'Theatre should never be easy. Nostalgia is easy, nostalgia is soft, and theatre should never be soft, ever. Which isn't to say that it shouldn't be incredibly entertaining . . . but it's about taking something and transforming it into something else. It's not about authenticity. We have loads of modern tools for authenticity, but theatre can't be one of them."

Garry Hynes is talking about theatre production, about her justly celebrated stagings of Martin McDonagh's Leenane plays and her much-discussed, perhaps-finally-to-be-realised plans to produce the whole of J.M. Synge's canon. But the themes she raises - nostalgia, transformation, authenticity, difficulty - equally apply to the larger picture of Hynes's involvement with theatre, specifically Druid Theatre Company, which Hynes founded with a group of friends in Galway 26 years ago, and which has been in a state of transition for the past decade.

It's clear when Hynes talks about Druid that she still views the company as a grouping of like-minded people - an extended family of founder members such as Marie Mullen, Mick Lally and Maeliosa Stafford, who return to the company on a show-by-show basis and still "interact with the company in all sorts of different and surprising ways".

She cites Druid's new production, My Brilliant Divorce by Geraldine Aron, as an example of the company's vital relationship with its past. "Geraldine is actually the writer who's had the longest relationship with Druid, longer than Tom Murphy or anyone," says Hynes.

Many of Aron's plays have been notable successes for Druid, from Bar And Ger in 1977 to A Galway Girl, Same Old Moon, The Stanley Parkers and The Donahue Sisters. My Brilliant Divorce, which opens at the Town Hall Theatre on Wednesday, is a solo play, performed by the American actress Glenne Headly and directed by Hynes.

For all Hynes's talk of continuity and company, though, Druid's only visible common thread, particularly recently, has been Hynes herself.

The management of the company has been in flux for a decade; a series of managing directors has passed through, few staying long enough to make a mark. The latest was Ciarβn Walsh, who left in September after 20 months to become line producer of Riverdance. The company's administrator of three years, Ciara N∅ Sh·illeabhβin, has recently announced that she is also leaving, in December, to become festival manager of Cork Midsummer Festival.

And there is a strong sense in Galway that the company's historic connection with its community has grown much weaker; the word that comes up when locals talk about Druid is "disappointed".

Hynes seems aware that Druid's relationship to its community is in flux, and says the company is shifting its programming to accommodate radical changes in the fabric of the city.

"When we were founded, we were the only game in town, but in the last 20 years, the place has been transformed. Galway could now claim to be the cultural capital of Ireland; Galway doesn't need us in terms of providing theatre. There are 350 days of theatre a year in the Town Hall Theatre alone. So what we have been doing is plotting a way in which what we do is necessary of itself . . . and big projects - of which the Leenane Trilogy was the first one - is the way we are going. The arc of the company will be major projects that provide you with something that, good or bad, is not available elsewhere."

The next of these large-scale theatre events is the Synge cycle, which was postponed after being planned for the 2000-1 season. "For a long time we have had a relationship with Synge and also with the territory that produced Synge - the Aran Islands and so on," says Hynes. "The idea of doing all the works in repertory has been there in the atmosphere for a long time. He has had such a huge influence, so out of proportion to the size of the canon. And doing the plays together, you start to think about other things as well - poetry, music, a whole festival aspect."

Fiach MacConghail, former artistic director of Project who now works as an independent producer, has been appointed to oversee the Synge cycle, which is now planned for the summer of 2003 and will take place throughout the Galway hinterland as well as in the city. Hynes will direct all seven plays.

The company's financial situation has been shaky in recent years. That it entered 1999 with a deficit of £60,000 seems remarkable, given the national and international success of the Leenane Trilogy and the fact that, until recently, it received one of the largest grants given to any Irish theatre company - £354,000 last year. The problem may have been a knock-on effect of the interrupted management of the company.

The deficit has now been cleared - presumably thanks to runs of McDonagh's plays at the Gaiety Theatre, in Dublin, over the past two summers - but the company is embroiled in negotiations about multi-annual funding with the Arts Council, which has not yet told Druid how much it will receive this year.

Hynes says she and her board have taken Walsh's departure as "an opportunity to review the management resources and needs for the next five years" and that an appointment will be made in the new year.

Druid received a shot in the arm in the summer, with the announcement of an extraordinary £500,000 grant from the Department of Arts, Heritage, Gaeltacht and the Islands for the refurbishment of its rehearsal and performance space, in Druid Lane in Galway. The company has been based in the building, a former warehouse, since the late 1970s; in 1996 the building's owner, Thomas McDonagh & Sons, gave it to the company outright.

There is huge local affection towards the theatre, an intimate playing space that seats 100, but as Hynes points out, "if you see it lit by candlelight on the night of performance it looks great, but there are buckets on the roof. The only real work that was done on the space was done by the original members of the company, 20 years ago. It desperately needs repair, and the Minister's grant makes all the difference in the world."

But what of Druid's audience - what of its relationship to Galway? Hynes still prioritises Druid's identity as a local company, but also emphasises the need to accommodate change and growth. "The audience has been wherever we find an audience - based in Galway and moving out from there. I'd like to think that process is going to continue."

As Mike Diskin, who manages the Town Hall Theatre, sees it, Galway needs to adjust its view of the company. "We have to accept that Druid is an international name and that they want to play on the international circuit. People are nostalgic for the old days, but that's neither here nor there. Druid's place in Galway is still strong and there is a certain amount of pride - they may not be doing as many shows in Galway as before, but their international successes are reflecting on Galway as a cultural place."

But many locals feel they're not getting as much of Druid as they'd like. "In the early days and throughout the 1980s, people on the street would feel a sense of loyalty to the company . . . but I don't think that ownership is still there," says Tom Kenny of Kennys Bookshop. "They're not here as much as they used to be."

This year the company will have mounted only five weeks of fully staged drama in Galway - a two-week run of Bernard Farrell's The Spirit Of Annie Ross in May, a week of McDonagh's The Lonesome West in the summer and, now, the Aron play. That none has been staged in Druid Lane clearly rankles with many in the city. Last week, the venue hosted the fifth of the company's admirable Druid Debut series of rehearsed readings, but that the company hasn't made evident further commitments to the Debut writers is beginning to raise eyebrows. "The Druid Debuts will run out of steam if they are not going to bring any of them to full production," says Diskin.

Part of the problem for Druid is that, apart from Macnas, whose recent work has been staged in unconventional locations, it is the only consistent producer of professional drama in Co Galway. "If something else had come along to fill the void," says Judy Murphy, a Galway theatre critic and journalist, "then I don't think the relative lack of Druid would matter as much, but nothing has. The loyal audience is sitting and waiting."

There is enormous pressure on Druid to be many things to many people, but an artistic enterprise can be steered only by the people within it. The choice of the new managing director seems crucial, as does the outcome of negotiations with the Arts Council: the expensive Synge cycle will require significant State support and extensive fund-raising.

One thing that is not in question is Hynes's artistic gifts: few would argue that she is one of the two or three best directors in the country, if not the best. The framework that accommodates that talent has been shaky recently, but, with characteristic forcefulness, Hynes is looking towards the future.

My Brilliant Divorce opens at the Town Hall Theatre, Galway, on Wednesday and runs until December 8th, with previews today and tomorrow; bookings at 091-569777