Promoting Profits and Public Service: Taking a Look at Bill Hewlett
Damon Vangelis
Issue date: 10/29/01 Section: Features
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The company’s string of 61 consecutive years of profits, its impressive level of job creation, and the higher standard of living it provided to HP employees, shareholders, and investors have been a source of inspiration for countless budding entrepreneurs ever since. It’s almost bible in Silicon Valley.
But this is only half the story. There is an equally important part that is still being written. This is because Bill Hewlett, like his business partner David Packard and countless other prominent business leaders, had another side to his life – a commitment to his community, to the welfare of others, and to public service. The most visible reminder of this is the $5.5 billion William and Flora Hewlett Foundation, which is currently located on Middlefield Road in Menlo Park.
According to the Foundation’s President, Paul Brest, the Hewlett Foundation’s mission is to promote the well-being of mankind by focusing on the most serious problems facing society, and by sustaining and improving institutions that make positive contributions to society. This principle is manifested in these more particular objectives:
- To ensure the sustainable use of the earth’s resources;
- To support the development, well-being, and cultural enrichment of children, adults, families, and communities;
- To advance democratic self-governance and reduce harmful conflict; and
- To reinforce the institutions that develop knowledge and actively work toward these ends, and that provide the bedrock of civil society.
In 2000, the Foundation awarded over $120 million in grants. The Foundation has seven program areas of focus: education, performing arts, population (the largest dollar-area of support), environment, conflict resolution, family and community development, and U.S.-Latin American relations.
Recent Passing
When Bill Hewlett passed away at the age of 87 this past January, headlines noted that his estate left what was then estimated at $6 billion in HP stock to his private grant-making foundation, The William and Flora Hewlett Foundation. Beyond the headlines, it was clear that this was not simply an instance of a wealthy individual creating a foundation as part of an estate planning. Rather, it was the final personal act of someone who had demonstrated a lifetime’s work of public service that transcended his business and private life. He possessed certain values, and these shone through in his business and in his private life.
With HP, Hewlett pioneered a management style called the “HP Way” that has been described as a philosophy that “emphasized teamwork, creativity, and the worth of individuals.” In 1966, together with his wife Flora and their eldest son Walter, he created his foundation to further his values in the non-profit sector.
Record Gift to Stanford
A few months after Hewlett’s passing, the Foundation announced a $400 million grant to Stanford University, a record grant to an institution of higher learning. While the size of the grant drew considerable attention, support for Stanford was nothing new to Bill Hewlett’s philanthropy. A 1934 graduate of Stanford, he had close ties to the institution up until his death.
GSB Professor Irv Grousbeck, a Hewlett Foundation Trustee and Bill Hewlett’s neighbor for many years, attributed the grant to Bill Hewlett’s fondness for Stanford. He said, “Bill had a special place in his heart for Stanford University. That was evidenced not only by his gifts, but by his actions over the years. And a lot of this preceded my relationship with him, but I know that he was close to the presidents of the university over the years. I know that he knew a number of faculty members well. In fact, one of them, Herant Katchadourian, is a Trustee of the Hewlett Foundation and has been for many years. So Bill’s affection for Stanford was almost boundless.”
The grant has been designated in the following way: Three-quarters of the grant will be reserved for the School of Humanities and Sciences; $100 million for scholarships and undergraduate programs. But it is largely in the hands of the university to decide how the funds will be spent.
The grant is expected to help the university maintain some balance between its support for the hard sciences, which have been receiving considerable support in recent years, and the humanities or “soft sciences.” At the announcement ceremony this past May, University President John Hennessy noted that Stanford’s first president David Starr Jordan wanted Stanford to be a place where “work in the applied sciences is to be carried out side by side with the pure sciences and humanities.”
The grant did receive some criticism however in The Chronicle of Philanthropy, a prominent publication in that field. Rick Cohen, the President of a group called the National Committee for Responsive Philanthropy, wrote an op-ed that dismissed the grant as “so lackluster that it’s hard to consider it philanthropy” and that it amounted to an “endowment asset transfer” between two “elite institutions.”
Paul Brest responded to the article by challenging its characterizations.
“The gift was not general endowment support for Stanford,” wrote Brest in a letter. “In a university in which each school must do its own fundraising, relying largely on donations from its own alumni or from corporations, Humanities and Sciences is the poor cousin of schools such as Business, Engineering, and Law.”
He added that not only was the Foundation “proud to support” Stanford, but that plans for the gift had been under way for about a year, and that the Foundation had “a responsibility to honor the donor’s wishes.”
Challenge of Measuring Success
Interested to learn more about how the Hewlett Foundation makes decisions on which philanthropic and charitable programs to support, I met with Paul Brest at the Foundation’s offices on Middlefield Road in Menlo Park.
Brest came to the Hewlett Foundation in 2000 from Stanford Law School, where he served as a professor of Constitutional Law and Decision-Making since 1969, and most recently had completed a 12-year tenure as Dean from 1987-1999. During his Deanship, he was a fundraiser for the school. So I asked him if he preferred the grant-making side now that he was in charge of a major philanthropy.
He said, “I love this job. I lucked into this job. At the time the job came up, I had been thinking about going back into teaching. As Dean, I always thought I had the most interesting job anyone could have. But I must say that this is the most interesting and most challenging job I have ever had. People ask which is harder: fundraising or grant-making? This is by far the harder of the two.”
So I asked, “Well, in what sense?”
To which he replied, “I think what’s hard is that in fundraising – as in business – there is a bottom-line. It is a financial bottom-line. And at the end of the week, we would have raised a certain amount of money for the law school, and we would know if we were ahead or behind our goals. Figuring out whether your grant dollars actually make a difference and how to make a difference depending upon what your goals are, is very, very hard. I think it’s the most interesting and challenging piece of philanthropy.”
Brest and GSB lecturer Jed Emerson have written about the concept of “Social Returns on Investment,” in which foundations attempt to establish metrics and benchmarks for evaluating grants that go beyond what Professor Grousbeck describes as “the goals set by the grantee and agreed to by the grantor.”
Brest has also spoken about the importance of supporting institutions – such as Stanford – as opposed to specific programs within those institutions. So I asked him, “Do you think it is more difficult to evaluate institutions since they operate over a much longer time horizon?”
To which he replied, “I am not sure it makes it more difficult actually. It is a different style. A huge amount of our grants go to supporting institutions. When you are doing that, in effect, you then adopt the grantee’s mission as your own. And to the extent that the private foundation and the grantee are clear about what it is trying to achieve, I am not sure it is more difficult. In some ways, that approach is the venture capital approach in the private sector. You look for an organization that seems to have a strong leadership, a good and clear mission. It may be that some project grants are easier because you can define them within a short time frame, but I am not sure it necessarily correlates.”
The Virtuous Circle
In many respects, the Foundation completes a “virtuous circle” that encompasses entrepreneurship and philanthropy.
At one point on the circle, an entrepreneur forms a new venture, succeeds, and in the process, generates surplus wealth for himself or herself, the employees of the company, investors, and shareholders. That surplus wealth invariably gets cycled into private foundations, charities, scientific and medical research, and educational institutions. These institutions strengthen the educational system, promote a social safety net, and often seek to accomplish what Andrew Carnegie once described as the central calling of philanthropy – “helping people to help themselves.”
Brest said, “The ‘virtuous circle’ idea is interesting – even if not all the money goes into the virtuous circle, it is a nice thought. A fair amount of the grant-making dollars that the Foundations and other foundations give away go to things that do not necessarily then – in any way direct way – cycle back into generating wealth.”
I asked him whether any in particular came to mind.
“Well, do the arts?” he asked.
To which I replied, “Well, that’s a fair point. It might depend on whether
the support was for art that elevated the human spirit or degraded it. I guess – at a minimum – it’s clearly not a direct link to strengthening the environment for private enterprise. You published an article on the Foundation’s WebSite outlining three purposes of philanthropy. The first being to step in where there is a government failure or efficiency problem. The other two were values-based – one was strengthening civil society and promoting diverse institutions; the other was compensating for perceived inequalities. Does supporting the symphony, for example, strengthen civil society, and help foster an environment that can generate additional wealth? You could certainly argue it.”
Brest, seemingly eager to return to his debating days over at the law school, replied, “Well, there’s a subtle distinction there. It may strengthen society and create non-material forms of wealth. The virtuous circle becomes a little more problematic when you have foundations or philanthropists pursuing mutually inconsistent and antagonistic goals. Maybe it can be. I don’t want to say it can’t be. But at least you need to analyze how the system works where you have philanthropies supporting choice and others supporting anti-abortion. You clearly have two visions of the good society. The nice thing, I guess, about material wealth is that there is only one vision and that is more is better.”
To which I said, “Well that’s the friction you are going to have in a pluralistic society as people who share differently values seek ways to express them.”
Brest added, “You can argue that what you are doing is supporting pluralism itself, and I think that is not a silly argument. In some respects, I think that is the strongest argument for foundations and why foundations or non-profits in general should have this favored tax status. It is a way for allowing many different points of view to flourish. And if you look at societies that have no civil society, no organized non-profit sector, they do look impoverished. So you can make the argument that civil society is important and foundations play a big role in developing them. But when you talk about particular missions, they don’t all go together.”
Interview
What follows is the remaining transcript of our meeting.
The Reporter: Turning away from the big picture to the specifics of Bill Hewlett’s philanthropy … was there any coordination between Bill Hewlett and his business partner David Packard as each of them created large foundations? I assume the tremendous wealth they had created for themselves pushed them into a philanthropic world neither man knew much about.
PB: They remained very close friends throughout their lives. The foundations are entirely independent, but there is a great deal of common, shared mission. For example, population and the arts. I don’t think that is the result of any conscious coordination, but rather two quite different men who had some values in common.
The Reporter: Could you expand a bit on that? What motivated Bill Hewlett in the arts and population?
PB: For Bill Hewlett, I think he saw huge population growth as threatening almost every other value. It makes it harder for people to have a good environment and to have lifestyles that had high quality of life. So my guess is that was the motivation. It is interesting in the population area that people come to the population issue from two different points of view. One is – there are simply too many people and it has all these adverse consequences. The other is women’s rights and reproductive health. A kind of happy coincidence is that they converge in the sense that there seems to be huge amounts of data that if you allow women the access to contraceptives and information about it, they then make choices that reduce population. It need not be that way, but it happens to be that way. This Foundation, while our grant-making is certainly very sensitive to women’s reproductive health issues, the population program is strongly motivated by: we don’t want a world in which there are too many people putting too much of a strain on other social values.
The Reporter: Population control is certainly not something I know a whole lot about. But I do recall an article some time back in The New York Times that drew a correlation between birth rates and economic development. The idea being that as nations create the institutions that support a growing economy and higher standards of living, and ultimately higher levels of education for men and women, birth rates decline. Is this something the Hewlett Foundation takes into account as it seeks to address the issue or does it focus more on pregnancy prevention? It might be difficult to promote the former given it has such a long time horizon.
PB: My sense is that it is not an either/or question. We have an interesting initiative supporting the work by somebody at Rockefeller University on universal basic education. So there seems to be a pretty clear correlation between a populace that has at least some education and fertility. And my guess is the mechanisms are varied and highly complex. But one of them has to be that more education leads to higher GDP. But I think it goes the other way as well. If you have 17 children to take care of, you may not be as industrially productive as you’d like. So you need to do both. The World Bank is focused very much on the economic productivity side. It is also interesting to ask what foundations can do in this area. I think the most interesting work that I think foundations have done to increase economic productivity is micro-lending. They don’t do it on a huge national size, but things like the Grameen Bank and other experiments in micro-lending are to a large extent founded by foundations. So there are a number of strategies.
The Reporter: Switching away from the population issue back to the Foundation itself … There have been many instances in which families have encountered great difficulty agreeing on a mission for a foundation that is created by their parents once the parents are deceased. They are often separated by geography. They often have different interests and values. In some well-known situations, the Courts have intervened to carve up the assets among the children. What role did Bill Hewlett envision for his children in the William and Flora Hewlett Foundation?
PB: We have three Hewlett children on the Board. Part of Bill Hewlett’s plan – and this is reflected in the by-laws – is that the family cannot constitute a majority of the Board of Trustees. And from the beginning, this has not been treated as a family foundation. I think the three family members regard their role as making sure that we do not lose touch with their father’s values. I hope there will be another generation of family members on the Board, but they are not allowed to be a majority. The other thing which Hewlett did which I think was very smart – we will see how it plays out – is that he established The Flora Family Foundation (assets of roughly $100 million), which is a family foundation. It is basically a vehicle for the philanthropic interests of children, grandchildren, and spouses to be manifested. So in some ways it takes some pressure off of this Foundation, but it does something else. It is a learning ground so that the next generation can practice with this smaller family foundation. Then some of them might end up on the board of this Foundation.
The Reporter: That’s a very thoughtful approach. Any speculation on what motivated Hewlett to set things up this way? Some philanthropists believe their wealth should be “owned” by the public, rather than their family descendants. Any thoughts?
PB: He may have had enough experience with family companies to know what can happen by the time the firm reaches the second or third generation. The W. Alton Jones Family Foundation destructed just last week. The family is taking the money and is doing their own things with it.
The Reporter: From your own personal vantage point, what has been the biggest challenge in your role?
PB: Well, I had a lot of analytical skills being a lawyer and some managerial experience having run a law school, but had never been exposed to the kinds of decision-making that you get in business school. So we hired the Bridgespan Group, a Bain spin-off, and I really found the way they worked through various questions to be very helpful.
The Reporter: Did you bring Bridgespan in for a consulting project?
PB: Yes, we did. But in the end, it was not what they expected. I think they expected to do a project that would entail communicating with me along the way and eventually submitting a report that would indicate their suggestions on where to go. I regarded it as more of an education for me about how to think about these things. I think they were a little bit surprised and maybe a bit disappointed, but in the end, I think they are having much more impact now that I have learnt to think strategically. I think they’ve had much more of an impact than a planning document would have.
The Reporter: Can you point to any specific changes that you have implemented since?
PB: I’ll mention a couple, and one is – and it still remains an aspiration – I am not sure that you can make the kind of rational decisions of allocating resources across different parts of the enterprise in philanthropy that you can in the business sector. Thinking about the aspiration of the enterprise is an important part of strategy, and it gets you in the right mindset. But in order to really to carry it through would mean to be able to not only measure the social return on investment in particular areas, bur across areas. And I think that’s a heroic assumption. Jed Emerson is going to be at the business school this year, and he is pushing the idea of SROI [Social Return on Investment]. And Jed believes you can compare the return on investment in population or in the environment or the performing arts, and I think that is heroic. But I think the attitude of saying, ‘We have finite resources. How can we align them for maximum impact?’ – that is really my biggest take-away and definitely learning how to apply that has been a great challenge. One result of the process, which was heavily influenced by Jeff Braddock at the Bridgespan Group is trying to do fewer things. An interesting question that I think they have a clearer answer to than I do is whether all the bad things about conglomerates in the business sector necessarily apply to the philanthropic sector because if you look at foundations – and this Foundation with seven program areas is no exception – are more like General Electric than they are like a well-focused business. But it really just stimulated my own questioning about all of those issues.
The Reporter: Bill Hewlett’s death earlier this year meant a big infusion of funds into the Foundation. How will the additional resources affect the Foundation’s grant-making?
PB: I see the infusion as certainly not a reason to do more, but in some ironic way, as an occasion to see where we can have a significant impact and be more focused. I think inevitably it is going to mean larger and fewer grants if we want to keep the staff relatively small. It is actually a discussion I have had with Irv Grousbeck. He says, ‘Don’t take size as a stake in the ground.’ And I don’t as such, but I think there are tremendous benefits to remaining small. The face-to-face collegiality has allowed a lot of cross-cutting work across programs, and I don’t think you can do that once you are a huge bureaucratic foundation. I also think what it means is that if a grant request comes in the door that does not exactly fit in one particular program area, but looks to be in the general area, it won’t get bumped around in small organization as inevitably as it would in a foundation with a large number of staff members. So the short of it: I would love to see us do a relatively few things extraordinarily well.
The Reporter: The $400 million grant to Stanford will be paid over a five or six year period. What sort of periodic reporting will you expect from the university during that time, and what sorts of metrics and evaluation benchmarks do you intend to use to determine whether it is generating a strong SROI?
PB: I think we will ask for annual reviews, but realistically when you are supporting an institution of higher education you have to put a huge amount of faith in the people who are running it. I know that we will not be doing the kinds of evaluation if we are supporting even a very good population program. For one thing, at the university, you are trying to allow the faculty to follow their own light. So if this money goes to fund some work in music theory or some other subject, you don’t try to specify ahead of time. This isn’t a project grant. We don’t say this is the outcome we want. So in some ways the best evaluation of how a university is doing is the quality of the faculty and the quality of the students. In many ways, going back to the distinction you made before between project grants and institution building, supporting a major research university is the paradigmatic example of general operating support to a strong institution.
The Reporter: There was a lot of positive press about this big gift around the university. There was, however, a negative opinion article in The Chronicle of Philanthropy that suggested this grant was boring and amounted more or less to a transfer of assets from the Foundation to a well-endowed university. You responded with a letter. What point did you seek to convey?
PB: The response tried to capture two things: first that this was a grant from Bill Hewlett and second, that it was a good grant. The universities appear much richer from the outside than they do from the inside. The way you keep an institution strong is to make sure that it’s core components are well-funded. It is happenstance that the way the university is funded means that a school that doesn’t have wealthy alumni – and H and S (School of Humanities and Sciences) simply doesn’t have enough wealthy alumni – just doesn’t get as many resources. And it surely is the core of the university.
The Reporter: Given how broadly defined the grant is, how challenging do you think it will be for the university to decide how to allocate it? I recall an article in the Stanford alumni magazine recently asking professors to list what they would do with $5 million, and each had a different priority. Might there be a big fight of the funds?
PB: That allocation decision will be for the Dean of the School of Humanities and Sciences. It is a lot harder for the Dean to say yes and no to her colleagues who will be asking for money, than it would be for the Foundation to decide. However, that’s what this will require. They know much better than we do what needs to be supported over there, and what doesn’t. I don’t think it will be a wrenching experience. I just think it requires strategic thinking. I think it would be great for the Deans to have a few hours with a group like Bridgespan to think strategically about how best to use the resources.
The Reporter: How much does “donor intent” play a role in the Foundation’s grant-making? In other words, does the Board limit support projects that it believes Bill Hewlett would support were he still alive?
PB: My background before I took this job, and before I was Dean, was in Constitutional Law. In some ways my take on donor is in some ways my view of Constitutional Law. Although it is a contested view. You think of the donor intent as setting a vector in the same way I believe the Constitution in the intent of the framers says this is the direction we are going. When Bill Hewlett says the purpose of the Foundation is to serve mankind, you then want to take a look at what he meant by that by some of the directions he took. And I think over time, you begin developing precedents. Our equivalent to the Supreme Court is our Board of Trustees. So as you consider new program areas, you need to have a sense of the Foundation’s spirit based on what has been done in the past. So I think precedent becomes probably as strong a force as donor intent. And I don’t think any of Bill’s children on the Board would disagree. I have never heard them say ‘do this’ or ‘do that’ because that’s what my father had in mind. But rather ‘here is the spirit” and ‘these are the kinds of things my father was interested in.’