05/04/92

CONTACT: Stanford University News Service (650) 723-2558

Stanford continues ascent despite indirect cost controversy

STANFORD -- Despite damage inflicted by the indirect cost controversy, members of the university community "are still fully engaged in the breathtaking ascent in which Stanford has been engaged over the past four decades," President Donald Kennedy said Thursday, April 30.

Although the damage will not be totally reversed, he said, those who judge the university fairly know that "our confidence and our sense of moral authority are intact."

Clarifications and corrections to the record are slowly emerging "with regrettably little fanfare," he told more than 300 faculty and staff members attending the annual Academic Council meeting in Kresge Auditorium.

The Academic Council, made up of Stanford's 1,300 tenured and tenure-line faculty and selected senior administrators, convenes once a year to hear reports from the president and the chairman of the Faculty Senate.

History Prof. James Sheehan, chairman of the 55-member senate, reviewed actions taken by the legislative body since last year's council meeting. Kennedy then took the dais to deliver his final Academic Council address on the state of the university. He is schedule to step down as Stanford's eighth president August 31.

As happened in the Cultures, Ideas and Values debate, Kennedy said, "enlightenment often follows ugly controversy at a respectful distance." Honest errors and misunderstandings in the indirect cost matter were made into a "media scandal," but people now are beginning to realize that "no one profited and that the mistakes were honest ones."

A review board has forced the Navy to reinstate with back pay the Office of Naval Research official originally accused of having a "cozy" relationship with the university, Kennedy said. And the university has documented the full participation of the Defense Contract Audit Agency in developing and approving of the memoranda of understanding - "contrary to their sworn testimony" at the March 1991 congressional subcommittee hearing last year, he said.

A remaining serious problem is that the indirect cost rate unilaterally imposed by the government is costing Stanford large sums in foregone reimbursement, he said.

Future challenges

In addition to indirect costs, Kennedy discussed four other challenges the university will face in the coming years:

• Aging faculty - Kennedy said he and others remain concerned about faculty rejuvenation. The average age of professors is increasing dramatically at Stanford and other institutions, and federal regulations on age 70 mandatory retirement are scheduled to be lifted in the near future, exacerbating the problem.

In the last 15 years, Stanford's median faculty age has risen seven years, Kennedy said.

"A faculty that is seven years older costs more - tens of millions of dollars more," he said.

Moving the age distribution back to 1975 levels "would have eliminated the need for most of the budget reductions we have so painfully accomplished in the past year," Kennedy told a surprised audience.

• Doing more with less - Reorganizing Stanford for maximum effectiveness and efficiency should be "Phase II" of the budget reduction process, Kennedy said. "This is the golden opportunity to consider some real design changes in Stanford's academic organization," drawing on faculty members' increased understanding of the institution and its budgets, Kennedy said.
• Medical Center - Special attention must be paid to the Stanford Medical Center, Kennedy said.

Medicine is an area of "unmatched volatility," he said, with academic health centers trapped in a rapidly evolving economic environment in which the watchword is "managed care." To cope with that, "collaborative arrangements with groups of community practitioners will be essential," Kennedy said, and this will require that faculty and community clinicians "give up some familiar assumptions about how they practice."

Since the Medical School's "deep period of crisis in the late 1970s," Kennedy said, its leadership has developed "an unmatched record of innovation in basic biomedical research; a new vehicle for transferring that knowledge in the form of the Beckman Center for Molecular and Genetic Medicine; growing strength in the clinical disciplines; a rebuilt and now solvent University Hospital; and - through the generosity of the Packards - a magnificent new affiliated Children's Hospital."

• Internationalization - Stanford has the opportunity in its second century, Kennedy said, "to answer George Shultz's challenge to become the first world university."

Location and initial strength make this a realistic opportunity, he said. New affiliations and even new campuses are a possibility, and the university could develop educational programs, here or overseas, for non-American students.

"Can we hope to make foreign language fluency and deep knowledge of other parts of the world an expected rather than an occasional result of a Stanford education?" he asked.

Past accomplishments

Kennedy used his final speech to the faculty as an opportunity to briefly review "what we have accomplished together over the past 12 years":

• Finances - He said that fund balances and reserves have grown much faster than expenditures.

The purchasing power of the university's endowment has increased nearly threefold during the past two decades because of wise investment strategies, a conservative payout rate and "unparalleled success" in fund-raising. Excluding gifts, only one other university has matched the growth of Stanford's endowment in that time; when gifts are taken into account, Stanford's success is "quite without parallel," Kennedy said.

The operating budget has grown about 5 percent annually during his tenure, Kennedy said, but the non-operating budget has grown even faster, creating a "whiplash" effect as the operating budget is forced to meet new staffing requirements.

He praised recent budget-cutting exercises, saying that smaller reductions at other campuses have "produced serious divisions within faculties, even bitter public disagreements."

Stanford's faculty, on the other hand, "immersed itself in the problem, and participated fully in solving it."

He predicted "palpable deteriorations in service levels" because of heavy staff cuts, and took the opportunity to deliver a tribute to staff, who have had to "swallow the harshest medicine during this repositioning." Many staff are working "double-time" trying to cushion the blow to academic programs, he said.

Kennedy told his faculty colleagues that "careless references to 'too much administration' mistake the historical sources of our growth, and they impose an unfair and unreasonable burden upon the loyalty of our staff colleagues."

• Undergraduate education - Recalling that he had emphasized the need to improve undergraduate education in his inaugural address almost a dozen years ago, Kennedy said the university has had "outstanding leadership in defining what ought to be the common intellectual property of educated men and women."

He cited developments in distribution and language requirements, new interdisciplinary programs, and the Cultures, Ideas and Values program as examples in which the faculty "provided widely recognized national leadership."

Kennedy said that Stanford has a deserved national reputation for "sustaining a vivid and successful multicultural environment," and is also known for emphasizing civic consciousness and public service.

Stanford's commitment to undergraduates through the policy of need-blind admissions is "as firm today as ever," he said.

• Facilities - Kennedy listed facilities constructed during the past decade, saying he was especially proud of the almost 2,000 new spaces in student residences, that have finally eliminated the unguaranteed housing year for undergraduates. As for the unpopular and unsightly Manzanita trailers, "they're going . . . going . . . going . . . well, almost gone!" he said to laughs.
• Faculty improvement - By any criterion, Stanford now has the "most distinguished faculty" in its history, he said.

He reminded the faculty of his inauguration day commitment to building the humanities at Stanford, "to erase what then appeared as a disparity between the perceived quality between those disciplines and the sciences."

Despite some criticism, most scholars say our efforts "were appropriately placed," he said. Recent budget reductions will set new limits, but "will not cancel the impressive gains that have already been made."

Kennedy cut short the standing ovation that followed his speech when he returned to the podium, struck his gavel and jokingly ordered his friends and colleagues "back to work."

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