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Conflicts of Interest

Jan. 20, 2002, is a date actors may remember for a long time. It may mark the end of talent representation as we've known it for the past six decades. Talks between the Association of Talent Agents and the Screen Actors Guild over the agents' franchise agreement broke off on Nov. 7, 2000, and little has happened over the past two years to bring the two sides any closer together. While the past year has served as a kind of grace period to allow negotiations to resume, with agents continuing to operate under the old franchise agreement, as of Jan. 20 of next year all bets are off. No Guild agreement will remain in place to govern the complex relationship between talent agents and actors. That means all the protections actors have enjoyed under the agreement could be lost.

"It's like a big game of chicken," said Dana Mitchell, counsel to the California State Senate Select Committee on the Regulation of Talent Agents, which has been brought into the fray to help clarify the legal aspects of negotiations. "When you're playing chicken in cars," said Mitchell, "and nobody chickens, you all end up hurt."

Nevertheless a few remain optimistic. "I think we have plenty of time between now and Jan. 20 to make the agreement," said ATA executive director Karen Stuart in a recent interview with Back Stage West. "I talk to SAG all the time. They just asked me to come over and help them on their global Rule One area with performers working outside the country, and I'm happy to do that. With everything that's going on, they do still call and ask for our assistance and we still give it to them. Our motive is to continue to support the Guild system. We're just asking for the Guild system to recognize that we need a change."

SAG's recently elected new president seems driven to get back to the table. Indeed, Melissa Gilbert made the need to resume talks with agents a fundamental part of her campaign platform. "We need to sit down and talk," said Gilbert, interviewed weeks before the election. "We need to be reasonable. We need to stop this chest-beating and foot-stomping and saying, 'No, no, no.' What the membership doesn't know is what the dangers of losing this franchise agreement could possibly be, with all of these agents having the opportunity to become unregulated managers, and SAG members having to choose between the Guild and their agent-turned-manager, because we are still going to have to have, according to our rules, franchised agents."

Though Gilbert's presence may spark change, her powers are limited. Any changes she wants to make to the existing SAG committee that deals with the ATA would have to be approved by SAG's board, which, as some have pointed out, is still largely populated by those whose share ex-president William Daniels' reluctance to back down from the Guild's original proposal.

Though SAG has often been the actors' union to set contract precedents with the ATA, the American Federation of Television and Radio Artists has emerged as a major player in the dispute between agents and the actors' unions. After three days of talks in October, AFTRA will resume negotiations with the ATA this month. The possibility remains for AFTRA to pave the way toward a workable compromise with the ATA.

Return of the Wild West

Many, however, believe the outlook is decidedly grim. If the ATA's franchise agreement dissolves in January, actors will undoubtedly feel the repercussions in an immediate way. With no contract in place, the state of California would have to begin deciding which parts of the current agreement would need to be made state law—a complex, tedious situation the state hopes to avoid.

Said Mitchell, "What we were saying is, 'Listen, if you guys dick around and let this thing die, we're going to have to step in because we don't want that vacuum. So we want you guys to kiss and make up and fix this. We do not want this to be a legislative thing. We want this to be a negotiated contractual agreement between two mutually benefiting and beneficial parties. Go be friends again.' If they don't, then none of this is in the code, none of the details. If they drop their provisions, then ours are very general, so we may turn around and bring in the more specific portions of the Guild regulations."

Yet this would be a long and arduous process of negotiation, with the Guild and agents investing enormous sums of money in a lobbying war with an uncertain outcome. Actors would meanwhile face a Wild West scenario of unregulated agents. The market would determine the financial relationship between actors and agents, leaving the possibility for substantially higher commissions. Many agents may decide to leave the agenting business altogether for the more lucrative possibility of becoming managers, who, for the time being, are unregulated and allowed to produce projects. Rather than relying on the safety net of a Guild agreement, actors' only certain option for protecting themselves from unscrupulous talent representatives would be to file lawsuits.

SAG has perhaps operated on the premise that if talks fail, the Guild will still have a franchise, and the ATA will just not be signatory. It would then be up to individual agents to decide whether to sign on. The Guild may also choose to enforce its rule that SAG members may not use non-signatory agents to find work. Yet this is a rule that SAG has never seriously enforced. One wonders how it could be enforced, especially considering that the majority of SAG members are unable to sign with franchised agents.

The ATA could also put forth its own set of self-governing guidelines, similar to the proposals now on the table—though it is hard to determine how well these agent-set guidelines would ultimately benefit actors.

Sticking Points

The main sticking point, as many already know, is financial interest. The agents want the ability to own a "non-controlling" interest in a production company, and vice versa. They also want to own interests in distribution companies.

Stuart explained the logic behind this proposal: "If talent agencies can't form investment strategies and partners to raise capital, they can't maintain a strong staff of agents, they can't create the kind of infrastructure they need that keeps them informed all the time of employment opportunities."

Allowing limited financial interest would also help staunch the flow of agents departing for the management side of the fence. With problems like salary compression, agents argue, it has been difficult for agents to survive as agents. Stuart also said it has been difficult for agents to create access to buyers, as vertical integration has allowed a handful of "monolithic" companies to control most of the entertainment industry.

Built into the agents' proposals are several key protections Stuart feels have been misrepresented in an effort to "scare actors": "No. 1, ATA's proposal prohibits any financial interest in a company that is a network, a studio, the parent company of a network or studio, or the subsidiary of that. You hear people talk about 'Well, if Universal bought into an agency….' That is prohibited under our proposal. In fact, because there are these monolithic companies that own and control so many subsidiaries, there are so many companies that are prevented from forming alliances with us.

"The other protection is that we are not looking to be producers and employers," continued Stuart. "Our proposal specifically prohibits us from that."

Other built-in protections: SAG and ATA would form a committee to recommend additions to the list of prohibited companies. The day-to-day management of every agency would remain in the hands of franchised agents, who would be unable to participate in any employer decisions regarding the hiring and firing of actors. The agent would waive commission from employment of the client with an interested company and disclose any financial interest to the client. The actor would retain the "automatic right of termination."

The agreement would also include language confirming third-party-beneficiary status to SAG and actors to protect against interference with the actor/agent relationship, and expedited arbitration would be mandated in any case in which financial interest was determined to conflict with the agents' responsibilities to actors. The ATA has also suggested an independent study of the effect of the revised financial interest rules, after which the rules could be renegotiated in 2003.

Gilbert spoke about protections during her campaign: "We didn't have any counterproposals when this negotiation was happening, and still [the ATA] came back saying, 'OK, we'll put this here, we'll put this there,' with a huge number of firewalls to make sure that we are protected, that there is no conflict of interest, and if there is, we can go right to arbitration. SAG still said, 'No.' I don't understand that."

Union Concerns

SAG has taken the stance that the ATA's protections are both inadequate and somewhat illusory. The Guild presented its reasoning at the Sept. 28 hearing before the California State Senate Select Committee on Regulation of Talent Agents, chaired by Sen. John Burton. SAG requested the hearing to shed light on the issue of financial interest, taking it to Sacramento before resuming talks with the ATA, despite the suggestion of agents and actors such as Kevin Spacey that the matter might be resolved more effectively at the table.

"This creates a situation where the agents would have a fiduciary obligation to the employers of the actors they represent," said then-president Daniels at the hearing. "If this sounds a little complicated, it is really very simple. It's called 'conflict of interest.'"

Daniels argued that the actors' right to terminate is "illusory." "The average actor [would need] the work that [could] be gotten from an agent or manager who is affiliated with a producer," said Daniels. "A talent agent who [didn't] have such an affiliation or the high-profile actors to attract such an affiliation [couldn't] compete with an agent who does…. Any agreement that has the potential for concentrating control of a substantial portion of the market can have a chilling effect on fair competition."

To illustrate its point SAG presented the case of actor Dan O'Herlihy, who found himself blackballed from work when he refused to do a television series based on his Oscar-nominated role in the 1954 film The Adventures of Robinson Crusoe. His agent at the time was with MCA, an agency that had received permission to enter the production business. After firing his agent, O'Herlihy discovered that MCA had passed the word around town that he was "against the system." He was unable to find work. O'Herlihy's story later became instrumental in the landmark case against MCA that required the agency to choose either the agency or the studio. MCA became Universal.

"An agent's job is to represent talent," said O'Herlihy at the committee hearing. "When an agent is in the position to hire talent, no matter whether he takes commission or not (heaven knows there is more money to be made in the profits of the total property than there is in 10 percent of an actor's salary), that agent will be tempted by his own bottom line…. [That agent] no longer has any business being a representative of talent."

Sacramento Speaks

SAG has made the case that financial interest is not only unacceptable to the Guild but also illegal under current law. The ATA's prior requests for SAG's legal foundation for this position, and its statements that the ATA had every intention of complying with the law, went unanswered. SAG felt the matter should be decided by the state Senate committee.

On Oct. 25 California state legislative counsel Bion Gregory delivered that decision—one that SAG claims is a victory, though the ATA has disagreed. Gregory determined that the ATA's latest financial proposal—as it is currently worded—would indeed violate California's Labor Code for several reasons.

Firstly the Labor Code prohibits talent agencies from giving away interests without consent of the labor commissioner. The Labor Code also states, "No talent agency shall divide fees with an employer, an agent, or other employee of an employer."

While some have suggested that the labor commissioner could possibly consent to allow profit sharing and remove financial conflict-of-interest provisions from the franchise agreement, some analysts feel this would exceed the labor commissioner's intended scope of authority.

Committee legislative counsel Mitchell explained the true implications of the committee's decision: "When I spoke with the ATA about this, I said, 'Listen, what this basically says is that the way you guys have drafted it would be impermissible. If you went back and redrafted it, you would run into another problem, which is whether the labor commissioner has the statutory authority to acquiesce were SAG and the ATA to come and say, 'Hey, we've agreed and we want to change our franchise agreements and allow investments by interested persons.'

"It is the legislative counsel's further opinion—which has not been put in writing, but we've been given a verbal opinion—that they think that exceeds the scope of authority the legislature granted to the labor commissioner. In other words, this ain't gonna fly."

So what would have to happen for the ATA's financial interest proposal to be legal under state law? Said Mitchell, "Instead of simply changing their franchise agreement, they would have to change the law, as well. But you're talking a bazillion dollars and some very sophisticated people with a lot at stake. If SAG and the ATA did agree, they could theoretically come up here together and say, 'Hey, we're SAG and this code was made to protect us, and we are waiving this particular area of protection.'"

A Package Deal

One important area in which this kind of waiver has happened before is packaging, whereby agents are allowed to "package" talent—writers, directors, and actors—for producers and waive their commissions in exchange for a fee from producers based on a proportion of the television network license fees and any off-network profits or movie production costs. While SAG has had some conflict-of-interest concerns regarding packaging, it is legal based on an agreement reached in the 1950s that remains in force today.

SAG's agreement on packaging attempts to prevent conflicts of interest by requiring the agent to disclose the packaging, waive a commission, retain the same financial obligation to the actor, pay the actor at same rate as if the agent were not packaging, and allow the actor the right to terminate.

Certain SAG members have argued that packaging prevents competitive bidding, as the actor may get paid less as part of the package than if the agent had only that person to advocate for. A 1985 SAG agents relations committee, however, studied the issue and found that the benefits of packaging-generated employment outweighed concerns about conflict of interest.

Yet packaging is an area the committee plans to investigate. "We'll be having a hearing on the issue of packing," said Mitchell. "That's coming from our concern that packaging doesn't have sufficient historic foundation for us to understand fully the delegation, so we want to look into it. It doesn't mean we're going to necessarily upset the apple cart. We just need to figure out what's going on over there. This is one of those things where in the '50s, [CEO of MCA Lew] Wasserman and [former SAG president Ronald] Reagan and people in a closed room said, 'Hey, labor commissioner, we're cool. Are you cool?' And the labor commissioner said, 'Yeah.' And that's been the law ever since.

"We need to look at what are the rules and foundation for that, what is the premise [on which] the labor commissioner originally waived jurisdiction. Does that premise hold in modern practice? Should there be more disclosure of what that is, and at the very least, more understanding of it?"

Managing Managers?

In the midst of the standoff between SAG and the ATA, SAG has also come forth with a number of proposals to make legislative changes regarding managers, perhaps in an effort to level the playing field between agents and managers. The ATA, however, has so far remained neutral on this subject.

SAG has three proposals: to broaden the scope of who has standing to file complaints with the labor commissioner, to apply meaningful penalties against those who violate the act, and to repeal the "safe harbor" provision that allows managers to negotiate for actors in conjunction with an agent.

In order to make these changes, however, SAG would have to officially take these proposals to the capitol, find an author, turn them into a bill, and attempt to get it through the legislature. Yet Sen. Burton and his committee have advised SAG that several of these proposals might not be well received.

Said Mitchell, "What the committee told them was: The idea about new criminal punishments? Bad idea. The idea about getting rid of the safe harbor? Bad idea. Though admittedly the safe harbor itself really needs to be clarified, because it is too broad."

Managers could also be expected to lobby vigorously against such changes. They argue that eliminating the safe harbor provision would not only hurt them but also ultimately hurt the many SAG members who are unable to find an agent.

"I'm concerned about the majority of SAG actors who don't have agents," said Betty McCormick Aggas, a manager and second vp of the Talent Managers Association. "Eliminating the safe harbor provision is going to make managers not want to manage. Some of those people aren't going to have managers anymore because managers aren't going to want to play this endless game of speculation."

One SAG proposal the senate committee does seem open to, however, is the idea of broadening the scope of who has standing to file complaints against managers. "That seemed very well received," said Mitchell, "including by the labor commissioner, who said he would very much like to have independent investigative authority. So we might give the labor commissioner the authority to bring more claims himself, kind of like in the OSHA context, then give more people the ability to bring claims to the labor commissioner that he could bring forward."

First Things First

"Here's the fundamental problem with having these hearings [in Sacramento] and trying to regulate managers," said Gilbert in a campaign interview. "We're not even dealing with them right now. Our franchise agreement with the ATA is up. Over. We are in a grace period, which they have been kind enough to extend. Before we even think about what we're going to do about managers, we need to deal with [the agents] right now."

Managers, of course, would tend to agree. "The issue is not about managers," said Aggas. "The issue is how the agents are going to be franchised with SAG. I don't think there's an issue with managers until that is resolved. Until Jan. 20 happens, we have to wait.

"If they don't reach an agreement," continued Aggas, "it will change everything. It will change the relationship between agents and managers, too. It will be more confusing to the actor. Who are they to believe? An actor who comes out here naïve, sometimes taking four to five years to figure out how this industry works, they're the ones who are going to get hurt."

So what's next? Everyone will no doubt be keeping a close eye on negotiations with AFTRA, whose contract already allows for 10 percent financial interest by agents in a production company, radio, or TV station, or network, or advertising agency, and therefore may be somewhat easier to negotiate—though no one is expecting AFTRA to agree to anything too drastic. The situation with SAG, however, remains murky.

"I don't have a crystal ball," said Stuart. "I'd like to just get back to the table. We don't have a chance of making an agreement in any of the areas without getting back to the table. That's what we should be keeping our eyes on right now. And the sooner the better."

But as yet no plans have been made for the ATA and SAG to again sit down together and work out their differences. And the clock is ticking. BSW

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