, and money to resolve. Only Lisa and I are in the gallery full-time and these issues eat away so much of our time, money and energy. We should be spending the same time, money and energy on our artists and shows. This could all be solved with a simple look at a registry and we could make our decision.

    What can we do? No one we know gave a word of warning. And why would they? They don’t or might not know that we are having some kind of dealings with the gallery/collector/etc – this is why a registry would be helpful. Of course, for my gallery, I am not talking about millions of dollars, only thousands, but it is all relative. Our lawyer charges $750 per letter no matter what the problem.

    I read reviews of hotels in tripadvisor, reviews of items on Amazon and eBay has a review system for sellers and buyers. Why can’t we? Then we can all make informed decisions which could affect our dealings in many ways. I personally do not feel it is gauche but the registry could be discreet enough that it wouldn’t be for others.

    There are struggling artists (and consignors) out there who are getting burned left and right – don’t they deserve this service? It would be worth my while to look up a gallery/museum/curator/collector’s name on a database and read about another’s dealings – whether positive or negative. Then we do not enter blindly into a situation that can take months or years and a small fortune from which to be extracted.

  2. This fantastically rich subject is almost made for our Salon. Thank you Sara for an eye-opening post. Almost every gallerist will believe is that the field a./ needs more transparency even for its own sake, and b./ does not want oversight and regulation from external sources.

    Such external oversight comes from two places businesses dread the most: govermment and the press. Both have a habit of engaging in witch hunts, relying on sometimes simplistic methods, and generally overshooting the mark. You can bet, for example, that we are now in for a spate of breathless press exposes filled with suspicion and hysteria about galleries. The whole business will suffer a loss of confidence.

    Some sort of self-regulation and self-admistered data reporting would be good medicine, especially now that the field is so vast, splintered, spanning across continents — in other words, no longer just a small clique where people are reasonably well aware about each other’s dealings and ethics.

    This self regulation has so far operated through the crudest of all mechanisms: what is known as chatter. Chatter can regulate small communities. But as with the exchange of rumors by little old ladies sitting on a bench in a village, art world chatter is not altogether realistic, fair, or reliable.

    Some kind of gallery Zagat — i.e. a formalized registry of chatter — may partly solve the problem (but just as restauranteurs how much they like it). Better would be a registry operated by a mutually accepted third party. Membership in a gallery assiciation that maintains such a registry for the benefit of its own members, requires members to abide by certain principles, and conducts its own tests of the accuracy of reported information, could serve such a purpose.

    I also recall a healthy discourse on this issue during the dotcom years, when so many people were wondering about the reliability of online vendors. Can anyone suggest systems that have worked well for other industries?

  3. The subject of regulation came up in a previous thread, during which I questioned whether some form of Securities and Exchange Commission was applicable to the art world. The consensus, I think, was that this sort of external, quasi-governmental regulation would not be a good idea. Sara Jo spoke of backstage politicking. András cited missing infrastructure. Ian mentioned problems of transparency, and then concluded: “I am not sure that treating these objects of passion or desire more as financial investments necessarily helps the Art world.”

    The Salander-O’Reilly debacle brings things to a head, but I wonder whether art dealing is yet an industry that demands external administration (despite the vastly expanded marketplace) or still a guild? Assuming external oversight is neither possible nor desirable, we are left with peer group pressure. Guilds, like the ADAA (Art Dealers Association of America), could provide some basis of regulation and registration. I assume there are similar professional groups in Europe. Perhaps the best model of regulation would involve some sort of worldwide commission empowered by various guilds, a self administering board that would keep its members in line. Of course, the problems with a supra-organ would be reconciling various national legal systems and codes.

    I agree with András that “art world chatter is not altogether realistic, fair, or reliable”, as it allows for petty hatreds, anonymous sniping, secret agendas, and general small mindedness.

  4. This just in from Costas Anastassiadis in Athens.

    Maybe the art world could institute something along the lines of the CPA/CFA license. A hypothetical CAD (Certified Art Dealer) license would bring order and increase the respectability of the dealer/gallery segment of the market. A very stringent exam would also weed out some of the bad apples. Moreover, the certificate could be broken down to specialties (i.e. general, classical, modern, and contemporary) and into degrees of depth.

    There are so called best practices in other fields which the art world could emulate. Judging from my limited experience (my wife started a gallery two and a half years ago in Athens) I would agree that the field has many of the characteristics of a medieval guild.

  5. Guild or business? For Mr. Salander, it’s the latter. His quote from today’s Times: “The art business used to be one where people would shake hands and pictures would go out for millions of dollars. All of a sudden, it’s a business with lawyers and lawsuits.”

    The article mentions that the gallery’s rent was $154,000 a month, secured in part with a painting, and that the troubles started almost as soon as this crushing obligation took effect. One can only wonder which other galleries may be at risk in this art-world version of the subprime lending debacle.

  6. The SEC began after the crash of 1929, in the midst of the Great Depression. The consensus was that for the economy to recover, public faith in capital markets needed to be restored. Congress held hearings, and the SEC was established to provide investors with more reliable information and clear rules of honest dealing. Its powers include interpreting, amending and issuing securities laws, conducting inspections and investigations, overseeing private regulatory agencies, and registering securities. It is a large government bureaucracy.

    Despite recent growth, the art market is infinitesimal compared with overall international equity markets, and the art world a small segment of society. Were if it to fully implode, it would only be a blip in the cosmos. When financial shenanigans surface, as when other criminal activities are discovered (e.g. the Crispo S&M case of the mid 1980s), it is viewed as a subcultural anomaly, something for the press to feast upon. But a definitive threat to society-at-large is not generally felt. So it seems unlikely that the government would ever intervene in art markets in a supervisory capacity. The more usual interface between government and the art world is with issues of public funding and censorship, when a vocal minority expresses outrage that certain artistic content receives public funding or is exhibited in a public institution.

    Which brings us to self regulation, the “guild” idea.

    The ADAA was founded in 1962, when art markets were much smaller and the entire scene more modest, with stapled auction catalogs, nascent art scholarship, fewer MFA programs, and when “issues such as authenticity, provenance and condition were of much less concern than is now the case. In a realm dominated by a little core of cognoscenti, caveat emptor
    was a policy that not only seemed prudent but was also the widely accepted norm.”

    The ADAA’s first substantive order of business was establishing an art appraisal program.

    The New York Times had recently published a multi-part exposé of fraudulent art appraisal practices, and as a result the U.S. Government was seriously considering eliminating tax deductions for donated art. In a country where museums are largely funded through the private sector, tax-deductible art donations had come to account for much of the content of public collections. Elimination of the tax deduction, it was feared, would devastate American museums by curtailing gifts and would simultaneously cut off a significant long-range incentive for art collecting.

    Art dealers are often strong willed, idiosyncratic types, unlikely to voluntarily cede authority to a larger regulatory body, UNLESS they feel collectively threatened by an interruption of business or a loss of credibility. Does the current Salander case represent this level of urgency? If so, doesn’t it seem more likely that regulatory activity would arise from within the arts community rather than be externally imposed?

    Any thoughts?

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