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Trust, but verify, as they say

The Art Newspaper, 11 July 2013  
 

The art world is riddled with tensions: between the rational and the emotional, commerce and culture, public and private, collectors and investors, amateurs and connoisseurs—and between trust and transparency in the art market. A group of leading academics and practitioners debated what this means for the art world at a conference in Goodenough College, London, sponsored by Skate’s Art Market Research and Sotheby’s Institute of Art, coinciding with a research project launched at the institute.

Trust and transparency are often assumed to be substitutes—one replaces and becomes superfluous when there is evidence of the other. But in the increasingly global and technologically determined marketplace, trust and transparency can, and should be, complementary.

Art-world participants are particularly adept of navigating the choppy waters of competing interests. Like the Roman god Janus, dealers and auction houses often face in two directions at once. Contemporary galleries, for example, promote and position their artists in a cultural discourse while meeting the commercial realities of a business. Auction houses broker deals between consignors and buyers with directly competing interests who want the best price for works.

What makes the art world special is that at the top end it is a truly global marketplace of rare and high-value objects, inhabited by a few big players whose whims can move the market. Even at the middle and lower ends, to survive the uncertainty of a market built on the fickleness of taste, successful businesses rely on something vaguely termed “trust”.

There is widespread belief that trust, in all its forms, is at the heart of the art world. Individuals rely on trust-based relationships for transactions where handshake deals are the norm. A purchase at major international art fairs is sealed not with a written and signed contract but with an understanding. International institutions such as Sotheby’s and Christie’s build their brands on the strength of the reputations of their experts and the personal relationships they forge with long-standing clients.

Trust can broadly be understood as the expectation that an exchange partner will not behave opportunistically—they will not take advantage of you even if it could benefit them.

At the heart of trust is the willingness to accept vulnerability within a relationship. By definition, if you trust someone, you do not check up on them. But if you don’t check, you will never know for sure. “Trust, but verify”, the old Russia proverb, was the title of the conference keynote address by Orley Ashenfelter, a professor of economics at Princeton.

For those in the art world, trust-based relationships have many benefits. They can reduce the costs of transacting and encourage exchange. At international art fairs, deals are done on a handshake and it is common practice for dealers to lend valuable objects to try out at home before you buy. Dealers assume the work will be returned properly and in due course.

But trust has a dark side. What makes cases like the recent closure of Knoedler & Company, following alleged fraud and the alleged selling of fakes, so detrimental is that they illustrate that no one is above suspicion in a system based on trust.

Historically, the trust-based art world has also been characterised by a lack of transparency. It is often described as the last unregulated market in the world. On the one hand, the private nature of transactions and a focus on client confidentiality and discretion are at the heart of a highly personalised service. On the other, opacity and a lack of verifiable information, particularly in terms of price and provenance, make it difficult to make good decisions and monitor risk.

 

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 June 2014