2012 ZMD Report of the Audit Committee
Transcript of 2012 ZMD Report of the Audit Committee
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Report of the Audit Committee of the ZMD
Preamble In August 2012, the Metropolitan Zoological Park and Museum District engaged Kerber, Eck &
Braeckel LLP (KEB) to perform certain Agreed-Upon Procedures related to the Missouri History
Museum and the Missouri History Museum Subdistrict. An Agreed-Upon Procedures
engagement is an attestation service in which a practitioner reports procedures and findings
without expressing an opinion.
The Audit Committee met several times and seven of the eight Board Members were present. As
a result of the findings by KEB, the Committee asked for additional information, or
independently followed up on the information from the report, and some of that information
which is not contained within the audit report, but is covered in the Committee’s report.
KEB’s Report on Agreed-upon Procedures and Advisory Comments included several noteworthy
findings that are examples of departures from the best practices utilized by nonprofit and
governmental organizations. The findings and other Board concerns are discussed below.
I. Property Acquisitions
Findings:
1. May 2, 2005, notes of a meeting with Dan Feinberg to discuss possible purchase of
property for a new building for the MHS. Included in the discussion under Area 3 was
Big Jakes, a property on Delmar owned by Trustee Freeman Bosley, Jr. While no prices
were stated in the notes, Dan Feinberg, when reached by telephone, advised that he had
estimated a price of approximately $10.00/foot.
2. June 15, 2005, Board of Trustees’ discussion of a new Center for Community and Family
Stories was brought before the Trustees of the MHS as a conceptual idea. Gloria Wessels
and Odester Saunders, Subdistrict Commissioners, were in attendance. The ZMD Board
was advised that while these Subdistrict Commissioners were present they were not
provided with a copy of the committee report. Attached reports of the Strategic Planning
Committee and the President outlined the plan.
3. August 17, 2005, minutes of the Executive Committee of MHS reflect that MHS was
looking to acquire property for the proposed Center for Community and Family Stories
on three different sites on Delmar. The Executive Committee approved a budget of
$1,500,000.00 for the acquisition of the Center for Community and Family Stories.
4. September 6, 2005, Real Estate Meeting with Karen Goering recites a meeting earlier
with Elizabeth Robb and Dave Hoffmann to look at properties. One of the two sites
indicated was Big Jakes. Dave Hoffmann was hired at this time, although no contract has
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ever been produced by the MHS. The September 21, 2012 letter from Ray Stranghoener
states that. “The Museum retained an outside real estate expert who advised us on the
search, selection and valuation of a suitable property...” Further investigation has
revealed that David Hoffmann has never been a licensed realtor, but was a newly licensed
(May 29, 2005) real estate salesman, and was not a licensed MAI appraiser. In fact, he is
not known to the real estate industry as inquiries by board members and the Executive
Director revealed.
5. January 12, 2006, check to David Hoffmann in the amount of $10,000 for real estate
consultation. There is no evidence that Mr. Hoffmann ever dealt with Freeman Bosley.
6. June 28, 2006, meeting of the Trustees. Report of the Strategic Planning Committee
stated: The Committee has been discussing real estate options for the third space
initiative and is close to securing a location” Gloria Wessels, Odester Saunders and Veryl
Riddle, Subdistrict Commissioners, were in attendance. The ZMD Board was advised
that while these Commissioners were present they were not provided with a copy of the
committee report.
7. July 11 and 12, 2006, formal Purchase and Sale Agreement entered into with the MHS
and Freeman Bosley, Jr. and his partner, James Armstrong to acquire three lots referred
to as the Delmar property for $875,000.
8. August 17, 2006, Phase I Environmental Site Assessment performed by Herlacher
Angleton Associates, LLC (“Herlacher”) found the site at 5845-5873 Delmar to have a
significant potential to be a source of resdiual contamination.
9. August 23, 2006, minutes of the Executive Committee. The President reported that the
MHS had placed an offer on property at Delmar and DeBaliviere (the former
McDonald’s restaurant) for $375,000 (sic) and the closing is set for Septemer 20.
10. August 25, 2006, First Amendment to Purchase and Sale Agreement extending the
closing date until Septemebr 20, 2006.
11. August 26, 2006, minutes of Board of Trustees indicates an offer was made for property
at Delmar and DeBaliviere. Letter from Ray Stranghoener, dated September 21, 2012,
indicates that initially the MHS offered $750,000, it was rejected, the MHS then
countered with $875,000,which was accepted. Despite requests for the documents from
the MHS none were proffered and no explanation was offered for the large jump in price
for the counter offer.
12. September 8, 2006, Second Amendment to Purchase and Sale Agreement extending the
closing date to November 9, 2006.
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13. September 14, 2006, Phase II Environmental Site Assessment performed by Herlacher
found that the site contained “Residual Solvents, Petroleum,Semi-Volatile Organic
Compounds and toxic RCRA metal contaminants.”
14. October 13, 2006, second Phase II Environmental Site Assessment by Herlacher
estimated the clean-up costs for the site at $94,000 to $300,000.
15. October 25, 2006, minutes of Board of Trustees report by Mr. Stranghoener that the MHS
had just completed a contract on a piece of real estate on Delmar.
16. October 26, 2006, letter from Bryan Cave to Harry Rich, MHS, indicating that at the
direction of MHS the writer had prepared a waiver of any right to terminate the contract
due to environmental conditions on the Delmar property.
17. October 26, 2006, Letter from Robert Archibald to Bosley and Armstrong indicating
dissatisfaction with the environmental condition of the Delmar property, but waiving the
right to terminate the purchase contract.
18. November 9, 2006, closing on Delmar property takes place.
19. December 13, 2006, minutes of Board of Trustees where Mr. Rainwater announced the
purchase of property on Delmar for another facility.
20. February 21, 2007, minutes of Board of Trustees where Mr. Rainwater announced the
purchase price for the Delmar property was $875,000. Mr. Archibald described a 30,000
to 40,000 square foot new building called “The Third Space.”
21. February 22, 2007, minutes of the Subdistrict. The President reported that the MHS had
recently acquired a building and lot on Delmar and demolished the building. No details
were provided.
22. August 1, 2007, minutes of the Executive Committee. The firm of Mackey Mitchell was
retained to design the building called the “Third Space.” Mackey Mitchell was paid
$151,475.17 for its design work.
23. The total cost of the acquisition of the Delmar property had risen to $985,914.19, and
with the additional design costs to $1,137,389.36. The costs of David Hoffman and
Mackey Mitchell were expensed and $975,914.19 was capitalized. No reserve was
established for remediation of environmental contamination.
24. October 27, 2010, special session of Executive Committee. Due to the economic
downturn the capital campaign that was to fund the Third Space was cancelled and the
plans to add another building [on Delmar] were revised to “repurpose” the existing space.
The Delmar property will be left as is.
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25. April 2011, Appraisal commissioned by the Forsyth School of Skinker property shows
value of $500,000. Undertaken by the Forsyth School. Property was purchased by
Forsyth School for $515,000 in April 2001.
26. December 14, 2011, MHS purchases the Skinker site for $400,000.
27. The Assessor for the City of St. Louis currently values the Delmar property at $232,300.
28. September 14, 2012, Bayard Clark from the MHS advised the ZMD Board with respect
to the environmental studies of the Delmar site, “Nothing unusual was discovered so no
remediation costs were incurred.” Subsequent disclosure has shown this statement to
have been untrue.
Conclusions:
1. The purchase of the Delmar site may have involved a conflict of interest for which no
action was taken by the Trustees of the MHS to ameliorate the problem by getting an
appraisal of the site. This failure was reckless and not in the public interest. Without
subpoena power the Board is unable to determine whether the action of the President and
the Trustees was just negligent.
2. The purchase price for the property of almost $1,000,000 appears excessive when
compared to the valuation of the property by the Assessor, the earlier purchase price of
the Delmar property by Bosley and Armstrong, and the acquisition of an adjoining parcel
by Joe Edwards shortly before. There appears to be a discrepancy in sales data. David
Hoffmann did not possess the qualifications to provide competent advice on valuation.
The Board of the ZMD is undertaking an appraisal of the value of the Delmar property
both at the time of purchase and today. A contract has been let for that appraisal by the
Board and should be completed within a few weeks.
3. As noted in the Advisory comments of the Agreed-Upon Procedures, the Trustees failure
to obtain an appraisal, prior to the purchase of the property, deviated from the best
practices utilized by nonprofit organizations. A more significant divergence occurred
when management, aware that the property was contaminated and conscious of two
distinct cost estimates for its remediation, purchased the property for its original contract
price.
4. FASB ASC 360-10 requires an appraisal when the property is impaired. The decision of
October 27, 2010, was an indication that the property was impaired and the Trustees
should have ordered an appraisal at that time.
5. The MHS had insufficient funds available on November 9, 2006, to complete the
construction of the Center for Community and Family Stories, and required a capital fund
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drive to do so. Purchasing the Delmar property at that time was imprudent on the part of
the Trustees, and has resulted in a loss by the MHS that may exceed $1,000,000.
6. Commissioners of the Subdistrict were advised of the plans by the President, not of the
purchase of the Delmar site, prior to its purchase. The President and the Trustees simply
ignored their governing body. Further recommendations may be found in the section on
Governance.
7. In Ray Stranghoener’s letter of September 21, 2012, he stated that the purchase of the
Delmar property was not made with public funds. That is a distinction without a
difference since all moneys received by the MHS are fungible and many of the revenues
received by the History Museum, such as admission charges, gift shop sales, grants, etc.
are directly attributable to the public moneys emanating from the ZMD tax receipts.
8. The same letter of September 21, 2012, stated that the audit (sic) did not criticize the
transaction. In fact, on page 40 of the Independant Accoutants’ Report on Agreed-Upon
Procedures and Advisory Comments the transaction was criticized.
Recommendation:
1. Remediation of the property at 5863 Delmar would be the responsible next step to be
undertaken by the Trutees. The appraisal report may alter this recommendation.
II. Conflict of Interest
Findings:
1. Freeman Bosley, Jr. was a trustee of the Missouri Historical Society (“MHS”) from 1999
to October 16, 2005. Mr. Bosley’s attendance at meetings during his tenure was very
limited, almost nonexistent, however, as a trustee he was furnished the minutes of each
meeting.
2. MHS adopted a Trustees Ethics Statement April 28, 1988, which required Trustees to
comply with it and to sign a disclosure statement. MHS also adopted an Employees’
Ethics Statement which states: “Employees must refrain from any private or public
activity, which might be in conflict with, or appear to be in conflict with, the mission and
interests of the Missouri History Museum.”
3. Freeman Bosley, Jr. signed such a trustee’s disclosure statement in December 2004. It
provided, in part, as follows: “I understand that I am responsible for updating this
statement whenever significant changes occur.”
4. June 15, 2005, a discussion of a new Center for Community and Family Stories was
considered by the Trustees of the MHS. Attached reports of the Strategic Planning
Committee and the President outlined the plan.
5. August 17, 2005, minutes of the Executive Committee of MHS reflect that MHS was
considering acquiring property for the proposed Center for Community and Family
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Stories on three different sites on Delmar. The Executive Committee approved a budget
of $1,500,000.00 for the acquisition of the Center for Community and Family Stories.
6. In August 2005 Melanie Adams met with Freeman Bosley, Jr. about property at 5845-
5873 Delmar.
7. No amendment to the Ethics statement of either Freeman Bosley, Jr. or Melanie Adams
was filed with the MHS, or disclosure made to anyone concerning the conflict of a
Trustee and employee discussing the sale of private property owned by the Trustee to the
MHS. The statement signed by Freeman Bosley, Jr. required the filing of an amendment.
These negotiations were specifically prohibited by the MHS’ Ethics Statement.
8. October 19, 2005, the Trustees of MHS authorized a budget of $1,500,000.00 to purchase
a site on Delmar for the Center for Community and Family Stories.
Conclusions:
1. A conflict of interest appears to have arisen in August 2005 concerning the purchase of
property owned by a Trustee in conflict with the Ethics Statements for either Trustees or
employees of the MHS.
2. Freeman Bosley, Jr., by virtue of his position as a Trustee of MHS, was privy to the
budget established by MHS for purchasing his property. No other land owner on Delmar,
in the area where MHS was looking, was privy to this information.
Recommendations:
1. The Trustees and Commissioners of the Subdistrict must establish policies for the
disclosure and enforcement of conflicts, for Trustees and/or employees that violate
their Ethics Statements, including the authority to remove a Trustee, dismiss an
employee, and void any prohibited or non-disclosed transaction.
2. The ethics statements of the Subdistrict Commissioners and Trustees differ materially
and should be reconciled to provide for stronger prohibitions on the activities of the
Trustees. The Ethics Statement Policy needs to be updated as it appears to be
directed mainly at a situation where an employee took artifacts belonging to MHS,
which occurred at the time of their adoption.
III. COMPENSATION
Findings:
1. The Executive Compensation for the President for 2011 includes a base compensation
of $356,720; housing allowance of $33,000, and $12,000 car allowance, aggregating
$401,720, with other compensation, retirement and deferred compensation and
nontaxable benefits totaling $503,087. For 2013 base compensation will increase to
$375,000 and $420,000 with housing allowance and automobile provided him.
2. Benefits include an automobile for both business & personal use; a housing allowance
of $33,000; a fax line, fax machine and computer for the President’s personal
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residence; an annual contribution to a 457(f) deferred compensation plan by the
Missouri Historical Society in the amount of 17.5% of annual base compensation; and
a cash settlement upon retirement for 410 unused vacation days accumulated through
Dec 31, 2007 when the plan was frozen.
3. The liability for the unused vacations days is calculated to be $571,483 at December
31, 2011.
4. The methodology for determining accrued vacation days was calculated by the
President’s assistant and vacation time taken and that time was reported annually to
the Executive Compensation Committee prior to 2008.
5. The President received 40 vacation days (eight (8) calendar weeks) per year,
however, he claimed not to use any vacation days in ten (10) years between 1997 and
2007, with no days being accrued during a sabbatical year in 1998. Time taken off
during a sabbatical year more than compensated for any unused vacation time.
6. The President also received six (6) weeks per year for research and writing time, thus
aggregating 14 calendar weeks of time off granted each year through 2007.
7. In each of the four years ending December 31, 2011, the President earned 4 weeks of
vacation and six weeks of writing and research time, for an aggregate 10 weeks of
time off in those years. No other employee earned as generous a credit for unused
vacation.
8. The Missouri Historical Society has no policy of mandatory vacation time off each
year as is common for positions involving a fiduciary responsibility.
9. The President also received two bonuses during his employment with the Museum. A
bonus of $37,015 was paid in 1988 and a $35,000 bonus was paid in 2004. If the
contract had been entered into with Dr. Archibald by the Subdistrict Commission, it
would not have been prudent as a Political Subdivision to pay bonuses with funds
from public sources due to the prohibition in the Missouri Constitution, Article III,
Section 39(3)
10. The Executive Compensation Committee, comprised of four members of the Board of
Trustees, meets two times per year and recommends the package to the full Board of
Trustees for final approval. The Chairman of the Executive Compensation
Committee, since December 2009 has disclosed that he had a conflict of interest, as
defined in Treasury Regulation 53-4958-6. He is an officer of a financial institution,
which provides financial services to the Museum for a fee. Accordingly, he did not
participate in the discussion and approval of the President’s compensation
11. The Executive Compensation Committee engaged the services of the law firm, which
served as the general counsel for the Trustees, to conduct a compensation survey each
year for the purpose of determining the President’s compensation. That report is
attached.
12. In comparing the Missouri History Museum with 10 comparable organizations the
accountants, KEB, found from the minutes of the Executive Compensation
Committee of the Trustees as reported by Bryan Cave, (see attached) the revenue and
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number of employees each rank 11th
, volunteers rank 9th
, however, the CEO
compensation ranked 5th
. In comparing 32 organizations the revenue of the MHS
ranks 30th
, employees -28th
, volunteers - 26th
and CEO compensation - 15th
. The
Post-Dispatch found that Dr. Archibald was paid more than the head of any history
museum in the country, except the Smithsonian Institute in Washington. Attached is
an informal study conducted recently by the Executive Director of the ZMD of
salaries of heads of History Museums.
13. The Executive Compensation Committee is responsible for reviewing and approving
the President’s compensation recommendations for six other Museum executives,
which range from $115,000 to $171,745.
14. The Executive Compensation Committee and Trustees are not transparent in sharing
the President’s compensation package. Specifically, the President’s compensation
was withheld from the Subdistrict’s Commissioners.
15. Subdistrict Commissioners have been prohibited from serving on this Committee.
The recently amended agreement between the Subdistrict Commission and the MHS
gives Subdistrict Commission members representation on the Executive
Compensation Committee. However, it retains for the MHS the sole authority to
enter into an employment contract with the President of the History Museum.
16. No records exist to substantiate Robert Archibald’s claim for 410 days of unused
vacation as they have been destroyed.
Conclusions and Recommendations:
1. The compensation package for the President compared to similar organizations and the
other members of the Zoo Museum District appears to be excessive. Other institutions in
the ZMD have grown in size and endowment from private sources to a far greater degree
than the History Museum. The responsibility for this practice lies with the trustees of the
MHS, who are unresponsive to and unrepresentative of the taxpayers.
2. The executive compensation package for the Museum should be more in line with similar
institutions of similar size around the country
3. The benefits appear out of line for a non-profit organization that is dependent for over
70% of its revenue from public tax sources.
4. Accrued vacation days for the President, who had 14 weeks of time off awarded him are
not appropriate and should be rescinded. No Compensation for unused vacation days
should be paid by the Missouri Historical Society until the time can be independently
verified. At base salary in excess of $400,000 the President should be expected to devote
his full time to the job without receiving extra compensation. No other institution in the
ZMD has allowed its President to accrue this amount of accrued vacation.
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5. The President and any officer with fiduciary responsibility at MHS should be required to
take, at least two consecutive weeks off each year to prevent fraud.
6. There is no requirement as to where the President should reside. A housing allowance is
unnecessary and inappropriate.
7. The Executive Compensation Committee should meet more than twice a year and be
comprised of a majority of members of the publicly appointed Subdistrict Commission.
The Executive Compensation Committee should engage a reputable firm with knowledge
and expertise in the same industry as the Missouri History Museum; the Executive
Compensation Committee should also engage a firm that is independent of the general or
special counsel retained by the Missouri History Museum, which is not in the position of
protecting its employment as general counsel, in its compensation decisions.
8. It is inappropriate for a member of the Executive Compensation Committee, who has a
conflict of interest, to serve on the Executive Compensation Committee.
9. The President’s salary and compensation benefits must be fully transparent. Further, both
the Trustees and the Subdistrict Commissioners must present the Executive
Compensation Committee’s recommendation before their boards for discussion and
approval each year.
10. The present contact with Dr. Archibald, executed in 2012, but not effective until 2013,
must be withdrawn.
11. The President should report to the Subdistrict Commission, not the trustees of the MHS.
IV. Governance
Findings:
1. The purchases of properties on Delmar (2006) and Skinker (2011) were completed
without the knowledge and prior consent of the Subdistrict Commissioners, and without
appraisals to verify fair value.
2. The pledge of $1,000,000 to the development of the trolley from the Delmar Loop to the
Museum was made by the President without the approval or knowledge of the Subdistrict
Commissioners.
3. The Executive Compensation Committee is composed only of MHS Trustees, to the
exclusion of the Subdistrict Commissioners.
4. Despite repeated requests from Subdistrict Commissioners, they were denied information
concerning the compensation of the President.
5. The President of the History Museum publicly stated with respect to the Subdistrict
Commissioners, “I do not report to them.” This displayed a total disregard to the publicly
appointed Subdistrict Commission charged with appropriating the tax dollars that
constitute almost 80% of the revenues of the Museum and, with the related revenues,
admission charges, grants and gift shop revenues that flow from the public funds, 90% of
operating revenues.
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6. Employees of the Museum have stated publicly that the Missouri Historical Society
(“MHS”) is a private non-profit corporation that is not subject to public accountability
under the Missouri open meetings and open records law.
7. A former Chairman of the Subdistrict Commissioners stated to the ZMD board that his
only duty was to sign vouchers for payment prepared by the Trustees for presentation to
the ZMD.
8. Legal Counsel for the Subdistrict Commissioners controlled the preparation of the agenda
for the Subdistrict Commission thus limiting the matters that would come before the
Subdistrict Commission.
9. The contract with the MHS and the Subdistrict Commission fails to establish any
standards for the Trustees, contrary to the requirements of Missouri law.
10. The Subdistrict Commission has failed to renew the contract with the MHS, yet the
contract renews automatically, because it has an “evergreen” provision.
11. The Trustees failed to inform the Subdistrict Commissioners of the conflict of interest
that arose when an employee of MHS began negotiating with a Trustee to acquire land
owned by that Trustee.
12. The Board of Trustees is comprised of up to 45 members, and is self-perpetuating. See
Bylaws, Article IV.
Conclusions:
The Missouri History Museum is principally funded with tax revenues raised by the
ZMD, and, thus, must be run as a public institution accountable to the public that provides its tax
support. The statute provides for a publicly appointed Commission (the “Commissioners”) to
run the History Museum. Currently, the Missouri Historical Society Trustees (the “Trustees”)
have co-opted the authority of, and dominated the Subdistrict Commission. The Subdistrict
Commission has contracted away all its powers contrary to Missouri law. It is critical, for public
confidence to be restored in the History Museum that it must become a public institution run by
publicly appointed Subdistrict Commissioners appointed by the Mayor and the County
Executive. It is unacceptable for the Missouri History Museum to be run by a private non-profit
corporation that by law is not accountable to St. Louis taxpayers. To change the present
structure and to vest true authority in the Subdistrict Commission, the following steps need to
taken.
Recommendations:
1. The Board of Trustees is too large and unwieldy to properly govern the
operations of the History Museum, and, being chosen by people recruited by the
President, has become captive to the President, and thus incapable of prudent
oversight and critical judgment. More importantly, when governance breaks
down, as it has in this case, there is no person responsible to the taxpayers, who
are footing the bill, with authority to remove and replace Trustees.
2. The April 21, 1988 contract with the Missouri Historical Society (the “Contract”)
should be cancelled effective January 1, 2013, or if the parties are unable to so
agree, then the Subdistrict Commission shall give notice of cancellation, as
provided by the Contract.
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3. The two Subleases of City owned property (the “Subleases”), entered into with
the Missouri Historical Society, both dated February 1, 1989, should be cancelled
effective January 1, 2013, and the Subdistrict Commission should administer the
property and buildings sitting on those sites. Or, if the parties are unable to so
agree, then the Subdistrict Commission shall give notice of cancellation, as
provided by the Subleases.
4. The appointment of the Executive Compensation and Budget Committees should
lie exclusively with the Subdistrict Commission. The statute (Mo. Rev. Stat.
§184.362) states that the Subdistrict shall “have exclusive control of the
expenditure of all moneys collected by the district.” All employees of the current
History Museum will become employees of the Subdistrict, not the Missouri
Historical Society.
5. All funds, whether tax receipts or privately raised moneys, should be appropriated
by the Subdistrict Commission. Missouri law provides that moneys that are
commingled must be treated as public funds.
6. The Trustees may retain the authority to raise private donations to help support
the Museum, and shall administer the endowment with the right to recommend
the use of funds from the endowment.
7. The Subdistrict Commission and Trustees should establish policies to ensure
transparency in the dealings of the Museum. Since the buildings and land of the
Museum would be publicly owned by the Subdistrict Commission the Missouri
open meetings and open records law will apply. Currently, the law does not apply
to a private non-profit corporation, the Missouri Historical Society.
8. The ZMD will undertake to educate the Subdistrict Commission on the fiduciary
duties of directors of a public institution and how to rigorously govern the
Museum. All Subdistrict Commissioners must attend the training sessions
conducted through the auspices of the ZMD.
9. A new contract or loan agreement with the Trustees should be entered into to
address the ownership of the Museum’s collection and how it will be displayed.
Ownership of the collection that was donated to the Missouri Historical Society
over the years may remain with said institution.
10. The Trustees should cancel and allow the Subdistrict Commission to renegotiate
the long term contract (three years) with Robert Archibald that will take effect
January 1, 2013. It was entered into with Robert Archibald in July 2012 by the
Trustees. It is not appropriate under the Missouri constitution (Article III, Section
39(3) to pay bonuses to managers of public institutions, so the provision of the
current contract authorizing payment of a bonus annually must be deleted.
Currently, the employment contract with the President is between the Missouri
Historical Society, and not the Subdistrict Commission. Hereafter, the
employment contract will be between the Subdistrict and the President, and
should be approved by the Subdistrict Commission.
November 28, 2012