Gate Theatre's joust with Arts Council no form of playacting

One little item caught my eye. It was almost innocuous. But it was enough to raise some hackles - mine and hopefully others'. It concerned the Arts Council's document on the corporate governance of the Gate Theatre. Two of the three issues raised may have some validity, but the third, which questioned the suitability of the chief executive (Mr Michael Colgan) to also sit on the board, should not go unchallenged.

The most effective boards work with the active participation of the chief executive. Indeed, in commercial operations, the most effective ones have the heads of marketing, finance and production on the board together with the chief executive. Being a member of the board gives a chief executive more standing, and more clout, with his/her board members.

Perhaps the Arts Council was looking over its shoulders at its own set-up. Here the "director", Ms Patricia Quinn, is not a member of the ruling council. That disparate council, consisting of 17 members, has had its own board convulsions in the past. It has a difficult job in weighing up the merits of grant applicants, but it is obviously too big and unwieldy. Would it not work much better with, say, half a dozen members, with the "director" a council member?

The open row between the Arts Council and the Gate Theatre took an unusual turn last week when the Arts Council's chairman, Mr Pat Murphy joined in. Despite the emotive language used in the row, important questions have been raised on the extent of the funding. The subsidy paid to the Gate amounted to £573,000 (€727,700) in 1997, £600,000 in 1998 and in 1999. Then the radical change took place in 2000 when the grant was paid almost a year late, and was reduced to £200,000 even though there was a proposed allocation of £600,000. This has gutted the Gate's balance sheet.

The latest accounts, filed in the Companies Office, were for 1998. These figures, supplied by Private Research, showed a pre-tax profit of £150,146, cash balances of £668,884, and shareholders' funds amounting to £620,267. It pays no tax as it gained charitable status in 1995. The balance sheet improved in 1999, according to audited figures seen by The Irish Times. Although the pre-tax profit fell to £121,814, the cash on hand rose to £701,415 and shareholders' funds grew to £727,575; clearly a financially sound company.

Its financial health then changed dramatically with the sharp drop in the grant. Revenue in 2000 fell from £1,930,371 to £1,469,214, it incurred a loss of £377,044, and cash balances were reduced to £191,079. Shareholders' funds were cut to £350,031. If this were repeated this year, the company would be insolvent.

The Arts Council initially offered £350,000 with a "challenge grant" of some £177,000, for this year. That grant was considered unworkable by the Gate and eventually the subsidy was upped to £531,000. The crucial question is: will this be enough? Mr Colgan has said the theatre may have to close because of the financial difficulties.

Without knowing the projected income and expenditure for this year, it is difficult to be definitive. If income and operating expenses remained the same as in 2000, an operating loss of over £100,000 would be incurred. Even with other income - programmes, sponsorship (the cafe/bar had a loss of £9,500 last year) - the cash balances could be almost wiped out and shareholders' funds reduced further.

Clearly the Gate is now operating on a thin financial line. The Arts Council could argue (and has) that the subsidy should not be used to bolster profits. The Gate has even been referred to as a commercial theatre. Of course, subsidies which, in effect, come from the public purse, should never be used to line the pockets of shareholders.

But the Gate was building up its reserve to develop young talent, encourage new works and expand its building, according to the theatre. It even had plans to set up a separate body to decide how to spend the money.

It has been argued that the Gate is now being penalised for its success. Basically this has thrown up a crucial question; should a subsidised theatre be allowed to build up reserves for future developments? In financial terms, the answer has to be a resounding "yes", but obviously conditions attached to the granting of the subsidy have to be agreed.

The Arts Council has also complained that the Gate has valid questions to answer about the low turnover in the Gate board and the level of detail provided about the Gate's programme and financial position. It has a valid point about the board; about one-third should be changed each year. And as the provider of the subsidy, the Arts Council should, of course, be appraised about its programmes. It may have had a valid grouse about the lateness of accounts in the past, but these are now up-to-date. Indeed, the latest accounts give more details than a publicly quoted company.

The details, however, are much less than that provided by the Abbey Theatre, but then, as the recipient of the largest grant (£3.5 million), the Abbey's accounts are audited by the comptroller and auditor general.

The Gate was founded in 1928 by the late Hilton Edwards and Michael Mac Liammoir. It has had many acclaimed successes under Mr Colgan, who was appointed in 1983.

The Arts Council is celebrating its 50th anniversary this year. In contrast, the much older Gate is facing its most difficult year.

Bill Murdoch's column appears on the first Friday of every month. bmurdo@irishtimes.ie