A letter from the President of Stanford University

Today I received an extraordinary message in my email inbox: “A Message from Stanford’s President”.

John Hennessy, President of Stanford University, has taken the initiative to write to the broader Stanford community, including students’ families and Stanford alumni, to acknowledge that Stanford too is impacted by the state of the financial markets, and explain the implications of the dramatic shift in the economic environment for the University.

Please read the letter (I believe President Hennessy won’t mind my sharing it with you). I was deeply moved as I read it. This is a man who felt that it was his responsibility to reach out and explain these things to us; and it is clear that he put a lot of thought into how to say them. The letter is clear, to the point, empathic, forward-thinking, and deeply human. It makes me trust his leadership. It makes me proud to be a Stanford alumna.

	Dear Alumni, Parents and Friends: Many of you have contacted me over the past few months with questions about the recent shifts in the economy and how the University is affected. I would like to update you on our response to these challenges. Financial Aid Commitments Still Secure The questions came to me even before the academic year was under way, from parents moving their sons and daughters into their residences this past fall: Given the state of the economy, would the University be able to meet its commitments to financial aid? Would we be able to help in situations where decreased home equity might preclude a loan they were counting on to help pay tuition? How would we deal with job losses by a family member? Our response: We will stand by our commitments and, yes, we will reconsider the financial aid needs of any family negatively impacted by the economic downturn. The questions continued through Reunion Homecoming Weekend as the Dow Jones average dropped approximately 25 percent further. How was the University’s endowment affected? What would this mean for financial aid, for operations and for the capital facilities projects already under way? The Tightest Financial Outlook in Decades Let’s start with the endowment. We weathered the period through early summer comparatively well, achieving an overall return of 6.2 percent for the year ending June 30, 2008. Since then, the endowment has declined steeply, although somewhat less precipitously than the market indices. In addition, sponsored research, our second largest revenue source, has been declining in real terms over the past several years, and given the challenges in the federal budget is unlikely to improve quickly. Tuition, our third major source of revenue, cannot be raised significantly out of fairness to our students and their families. All of these factors contribute to the tightest financial outlook we have seen in decades. Fortunately, Stanford entered this period in a relatively healthy financial position, bolstered by several years of revenue increases, generous gifts from alumni, parents and friends, and remarkable growth in the endowment, which for the first time ever became the University’s largest source of revenue. To manage our finances going forward, we anticipate reducing the $800 million general funds budget – which pays for most of our faculty and staff salaries, central administrative operations and non-research expenses – by 10 to 12 percent over the next few years. Declining federal research dollars could double the total revenue loss across the University. We cannot achieve these reductions without some significant and permanent cutbacks. Cutting Costs Wisely As we implement these budget cuts, we will do so with several principles in mind. First, we will focus on preserving the investments we have made in our faculty over the past decade. Likewise, we will maintain our commitment to both undergraduate and graduate students. The excellence of the University depends on its people, and we will do our best to maintain the quality of our faculty, staff and students as we make adjustments. Second, we will review our capital projects. We are in the midst of a major capital program that includes some vital construction projects. Halting projects in mid-construction, even temporarily, would cost us more money in the long run. But not all our projects will be built according to the original schedule. We will reexamine projects that incur significant amounts of debt. Third, through support from The Stanford Challenge we have launched a variety of efforts to address the most challenging problems facing humankind: sustaining our planet for future generations, enhancing peace and stability around the world, exploring the potential of stem cells for autoimmune diseases, improving K-12 education in the United States, and finding new ways to generate energy that will not increase greenhouse gases. These are critical initiatives, and while we must adapt our efforts to present circumstances, we will not shy away from our long-term responsibility to lead in finding solutions for these problems. Trust in Our Stanford Community We know we are not alone in dealing with this financial shockwave; some of you will experience situations far more difficult than we see on our campus. My sincere wish is that those whose lives have been disrupted will find firmer footing in coming months. In any crisis, we look to the people and places whose connections sustain and strengthen us. I hope that your place in the Stanford community provides such nourishment for you. As always, I am happy to hear from you. Send your comment, suggestion or question to me at president@stanford.edu or to Howard E. Wolf, ‘80, vice president for alumni affairs and president of Stanford Alumni Association, at alumnipresident@stanford.edu. Sincerely, John L. Hennessy President

Two underwhelming books: “Success Built to Last” by Jerry Porras + others, and “How” by Dov Seidman

I’ve stated before that I am a massive consumer of books about what to do with one’s potential for leadership and fulfillment; this summer, I read two more. I was, however, disappointed by both.

“Success Built To Last“, by Jerry Porras, Stewart Emery and Mark Thompson, builds on hundreds of interviews with highly successful people to discern patterns in their motivation, their thought processes and their action styles. When I say “successful”, the bar is quite high: we’re talking about Sir Richard Branson, Nelson Mandela, Michael Dell, Maya Angelou and even the Dalai Lama. That’s the kind of crowd you meet in Davos, if you’re invited.

Yet, as much as I love all Stanford authors, this time I have to say that Professor Porras hasn’t convinced me. Although supported by rigorous analysis and an ambitious survey, at the end this boils down to biography as an attempt at inspiration. We already know that truly successful people are the ones who love what they do, who find deep meaning in the mission they have discovered for their lives, and who would do the same things they do today even if they didn’t make any money doing them. We also know that they are relentlessly optimistic and resilient in the face of failure. We know they are like that. We can try to model our thought processes and action styles on theirs. But will you learn anything new about success from reading this book? No matter how well thought out and documented, the actionable advice in here boils down to following your passion, and adopting certain habits of thought and action while you pursue it. The fact that this book comes with a full range of five-star reviews and was in the top 3 editors’ picks in the business category of Amazon’s Best Books of 2006, in my opinion, only reflects rather poorly on the 2006 crop of such books – or on the standards of the Amazon editorial staff and the community of reviewers.

“How” by Dov Seidman, a book about how ethics is changing the rules of business for the better, was another disappointment. More personal, more based on “war stories” from the author’s career, which makes it somewhat interesting at times; yet, full of extremely superficial summaries of the way the world has changed from the Industrial Revolution up to today (if you want to read “The World Is Flat“, I suggest you read “The World Is Flat”, and not Seidman’s reductionist synopsis); of pseudo-evolutionary biology talk about why trust develops in human societies (again, much better: read “The Origins of Virtue” by Matt Ridley); and of rants about the lack of such values as transparency and trust in today’s business world.

Maybe I’ve been lucky, but that’s not my experience: the world is not all Enrons, WorldComs, or Parmalats. On the contrary, I’ve always been able to work in organizations that were guided by sound values and constantly reinforced them (my previous employer even used to hold an annual worldwide “Values Day”), and where people mostly trusted each other – not trusting each other was simply not feasible (you would die under avalanches of work, among other effects). Even today, I am regularly evaluated on both results and behaviors, and I evaluate my team on their results and their behaviors. And, we do not backdate stock options – that is simply not done around here. So, that “how” we do things (meaning, our behaviors) might be a source of key advantage in today’s business world strikes me as a somewhat naive proposition.

Perhaps this can be a useful book if you’re either very young, or very cynical about the value of personal and institutional integrity. If you’re neither, this is a book you can skip without regrets.

Hard Facts, Dangerous Half-Truths and Total Nonsense: You’ve got to love Pfeffer and Sutton

Being a Stanford graduate, I was already partial to the authors, two Stanford professors, before even starting to read Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting from Evidence-Based Management. With a title like that? and that cover design? (oh my god, those people at HBS Press have got themselves a mean publishing machine).

Wait. It only gets better. If nothing else, read this book for a benchmark of academic freedom. Few among the Stanford Business School faculty enjoy more of an icon-like status than lecturer – and entrepreneurial legend – Andy Grove. So, in opening the book with an argument about the lack of evidence that stock options enhance organizational performance, they deliver a quick jab to Grove:

“When Andy Grove, former Intel chairman and CEO, got prostate cancer, he assiduously tracked down all the data he could comparing treatment options and their risks and benefits, gathering the best available evidence to guide his medical decisions. That’s what we would expect from a well-trained engineer and scientist. Grove, however, like many of his Silicon Valley friends, continues to insist on the benefits of [stock] options and doesn’t cite evidence for his views – even though with other business decisions, Grove sticks closely to the facts.”

Similar barbs are reserved, later in the book, for Robert Burgelman, whose claim that “strategy is destiny” they quickly proceed to undermine – with a close reading of the Intel story, which Burgelman and Grove have co-taught to generations of students: the key strategic decision in Intel’s story was, apparently, an outsourcing decision made by IBM, which Intel was smart to capitalize on, but which Intel did not influence or even foresee as the lucky break that would build the semiconductor giant. If you ask me, that’s pretty much like pulling the rug from under Burgelman’s feet. Yet, their whole critique seems to be in good faith, extremely civilized, and driven by the authors’ genuine truth-seeking efforts rather than by personal animosity. And I just think that’s very cool.

If you like challenging conventional wisdom, this is a book full of delights and an arsenal of tools for attacking nonsense in your corporate environment whenever you see it:

“Take the case of a senior exceutive from Florida Power and Light, who told us, while attending a Stanfrod executive program, that his compensation was based on the profitability of the utility. The utility’s profitability, since in the short run most of its costs and rates were fixed, depended mostly on the amount of electricity sold, and the amount of electricity sold depended mostly on the temperature. The hotter the summer in Florida, the more power was sold, and the more profitable was the utility. That summer was a particularly hot one in Florida, so the executive got a big boost in pay during the month that he spent at the Stanford Executive Program in california. This executive noted that this incentive system made no sense — unless you believed he could control the weather in Florida”.

The authors handle some big hairy questions (Is work fundamentally different from the rest of life, and should it be? Do the best organizations have the best people? Are great leaders in control of their companies?) In most cases, they don’t have the answers, but they show you under what conditions an answer might be fit for a given situation, and how devilishly difficult it is to get to the answer if you don’t specify those conditions. So, suppose your company spends a lot of time and effort developing and administering a performance management system that ranks people’s performance on a curve or forced ranking, encouraging you as a manager to “use the full curve” in grading your employees, and rewards better performers with monetary bonuses (ever been in one of those companies? ). After reviewing decades of experimental research and field studies, Pfeffer and Sutton conclude: “Individual incentives and highly differentiated reward and recognition distributions make more sense when performance can be objectively assessed and when performance is mostly the result of individual effort rather than the product of interdependent activity”. Examples of such jobs are jockeying, cutting trees, and installing windshields. “Similarly, the evidence suggests that more dispersed financial rewards increase the performance (particularly of the highest performers) when tasks entail little or no interdependence and outcomes are clear.” Examples: driving trucks and picking oranges. When was the last time you had a job like that? You probably experienced a fair bit of interdependence even while editing your high school yearbook, didn’t you? “Yet when work settings require even modest interdependence and cooperation, as most do, dispersed rewards have consistently negative consequences on organizations… The negative effect of pay disparity was especially pronounced for high-technology firms, because those firms had the greatest need for collaboration and teamwork.”

Pfeffer and Sutton claim as their practical inspiration Dr. David Sackett’s evidence-based medicine movement: hell, if it works for medicine, let’s try to see if it works for business, too. In the bigger scheme of things (on strategy, organizational change, and leadership), their conclusions remind me of Eric Beinhocker’s The Origin of Wealth, a more theoretical work about contemporary economics which nevertheless seems to me to hint at some of the same truths. And at the end of the day, it’s not about truths, which change anyway: it’s about the method of looking at the facts, applying your brains, and leaving behind those beliefs that happen to be unsupported by evidence. If we all could inject some more of this wisdom into our organizations, we’d probably have earned our salary, and our bonus too.

America’s colossal cultural decline: Dana Gioia’s 2007 Stanford Commencement speech

Most American artists, intellectuals, and academics have lost their ability to converse with the rest of society. We have become wonderfully expert in talking to one another, but we have become almost invisible and inaudible in the general culture.

Last month, Dana Gioia – a cool dude who is a poet, an MBA, and the chairman of the National Endowment for the Arts – delivered quite an interesting speech to address graduating Stanford students (and the parents who largely paid for their undergraduate education), claiming that the decline in artists’ engagement with the world around them is a prime factor in the collective dumbing down of America.

The speech has been criticized for painting the past in rosy-colored hues (what about the McCarthy years?) and not recognizing today’s highlights of popular culture (from the baroque complexity of Lost to Oprah’s tireless efforts to get people to read books). I leave it to you to form your own opinion. In the meantime, it never hurts to go back to the classics, so I leave you with another excerpt from Gioia’s speech, this time quoting the philosopher-emperor Marcus Aurelius:

Marcus Aurelius believed that the course of wisdom consisted of learning to trade easy pleasures for more complex and challenging ones. I worry about a culture that bit by bit trades off the challenging pleasures of art for the easy comforts of entertainment.

I love libraries

I love libraries and I think in another life I might easily have become a librarian. Here is a new page from the excellent librarians at the Stanford Graduate School of Business Jackson Library: GSB Blogs/Podcasts. It will need some more organization and navigation features as it grows, but it’s a nice start.

In the greater scheme of things, Stanford University lectures and interviews have been available for a while on iTunes: see Stanford on iTunes U. If you commute to work and listen to podcasts on the way, give it a try!

Shameless self-promotion: my face in the Stanford GSB’s newsletter to applicants

Check it out here: I’d answered Stanford’s request for a picture and comments months ago, and forgotten. Today, in meeting a candidate with my Alumni Interviewer hat on, I was surprised to find that he was excited to meet me because of reading about me in the newsletter… like I was some sort of celebrity. Lots of fun.