What are some of the most important ethical issues to consider when doing collections valuations for insurance purposes? When do serious ethical breaches occur and how can we best prevent inappropriate decision-making?
A: Peter H. Welsh- Director Arizona Historical Society, Central Division
I approach this question first from the perspective of conflict of interest—more importantly, the appearance of conflict of interest. Every ethical code I am aware of goes to some pains to clarify conditions in which there may be conflicting interests and offers guidelines about the appropriate response. Collections and external markets always top the list. Insurance valuations are an uncomfortable reminder that try as we might to imagine that museums are somehow beyond the reach of the market, filthy lucre always filters back in.
Once material becomes part of a museum collection, its market value becomes problematic. The theoretical condition is that the market recedes and other measures of value—historical, cultural, aesthetic, biographical, to name only a few—guide institutional concerns with regard to the collection. But that theoretical world is the same one where disasters never occur, where objects never travel on loan, where researchers never poke and probe, and where collecting emphases never change. Our dealings with collections must recognize that we do not operate in a theoretical environment, but in one where messy reality intrudes.
So how do we put a price on collections? The principal ethical considerations, in my mind, include the following: First, who is establishing the value? And second, what is the source of risk, i.e. are we insuring against a specific perceived risk—such as a loan for a traveling exhibition— or to cover a risk that is more general—such as a tornado whacking a storage facility?
There are a number of ways to answer each of these questions, but I will try to limit myself to the ethical aspects of the issue. The first, and most important question is “who sets the value?” More specifically, what are the ethical considerations when staff participate in these evaluations? The ethical (and legal) prohibition against staff engaging in monetary appraisals of materials offered for donation is easily seen as one of conflict of interest; as a beneficiary of a donation, and acting in the public interest, I have no business placing a monetary value on it. But when items from our collection are requested for a loan is it unethical for me, as a museum employee, to set insurance values? The cleanest answer is to retain the arms-length position and ask an independent appraiser with, presumably, more up-to-date knowledge of current markets to set the value. The borrower may insist that values be established by a disinterested party, on the assumption that a curator may inflate the market value. On the other hand, a board of trustees (or a director) could require that values be set by an outsider, assuming in this case, that an egg-headed curator is less in tune with market trends than someone whose living depends on knowing what things are worth. It would not be inappropriate, in either case, to include the cost of an appraisal in loan preparation fees. If there is not an institutional policy about having values set by independent appraisers, if staff feel qualified, and if the borrower is informed about who is setting the values, it is not inappropriate for values to be established internally. For instance, it may not always be practical to bring in someone from the outside; when items are numerous and values are not high it is quite common and thoroughly ethical for an informed staff member to establish insurance loan values.
Then there is the question of risk. It is not unusual for a museum to be asked by its insurance carrier to provide a value for a whole collection—it has happened to me on more than one occasion. From the perspective of the insurer, this is an entirely reasonable request. From the perspective of the museum, the cost of a wholesale itemized appraisal of a collection containing thousands of items is often financially out of the question. Keeping public trust and conflict of interest in mind, what is the ethical thing to do? A widespread alternative is to share risk or co-insure. The museum agrees to institute and invest in a set of practices and policies that reduce the possibility of total loss, and the insurer agrees to underwrite the collection at a value that represents the potential of substantial but not total loss. Fire suppression systems (regularly inspected and tested), strict access controls and monitoring, active IPM procedures, emergency procedures implemented and regularly rehearsed, a well maintained structural envelope (free of leaks, seeps, or intrusion points), and thoroughly trained staff are some of the steps that a museum can implement to reduce its risk. The insurance company is satisfied that it has put a limit on the risk it has incurred, and the museum has satisfied its public trust responsibility by reducing the potential for loss.
Martha Morris- Associate Professor and Assistant Director; Museum Studies Department, George Washington University
I assume we are talking about the museum’s permanent collections and not artifacts on loan to it or those proposed for acquisition. Museum ethics codes traditionally prohibit staff from setting values for objects owned by outside individuals or organizations. In addition, museums are to remain disinterested parties in the valuation of objects that are the subject of tax deductible gifts, in line with current IRS regulations.
Valuations are customarily set by the museum curatorial staff for purposes of insurance for outgoing loans or in some cases for permanent collections on premises, although the latter is less common as it is a burden to keep up to date. The basic issue in regard to setting valuations is to assure the museum has board-approved written policies regarding prudent, legal and ethical practices. Appraisals should reflect fair market value, the amount that would be paid by a willing buyer and seller. Fair market values are based on auction or other sales data, and of course are subject to change over time. Values are also impacted by other factors including historic or aesthetic importance, condition, rarity, and documented authenticity and clear provenance. In some cases, such as when there is a desire to deaccession an object, the museum will choose to hire a professional appraiser. In this case the individual appraiser should not have an interest in the current or future acquisition of the artifact being evaluated. Conflict of interest is the obvious concern here as well as a question as to bias in judgment. For example, one would not solicit an appraisal from an auction house that could end up either buying or selling the work in question. In addition, the museum may be wise to seek more than one value for the item in question. Museums should seek to hire those individuals that are members of the American Society of Appraisers which is governed by a code of ethics.
When in house staff set values the curator or registrar is likely aware of current fair market values. In the case of artifacts without any current market, or those that are of considerable rarity, the museum can look at replacement cost. What would it cost to collect a natural history specimen in the field or recreate a contemporary art installation? It may also be prudent to discuss this matter with the museum’s insurance company to determine their guidelines about setting a reasonable value. For security purposes it is wise to have a policy that protects the museum by not making values available to the general public. In addition, the museum should avoid a situation where a value is inflated or too low since that could affect the reputation of the museum and its staff. Proper research and documented decisions should avoid this problem. The entire matter of valuations should be addressed in the museum’s Collections Management Policy.
An excellent discussion of the issue of valuations is in the paper by Ildiko DeAngelis and Lela Hersh, “Appraisals of Collection Objects: Issues for Museums” in the proceedings of ALI-ABA Legal Problems of Museum Administration, 2000.