Facing the music: the pantomime villain of the opera meets his critics

He has been vilified for months but remained defiantly elusive. Not once since Martin Smith was made chairman of the English National Opera in April 2001 had he faced his many critics. Debts grew, reviewers carped and singers protested about potential redundancies. But Mr Smith was nowhere to be seen.

Until yesterday. Finally breaking cover, he took centre-stage at the first press conference of his tenure and showed why a 59-year-old banker by profession had been appointed to the opera house's board – and why ENO singers, musicians and designers wished he had never darkened their door.

With the company's finances in crisis, Mr Smith spoke the language of the balance sheet, not of the beauty of performance. In an implied criticism of the previous management, by those more interested in art than austerity, he relayed details of years of overspending that had brought the much-loved company to its knees. But for a last-minute bail-out agreed by the Arts Council last week, the company would be bust. At today's meeting of the board, the ENO would have been declared insolvent as it headed for a £4m deficit by spring next year, Mr Smith said.

Only a radical change in the way the company managed its finances could save it;that and an injection of cash from the Arts Council in the region of £10m. "An important reason why our economic model keeps going wrong is because our fixed costs are simply too high, and some of our employment contracts no longer reflect best market practice," he said. In plain language, jobs will go.

The facts were brutal, the manner of delivery brusque. Not surprisingly, perhaps, from a man who worked for McKinsey management consultants before embarking on a glittering City career, which he maintains in the form of a couple of part-time directorships.

In fairness, Mr Smith has a long track record of championing the arts, as chairman of the advisers to the Orchestra of the Age of Enlightenment and by sponsoring recitals at the Wigmore Hall in London.

But yesterday it was the banker talking. The contrast with Paul Daniel, the ENO's elegant, fine-featured music director, who sat alongside him, could not have been greater.

Mr Daniel listened, then closed his eyes, as if in pain. With the chorus already in revolt over a proposal to abolish a third of its full-time contracts and similar cuts feared by the orchestra, Mr Daniel is in the front line of battle between the business of the arts and the art itself. It showed.

For Mr Daniel, every mention of the need for new employment contracts is a potential dent in his core orchestra, and talk of paying the staff "differently" is a code for the break-up, in effect, of the ensemble company, the core of committed performers.

Yet the figures made clear that, just as with the Royal Opera House before it, the English National Opera must face the harsh economic realities of balancing the books.

The ENO was a unique institution that had always played an important role in the artistic life of the nation, Mr Smith said. "Financially, however, for some time the English National Opera has been chronically sick. The company would have died last week had it not been for the intervention of the Arts Council."

For the past 10 years, the ENO had been overspending by up to £2m a year. Successive managements had overestimated the likely returns at the box office. Their optimism had proved disastrous.

In 1997, the Arts Council stepped in with a £9.2m rescue package, the largest stabilisation grant it had made. The rescue failed. "That investment has not resulted in the company achieving the necessary reforms to enable it to break out of the boom-and-bust cycle. The result is that six years later we're in financial crisis once again," Mr Smith said.

The need for a tougher financial regimen was the reason for the departure of Nicholas Payne, the general director, last summer. His combined role of artistic leader and administrator is now being split.

There will also be fewer administrative staff and full-time performers. "These are not optional economies, they are necessary, because without them, there is no sustainable future for the company," Mr Smith said.

In response, Mr Daniel expressed most where he said nothing. He had not yet had a chance to analyse the business plan, he said. But he sounded doubtful when he added: "I have stated very loudly and clearly that the integrity of the company is not just achieved by the head count, but by making sure we have the right continuing relationships."

The choristers, 20 of whom face redundancy out of a complement of 60, had "every right to be concerned" if they could not rehearse and perform with "the integrity and permanence of experience and skill", Mr Daniel said.

Equity, the choristers' union, was also critical. The ENO was nothing without its art and the art was built upon the company developed over a long time, the union suggested. "There has to be a question mark about a strategy that rips out the artistic heart of the company," Martin Brown, a union spokesman, said.

When the previous management had demanded changes to working practices, the chorus had agreed to everything that was asked. "Some of these people have devoted their artistic lives to this company and they feel betrayed," Mr Brown said.

Equity may be right in saying that the ensemble company is really under threat, and the Arts Council may refuse to ratify the final rescue plan when it is discussed in March. Without the council's money, Mr Smith's proposals cannot be carried through. But the Arts Council has until now made clear that it believes the ENO is in desperate need of an overhaul and that only radical measures are likely to save it.

The arguments will probably continue at least until the summer, when the opera house's home, the Coliseum in St Martin's Lane, central London, will close for the final part of a £41m restoration plan.

The renovation of the Edwardian theatre, the company's home since 1968, is also crucial to the financial crisis. It is due to reopen in January next year, with a refurbished auditorium, new bars and new education facilities.

Perhaps then people will realise whether Mr Smith, the hard-headed businessman, is right. And, unlikely though the prospect seems at present, the chorus may sing his praises.

Making a scene: when business leaders take charge of the arts...

Suzanna Taverne

Former managing director of the British Museum

Ms Taverne, a banker, was appointed to turn around the museum's chaotic finances but raised the hackles of staff who had never seen much reason to employ accountants. She eventually quit because she believed that the trustees would never give the top post of director to a non-academic when the incumbent retired. She was not even considered for the job.

Sir Colin Southgate

Chairman of the board at the Royal Opera House

The former head of EMI clashed with Vivien Duffield, Covent Garden's well-connected and hard-working society fund-raiser, and paved the way for her eventual departure. Critics claimed he knew little about opera and that his chairmanship was due to a donation from his company to Labour before the 1997 election.

Lord Hollick

Chairman of the board of the South Bank Centre

His ability to be tough was said to have won the New Labour peer the poisoned chalice of the South Bank, though critics claimed it was cronyism. Few public rows so far but his predecessor, Elliot Bernerd, who retired through ill health, allegedly made life difficult for Karsten Witt, the chief executive who resigned over redevelopment plans.