The auction house is eliminating the Chief Operating Officer’s role

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Sotheby’s Chief Operating Officer to Leave at Year’s End

The news today that Adam Chinn’s role of Chief Operating Officer was being eliminated with his duties to be divided between art lawyer John Cahill assuming the Chief Commercial Officer’s role and Ken Citron coming in as head of operations gave many in the art market a shock. Chinn had joined the auction house three years ago when Sotheby’s paid $50m (+ a $35m bonus) for Art Agency, Partners, the consultancy he formed with Allan Schwartzman and Amy Cappellazzo. The acquisition was seen as a way to diversify Sotheby’s business while adding to the bench of senior management.

A year later that strategy seemed to be validated when Chinn was promoted to Chief Operating Officer. Not terribly long after, AAP hit its performance targets earning the APP principals the full $85m acquisition fee. Chinn’s 20% share of AAP would have yielded him $17m upon which he would pay tax at the capital gains rate, as one former Sotheby’s employee points out.

Chinn had only joined AAP a year before the acquisition and had no formal role in the art market prior to that. He came to the art business from investment banking and corporate law, two fields where self-confidence is not in short supply and aggressive behavior is rewarded.

Chinn’s primary role running Sotheby’s guarantee book and signing off on the firm’s major deals requires someone who is a “street-fighting killer.” By all accounts, Chinn was that … and more.

Some who made deals with Chinn felt he brought too much of his former life’s swagger to the job. Chinn was known to drive bargains harder than necessary. Or, having driven a hard bargain, it is said he had too much of a need to show that he had done it. This left clients and their representatives feeling unnecessarily bruised.

Internally, there were morale problems and a sense that perhaps Chinn was too independent minded to work in a corporation with multiple, overlapping constituencies.

Smartest Guy in the Room

For the first few years, Chinn seemed to bring discipline to Sotheby’s deal-making. But this Summer, during the second quarter earnings call, Sotheby’s took the extraordinary step of revealing that its auction margins were impacted by mis-calculations on guarantees Chinn oversaw. The decision may not have been directed at reining in Chinn—as a public company, Sotheby’s needs to show its stakeholders that short-term problems are manageable and of limited duration—but the gesture seemed to have little effect.

Two weeks ago, Sotheby’s saw another big auction shortfall in the form of a rare direct guarantee for Marsden Hartley’s 1913 Berlin painting Pre-War Pageant. That picture had a whisper estimate of $30m which should give us a sense of the company’s potential exposure. Some suggest that Sotheby’s will have to write off as much as half of that. Most likely the auctioneers will find a buyer or structure an arrangement to minimize the exposure.

No one is saying that Chinn was pushed out over the Hartley. By most accounts, Chinn was hardly the driving force behind the gambit. But Chinn’s departure does allow Sotheby’s to draw a line under the Hartley issue in a way that it would not have been able to otherwise.

Chinn’s leaving does raise some questions about Schwartzman and Cappellazzo’s own futures with the company. But all three signed five-year contracts with Sotheby’s during the AAP acquisition. Only 60% of the term of those contracts has expired. Chinn’s background in finance and law give him more options upon leaving. He’ll get severance and be constrained by a non-compete commensurate with the payment he received. None of which prevents him from working in non-art related legal and financial endeavors.

Getting the Deal Done

On the other side of the news, the appointment of Citron and Cahill to split Chinn’s responsibilities has some interesting twists of its own.

Citron held a similar role at Christie’s and has been working as a consultant for Sotheby’s for a few months. His role “at the intersection of logistics, services and technology to drive performance improvement across all operations” is a very Sotheby’s way of saying that a lot the company’s operations need better integration especially if the company is going to make progress on its ambitions to use technology to open up the business beyond the high-touch, high-end art world.

Cahill comes to the role from another angle entirely. Close to General Counsel Jonathan Olsoff, Cahill already litigates for Sotheby’s. But the role of Chief Commercial Officer would seem to be out of character for a season art lawyer who was once General Counsel at Phillips Auction.

Auction houses thrive on their diverse pool of talent who bring deals to the firm often with expectations of a range of financial incentives. Getting each specialist to understand that their client might not qualify for “most favored nation” status is part of the job. In that sense, the Chief Commercial Officer is a sales job.

In an industry with so few players, there’s not a large talent pool to fish in. It’s unique role that is tough train successors and even tougher to hire for.

In another sense, it helps to have some experience as a corporate lawyer or, at least in Cahill’s case, as an art lawyer who understands the complexities of art deals. For a job like this, it helps for the dealmaker to be able to understand the structure of a guarantee in his head, visualize the necessary contracts and the sequence of the negotiation that will result in a solid deal. The dealmaker also has to be loose enough to know where to allow the right amount of risk to get the deal done—without taking on too much risk to imperil the company.