A report from London’s Art Business Conference, September 2015
Sponsored by Hedley’s Fine Art Logistics
The art business might at first sight seem a far cry from the world of general business and consumer commerce, but it touches us all whether we buy a Tate Gallery postcard or a multi-million pound Picasso from Christies.
There are some 40,000 people in the art trade in the UK and it is estimated that there are 100,000 jobs supported by the arts across the country, be it in logistics, insurance, online platforms, finance, photography or related creative industries.
It is against this backdrop that Daily Telegraph arts correspondent Georgina Adam opened London’s second Art Business conference on September 3rd, highlighting just how important the art world is to the capital.
The opening panel was led by art historian Dr David Bellingham and examined the art market from the perspective of law and ethics. The art world is often seen as an industry renowned for its lack of regulation and transparency. It periodically throws up infamous rogues and is the subject of spicy films not to mention making jolly good television. It was interesting therefore to hear the views of some top players about how art can at times be more about money making, money laundering and shady dealings rather than art for art’s sake.
Can and should the art market self regulate?
Pierre Valentin is a lawyer specialising in this field and kicked off the panel by suggesting that the word ‘unregulated’ is an ‘unhelpful cliché’. He reminds us that regulation does exist in the form of taxes, copyright & IP, Artist’s Resale Right, trading & shipping controls and various other commercial statutes.
Trying to regulate the market however is also problematic. Should this happen, art world players would face similar problems to those in other regulated markets and be at the mercy of poorly managed box tickers in the compliance process. The cost of government regulation runs into many millions and results in delays and loss of profits. At the end of the day it has often been shown to be ineffective. The Drouot scandal of 2009 is a good example whereby French regulation laws had no effect on some of the poor practices that were going on at the Parisian auctions house.
So how does one move forward? One of the simpler paths would be to better enforce the art world’s existing regulations such as competition law, criminal law and copyright law and to address auction practices and insider dealing.
Ethics is increasingly being addressed in both public and private business and in the art market, embraces a number of factors. Valentin suggests that having a code of ethics is one thing but, unlike a code of conduct, it rarely leads to a penalty. He talks of Relativism (when an issue is viewed from a single player’s own perspective) and Utilitarianism which concerns morality say of the auctions world where one is continually faced with the tension between pragmatism and moral codes.
Robert Hiscox sees the art world as one of the last unregulated areas of finance coming, as he does, from the perspective of the insurance industry which he suggests “has become overregulated to death.” Hiscox is at the top of the art insurance game and Robert’s advice, as ever, is prudent: “Buy with provenance, don’t fake, restore, conserve, be honest and don’t make egregious profits. “ What counts as an egregious profit however should surely be an area of rich dispute and is making a profit a crime in the capitalised world? As for the important business of transporting art he says “pay for the best, don’t use a man with a van and do use proper storage.” This of course will help to avoid litigation and blame over damages to priceless masterpieces.
Crime & Punishment
The Art Loss register does what it says on the box, it records stolen and looted art from around the world. It processes some 380,000 paid searches a year and is very much in the business of confronting the dark side of the art trade and is in a prime position to comment on the need for regulation. Its President Julian Radcliffe, reveals that many of the bad practices plaguing the art world come, not from those at the top, but from the next level down. He believes the art world doesn’t need government regulation, rather a modest one or two person organisation to agree standards, like BAMF (The British Art Market Federation) and that the art associations will need to be tougher in kicking any bad apples out. Whilst the associations cannot always guarantee the honesty of members, he suggested that buyers should only deal with sellers who are in a recognised association so there is at least some comeback. Nevertheless associations have their limits and criminal or civil regulation is not the solution either, as both are slow and expensive.
In essence, contracts should be entered into with the utmost good faith by both parties but the cautionary caveat emptor is no longer enough. More information needs to be given to the buyer. It is an idiosyncrasy of the art world, that deals are done where the seller wishes to remain anonymous and there can be many middlemen scattered around the globe. Moreover it is not uncommon for dubious practitioners to offer art for sale of which they don’t actually have possession. Regulation then, should force sellers and auctions houses to provide more details on provenance and the commissions they are receiving as articulated by Christopher Battiscombe of SLAD, the Society of London Art Dealers. On the subject of commissions, Christopher points out that it is another anomaly of the art world that auctions houses take commission from both buyer and seller!
Fake, Forgery & Authentication
Of course provenance is one thing, but this can be faked too along with the painting itself.
Jilleen Nadolny is a senior scientist with Art Analysis & Research, a highly respected independent London laboratory which authenticates art. She challenges the panel of experts to explain how often materials analysis comes into the work of the dealer. Scientific analysis is now available to buyers and sellers so surely it should be an integral part of a sale, for who would buy a house without a survey? At times, it may be in a seller’s interest to suppress the technical data, yet why should a conservation and authentication provenance document not follow the work along with the title provenance? It is a vital part of the materiality of the object. Robert Hiscox agrees that there would be a lot less chicanery if this was to happen and if there was adequate regulation to support it. The need to know the state of an artwork at a particular time in history, the historical data, is important and no central database exists that a hapless buyer can search to show what has happened to an item over time or to prove its authenticity.
Collecting data on fakes as done by organisations such as AA&R has another advantage. Compiling and recording data on the condition of a work at a certain time also helps the item to be preserved and conserved. Thus it adds to the value long term.
This all amounts to the fact that contracts of sale should have a representation from the seller that they have done 360 degree due diligence in all aspects of the deal as an incentive to facilitate the sale. Admittedly the documentary proof can be falsified or faked, but there is a disincentive to do so when one’s reputation is at stake.
The global art market
Regulation in the UK is one thing, but trading with less developed markets and across borders is becoming a downright quagmire and impossible to regulate globally. Shouldn’t we draw on UNESCO? Sadly its rules are at a low level, the process is not successful and the focus is on antiquities. Freeports now exist allowing works to be stored tax free under bond and this facilitates global trading to some extent. According to Michael JJ Martin, a forensic accountant with Deloitte’s anti money laundering team in Luxembourg, two new laws have been passed. This means that at certain freeports, Luxembourg being a case in point, the onus is on the owner to prove that sufficient documentary evidence exists and the due diligence carried out. It also puts intermediaries who handle the work (in what is often a complex supply chain) under similar pressure and responsibility. Second, cash transactions in excess of 10,000 Euros will by law require appropriate due diligence. Those seen to be trading in art with ill gotten gains or even exchanging dubious artworks in ignorance, can now be prosecuted.
This is important at a time when illegal trafficking and art crimes are estimated to be around 3.6% of global GDP. The financial and legal regulators are therefore turning their eyes to the art market, especially as art dealers are not covered by the Financial Action Task Force (FATF) recommendations and as they represent the High Value Goods class. This means that there is now more interest in regulating art under this category.
International trade is good for UK business and the art world represents an important chunk of exports and imports. However the issues arising from the illegal excavation of antiquities is highly problematic. It is what Christopher Marinello, a lawyer with the Art Recovery group calls ‘radioactive material” Added to this is the problem of laws governing the trade of endangered species such as tortoiseshell, crocodile and ivory. Steve Hedley, Founder and CEO of Hedley’s Fine Art Logistics says, “Quite frankly we would rather just not ship ivory altogether. Obtaining the CITES licences required and ensuring the smooth path of antiques and luxury goods is fraught with problems and exacerbated further by having so many people in the supply chain”.
Whether further regulation of the market happens or not, the need to maintain one’s good reputation in what is a relatively small community, rife with gossip is vital. Kingston University’s Tom Flynn led a panel on how to avoid being at risk from bad practice and what you do if a crisis arises. Adrian Parkhouse of Farrar & Co and Christopher Marinello of Art Recovery discussed reputation with Freya Simms of Golden2 Consulting PR. Once upon a time dealers dealt on a handshake and if something went wrong, one made a quiet call to one’s lawyer. Most deals were localised and in a closed community. Now the digital revolution means that cases are more visible and we can all see what is being bought and sold. We are in a position to carry out more research into the players and what they are trading. The discreet call to the lawyer still happens, but now the complexity and high prices at stake mean that there are numerous experts who come together to resolve disputes so that the public exposure is adroitly managed.
These experts claim that when they do their job properly, we the public, will never get to know about it. Stolen art, forgeries and artefacts looted by the Nazis and from excavations come to light more and more frequently and often a dealer is unaware of what he or she is sitting on. When a scandal comes to light, generally a mitigating press release can be issued or the experts will work for you to keep the issue under the radar whilst they return the art to its rightful owner. Any claim of course needs to be investigated and proved. Art Recovery’s team has recovered some $100m of stolen and looted art and has created an art claims database with high resolution images and condition reports as a research tool. Christopher Marinello works closely with the Police, he does not pay ransoms, nor does he negotiate with perpetrators except to minimise bad press if they co-operate. Nazi restitution is a particular hot potato especially where a work of art might have passed hands many times since confiscation, increasing in value along the way. With a lot more than just reputation at stake, mediation is a pragmatic route. Nicola Wallace, a barrister with Art ADR Global assists in mediation and resolving disputes so that they don’t have to go to court and can be handled with discretion.
Loans & Finance
The art world would not exist without finance and the conference presented a number of specialised lenders such as Citibank, Emigrant Bank and Borro. Sandy Rich of Richard Thompson insurance brokers believes the market to be strong, an assumption based on the demand he sees for all-risks cover for an agreed value and this view was supported by Emigrant Bank. Art is increasingly being used as an asset class and there is the continual tension between the art historians and the financiers as to whether one should buy to invest or buy to enjoy. Most buyers hedge their bets and do both or pretend to at least. Collectors both savvy and amateur are caught up in this dilemma with a plethora of advisors offering different opinions on how to grow their portfolio.
Nevertheless at some point those who amass wealth will buy art and will increasingly use it to free up capital. It is a relatively new area for wealth managers to leverage and lending against art is something the industry is still developing as an income stream. Despite some emerging indices, databases recording sales results, specialist art advisors for guidance and so on, this is still an imperfect marketplace, peppered with anomalies, so the industry needs to understand how to shape the premiums, assess the valuations and do the due diligence so as to allow lending to take place.
Although it is a new area to tap, in some cases the deals are relatively small and the lenders need to think about how they can turn a profit long term whilst managing the risk. Borro can help in the case of a deceased estate or bankruptcy and often raises finance against the property as well as the art and jewellery it sits in. Right Capital can offer advance loans often working with art galleries while Emigrant Bank lends to individuals against a range of assets from manuscripts to classic cars.
All of these forms of collateral require reliable valuations and a shrewd assessment of the client’s creditworthiness. Nevertheless art has a special place as an asset class. As Suzanne Gyorgy of Citibank states; “When the margins (stocks) division panics as the market drops a few points, the art lending team just sit back, drink their coffee and relax!” The conclusion from this panel discussion is that lending against art will evolve rapidly and it is not necessarily the last resort for owners as it once was, it is rather an opportunity to put your art to work whilst enjoying it on the wall at the same time.
Social Media for promoting art
No conference on art business would be complete without looking at the latest trends promoting and selling art and in particular, social media. Annual reports by Hiscox Insurance have revealed fascinating figures about the number of collectors, of all ages, across the globe, now buying art online. It also stands to reason that whilst the art world glitterati will continue to waft around the gallery openings sipping champagne, those who buy art are more often than not researching it online and that includes social media.
The conference focused on just one social media platform, Instagram, so as to present a fascinating range of case studies from what is considered to be the most image friendly platform of all.
The opening of the Ai Weiwei exhibition at the Blenheim Art Foundation was launched with a ‘takeover’ of Blenhheim’s Instagram account by the artist for a short period, resulting in a significant increase in followers. This was curated via Skype and included a joint venture with the RA and an ‘Instameet’ with IGers groups at the venue. The message here was clearly to pull in other groups to increase your exposure and tell your story. Bridgeman Image’s Alan Firmin has spent a number of years helping brands to grow through social media and explains the diversity of audiences now using the medium. Surprisingly the fastest growing sector is in the 40-60 year old age bracket. Major brands are quick to follow the money and are now investing heavily in Instagram to reach them. Nevertheless it is a platform for telling and showing, not for selling. It is a place to add perceived value by telling stories and engaging viewers. Alan believes that Instagram “Democratises artists, galleries and collectors and can live within the context of our daily cultural environment”.
Unit London is one of the most fascinating cases emerging on London’s art scene. Started in little more than a box in Chiswick by two young, ex-advertising twenty-somethings, Joe Kennedy and Jonny Burt have created an art gallery business from nothing, entirely on Instagram. They have promoted unknown artists to become international names and their followers are growing by the thousands. With the 60 artists they now represent, they have a combined reach of 3.4 million followers. Numbers of people represent valuable currency in today’s social media world and Unit London has exploited cyberspace to create a viable and thriving business. Their recent gallery opening in London’s Soho was a huge glittering affair pulsating with music and art world aficionados – proof of the power of the medium to create a real world market.
To conclude, Internet Retailing’s Paul Skeldon sums up the growing importance of this market with some key figures. In 2014 the global online art market according to Hiscox figures is worth around $2.64bn and the global art market in total is estimated to be about $55.2bn. M-commerce in the UK alone is currently worth £18bn showing that mobile and indeed social media will play an increasing role in art buying. Wearable tech is also a burgeoning phenomenon and should be monitored although whether we will ever transact fully A-Z to buy art with our watch is dubious because of the size of the screen.
With the greater adoption of distance selling and more art transacted globally, trust, integrity and cross border legislation are vital issues. With the increase in the number or forgeries being discovered as well as other bad practices, due diligence and greater controls throughout the supply chain will become the norm if not obligatory. Surely there will be more controls imposed to protect consumers; nevertheless ‘buyer beware’ remains an important precept.
Louise Hamlin, the conference organiser sums up this year’s event by saying “I am delighted that the 2nd edition of The Art Business Conference was
attended by over 300 art market professionals, with over 175 companies represented from across the art market. The level of interest and feedback we have received following the conference, from the media and also our attendees, has been excellent. We are already exploring subjects and topics for the next edition which will take place in early September 2016.”