January 28, 2009

Dear HDS colleagues in the faculty and staff:

As we approach the end of the fall term and look ahead to the spring, and while so many of us are now engaged in budget planning for the coming year, it is appropriate to review with members of the HDS community some of the meetings and discussions that have taken place in recent weeks, and to share the work that has been underway to meet the challenges posed by the ongoing global economic crisis.

Town Hall Meeting, December 18, 2008. Just before the holiday break, on Thursday, December 18, HDS staff and faculty filled the Sperry Room for a Town Hall meeting with President Drew Faust and Executive Vice President Ed Forst, who have been visiting each of the Harvard Schools to speak about the President's December 2 financial update to the University and to address any questions raised. Following that meeting, Julie Bisbee, Beth Evers, and I spoke more particularly to the situation at HDS and answered questions specific to HDS.

At the meeting, President Faust listed the two general principles that are guiding the University leadership through the economic challenges we now face:

• First, the University is committed to sustaining financial aid at current levels and will not shift the burden to students by using sharp tuition increases to compensate for lost endowment income.
• Second, the focus is to be on identifying and setting priorities and then on advancing these priorities, even during times of change. This means that there will have to be choices and trade-offs in a time of budget constraints.

President Faust and Executive Vice President Forst also addressed the importance of the endowment to the University and the institution's responsibility as guardian of the endowment. The University has both a moral and a legal obligation to sustain the endowment for future generations. Some have wondered whether, given the size of Harvard's endowment, a larger portion of it should now be devoted to sustaining Harvard's programs and initiatives. In fact, the University is doing just that: despite the expected loss of 30 percent of the endowment's value this year, the University will set next year's endowment payout to all units of the University so as to buffer the impact of the projected loss, thus spending a higher percentage of the endowment next year than it has in the past.

Over the years, dependence on the endowment has increased. A decade ago, in 1998, the endowment provided less than 23 percent of the University's revenue; in fiscal year 2008, the figure had increased to nearly 35 percent. This increased dependence on endowment has allowed the University to rely less on tuition income from students (which reliance decreased during the same period, from 28 to 20 percent) and to weather shifts in amounts of sponsored funding.

President Faust reminded us that the University does not have, and will not have, a "one-size-fits-all" plan to address the current financial constraints: each School has unique challenges that will need to be met in different ways. At the same time, she noted that the Deans of all the Schools have been working together, with remarkable transparency, to share their concerns, ideas, and creative solutions. The central administration is establishing several University-wide task forces that are being asked to rethink the way business is done across Harvard's various units and to review areas where current duplication of effort has meant a less productive, less sustainable use of resources.

This kind of shared engagement across the University is perhaps more necessary now than ever. In response to a question as to whether the cutbacks we are now making will be short-term or long-term, President Faust noted that this is a time to change habits and practices around how we use our resources; we will not be able to return to the "business as usual" that we became accustomed to in recent years. Instead of the University being able to say, "Here are resources; do something with them," the University now will need to ask, "What is it that we need to accomplish?" and then, once priorities are carefully set, consider how best to provide the needed resources.

Administrative Council Meeting/Retreat, January 13, 2009. We at HDS understand the value of engaging all staff and faculty as fully as possible as we look at the choices and trade-offs we will need to make here at the School to address and to realize the priorities we have and will continue to set. The wise stewardship of our resources is a collective endeavor, and we want to rely on as wide and full participation as possible to develop ways to meet the significant financial constraints and resulting cost reductions we face.

To that end, on January 13 the HDS Administrative Council convened for a three-and-a-half-hour meeting, with this stated purpose: "To gain a collective understanding of the demands of the budgeting process we are entering in FY10 (at Harvard and at HDS specifically) and to define the principles and process by which we make decisions about the trade-offs we inevitably need to make at the individual/department/School levels."

Emily Click facilitated the "retreat" portion of the meeting, guiding the council members through a discussion of adaptive problem-solving and of what type of leadership is required during times of uncertainty and exceptional challenge (based on Ronald Heifetz's work on leadership).

We face having to make difficult budget and financial choices during a period when the University's customary annual budget-development timeline and process cannot be followed. (Normally, we would know by November what the endowment payout would be for the next fiscal year; instead, this year the Harvard Corporation will not set the FY10 payout until late spring 2009). Thus, we at HDS recognize that the way we plan and prepare for coming years will require new flexibility and even greater attentiveness to the principles that guide us as we set the priorities we need to maintain in order to achieve our goals.

Beth Evers, chief financial officer at HDS, then provided an overview of the University's organization and annual budget process, and led the group through the HDS budget procedures and guidelines, summarizing what managers will need to know to work on their own units' budget planning.

Julie Bisbee, executive dean, followed with a review of HDS's decision-making process, which is collaborative and consensus-driven. In School-wide decisions, or even in situations involving more than one department or office, it is first necessary to identify the stakeholders (those whose expertise is required in understanding a given problem, and those on whom a decision will have the most impact). Then, all involved need to be engaged in iterative discussions, in order to work through a problem to reach some point of consensus. This back and forth, consultation and discussion, is—and will continue to be—the operative and expected approach to decision making at all levels of the School, from the dean and senior staff to individual departmental units.

HDS Responses and Priorities. As we engage in the important work of thinking creatively, working collaboratively, and facing challenges with resolve, sensitivity, and good humor, I ask all of us to reacquaint ourselves with the HDS Mission/Vision Statement and its guiding principles and goals. In these uncertain economic times, the path we take to achieve our goals may narrow or have to be more narrowly defined, but the purposes we strive to accomplish must remain in view. The resources we have to meet our goals may be constrained, but our priorities should be clear.

In accordance with University guidelines, we at HDS are actively identifying savings in the current FY09 budget that can then be incorporated into our planning for scenarios that reduce budgets by an additional 4 to 8 percent for FY10. This will position HDS to adapt its budget accordingly once University-level decisions are made this coming spring about the FY10 endowment payout and related budget targets. Our priorities and some of the steps HDS is taking in light of current budget guidance from the University are as follows:

• Our top priority is maintaining the levels of student financial aid now being offered. This year, 72 percent of the 90 percent of HDS students with need are receiving grants to cover at least full tuition and fees. Many of these students are also receiving stipends toward living expenses. With the change in financial situation, it appears that HDS will now be unable to reach our earlier goal of funding at least full tuition and fees for all students with need by FY10. Nevertheless, we do not want to lose ground; therefore we intend to maintain the level of aid currently being offered and to keep next year's tuition increases within the normal range.
• Following University-wide guidelines, HDS faculty and administrative/professional (exempt) staff salaries will remain flat for FY10 (with exceptions to meet necessary equity adjustments); HUCTW (union) staff will receive salary increases as outlined in the union contract.
• The pace of faculty growth will need to be slower than planned, with some faculty searches postponed. We are also reducing sharply the current number of visiting and adjunct positions, appointing only those absolutely necessary to cover gaps in the curriculum.
• We also expect to slow the pace of our facilities-renewal projects, carefully weighing key timing considerations and taking advantage of opportunities to reduce operating costs through energy conservation.
• Our events, travel, and catering budgets are under close scrutiny and will be cut in ways we can all live with.
• We have been reviewing all of our non-degree programs and our academic support mechanisms, seeking to identify costs that might be reduced or temporarily eliminated without affecting our core programs or the quality and extent of our curriculum.
• We will continue to review all HDS publications, evaluating what should continue in print and where web publications may be of greater utility.

From the start of the emerging global economic crisis last fall, we have hoped to meet the School's financial challenges without reducing staff. As we reexamine priorities for our various activities and programs, it has become clear that this will inevitably involve a review of staffing configurations. In an effort to minimize impact to employees we are looking—and will continue to look closely and to think creatively—to see if we should arrange things differently and make do without filling vacancies as they arise. If situations arise in which the shifting of priorities leads to staff reductions, we want to assure everyone that, particularly in light of the tight job market, we will seek to provide all possible assistance and support to any affected employee.

Once again, I can only say how grateful I am to all of you for your diligence and for the many ways you contribute to HDS. Please feel free to contact me, Julie Bisbee, Beth Evers, Kim Van Savage, or your supervisor or department head with any concerns, questions, or suggestions as we move through these changing and complicated economic times.

Sincerely,

William A. Graham