Harvard University

As prepared for delivery.

Good afternoon, everyone, and thank you for coming.

The past two Septembers I’ve shared my thoughts at the start of the year in a letter to the community. This September seemed a good moment to talk in person. We went through an unusually challenging year in 2008-09. But, thanks to a great many of you, it was also a year of real accomplishments. A newly launched program in General Education. A newly created doctoral degree in education leadership. A new institute for biologically inspired engineering. A strengthened commitment to the arts and to public service and to sustainability. A surge in opportunities for learning abroad. Seventy new members of our ladder faculty across the schools. Three outstanding new deans. And the enrollment of the most diverse freshman class in Harvard history.

We start this new year with a renewed sense of purpose and possibility — knowing we’ve made encouraging progress in adapting to our changed financial landscape, and understanding that difficult challenges remain. I want to talk a bit with you today about where we are and where we’re going. And then we’ll have time for some questions.

Let me say, first, how grateful I am for your hard work during these harder-than-usual times. It’s an old adage that adversity makes you strong. Our predecessors have steered Harvard through wars and depressions, epidemics and episodes of unrest. We are the beneficiaries of not just their resilience but their creativity — their commitment, as the song goes, to keep Harvard “rising through change and through storm.” We owe it to them to meet this moment with equal devotion.

There’s no question about the importance of our work. Economic uncertainty and financial systems in flux, climate change and threats to sustainability, infectious diseases and inadequate access to health care, persistent inequality as well as religious and cultural strife: What we do here can make a great difference in how these and other problems are understood and addressed — through research that generates fresh ideas, through the discovery of promising solutions, through the education of students we send into the world. While much of the world’s focus is so often on near-term results, we have a distinctive opportunity to take the long view — to see the issues of the moment in the light of history, and with eyes on a horizon beyond tomorrow’s headlines. And we have a distinctive obligation not just to serve but to doubt — not just to help shape prevailing wisdom, but to question it. At a time when higher education faces new financial constraints, our work here has never mattered more.

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Let me turn now to those new constraints and how we have been navigating our changed financial situation.

As announced two weeks ago, our investment returns for the year ending June 30 were minus 27.3 percent — close to our forecast, but slightly better. In dollar terms, when you subtract what we spent from the endowment last year, and add in new gifts, the endowment fell from nearly $37 billion to $26 billion in one year’s time. That’s an $11 billion drop — in a source we’ve come to rely on for more than a third of our annual income.

What does that mean for our revenue picture? In a given year, a university commonly spends around 5 percent of its endowment’s value. So, to put it in highly oversimplified terms, losing $11 billion in endowment value would typically mean losing on the order of half a billion dollars in support of our annual operating expenses. In reality we’re aiming to spend close to 6 percent from the endowment this year, and then gradually less in future years — to make sure the impact of the endowment’s decline isn’t too abrupt and jarring. Even so, we have a serious set of challenges. We have grown rapidly, and have a structural revenue gap to confront. We have increasingly depended on income tied closely to volatile markets, and have learned costly lessons about risk. Expense reductions are a necessity, and a fact of life.

What about our revenue sources beyond the endowment?

Net student income — tuition and fees, minus our contributions to financial aid — actually dipped slightly last year, as we’ve tried both to moderate tuition growth and to provide generous aid.

Our fundraising results for fiscal 2009 were mixed. Gifts for current use were significantly up — but overall giving was down, in the range of 10 percent. We owe special thanks to our donors at a time when a great many of them were feeling their own financial pressures. Still, the results underline how the world has changed around us, and for us.

Sponsored research funding, especially in science, presents a somewhat brighter picture — up around 7 percent last year. But even there, as we compete aggressively for grants, we need to recognize the explicitly short-term and targeted nature of research funds tied to the federal stimulus plan — and make sure we don’t ramp up new activities in ways that will create a dangerous cliff two years down the road.

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How have we begun to confront this changed economic landscape?

Last December, after the markets’ sharp decline, we announced that we anticipated likely investment losses of around 30 percent by the end of the fiscal year in June. Historically, Harvard has discussed endowment results only after the fiscal year ends. But in the extraordinary circumstances of last year, it seemed essential that our whole community begin to face the implications of this very important reality.

Then and now, we’ve recognized that — even with a skillful investment team and a reasonable rebound in the markets — it will very likely be a long time before the endowment recovers its steep losses.

And we’ve recognized that, in Harvard’s decentralized environment, our schools and other units face challenges that differ in both magnitude and kind — and they need flexibility to shape solutions locally.

At the same time, we’ve worked to ensure that local decisions take shape within a set of overarching university considerations.

We asked the schools and other units to budget for the current year assuming an 8 percent reduction in dollars distributed from the endowment. We also asked them to assume a likely reduction of at least that size for 2010-11.

Some schools have moved to absorb reductions as quickly as possible; others, more in phases. Some efforts have been essentially local; others, more institution-wide. We in the central administration cut our own budget by 8 percent. Across the university we made significant spending reductions in the course of the past academic year, and our overall financial results show meaningful savings against our original FY09 budget.

Realigning our personnel costs — roughly half our expenses — has been one important element of our response. We’ve taken four major steps. First, we’ve made aggressive efforts to slow both new hiring and the filling of vacant positions. Second, we offered voluntary retirement incentives for long-serving staff, and more than 500 chose to accept. Third, we undertook a painful but important round of reductions in force, affecting more than 275 of our colleagues, many of whom had served Harvard ably for years. Fourth, we have held salaries flat for both faculty and exempt staff.

At the same time, we have slowed our ambitious capital plans — most obviously, with regard to our long-term aspirations in Allston. Overall, we expect to reduce by roughly half the capital spending we had originally anticipated for the next several years.

We have probed how we can coordinate the purchase of goods and services university-wide, to take better advantage of our purchasing power. There’s nothing glamorous about changing how we do procurement. But we need to change it. Local decision making is important for certain things we need. But when each of us has discretion to decide which of 30 different shades of Crimson to put on our business cards, we’ve carried things too far.

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Think of it this way. The university is the vehicle the world most relies on to educate students and advance knowledge. The vehicle we’ve built here has been enormously powerful and productive over many years. Now, in the spirit of the times, we’re challenged to ask ourselves: how can we create a nimbler, more modern, more fuel-efficient vehicle to drive us forward?

Let me articulate some of the principles that will guide us.

First, we need to protect priorities. That means always having in mind what we’re here for — education and research of the very highest caliber, which depends on attracting students, faculty, and staff of the very highest caliber from the broadest and most diverse pool possible. It also means considering tradeoffs and making choices. To succeed in supporting what is most important, we’ll need to decide there are certain things we will not do, and certain areas where we will have to make do with less.

Second, we need to move — promptly but thoughtfully — toward what others have called “a new normal.” That means not entertaining the illusion that, if we’d just close our eyes and wait a bit, our economic situation would simply bounce back to where it was.

Third, we must embrace the opportunity, and the necessity, to work more efficiently and cooperatively. This means distinguishing ends — education and research at the highest level — from means — the precise structures that we use to achieve those ends. We need to take a hard look at some practices we’ve come to take for granted. It also means finding new ways to work across institutional boundaries — to learn more from each other, to lower bureaucratic hurdles and maximize resources available for our core purposes. It means finding new ways, in a time of financial constraint, to benefit from what people in each part of Harvard can offer one another. In short, we must dedicate ourselves — individually and collectively — to harness the power of a more unified Harvard. At least since the time of Charles William Eliot — who ended his term 100 years ago — Harvard presidents have called for a more collaborative, more integrated university. I do so at a time when the intellectual problems we face, the evolving structures of knowledge, and now our changed resources make it imperative.

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Our new economic circumstances may not permit us to grow as we have before, or to be all things to all people, or to say yes to every good idea. But, even as we find ways to adjust, we will also find ways to advance.

We will continue to bring the most talented people to this university — by seeking out the most outstanding scholars in the world, and by opening our doors as wide as possible to students of exceptional ability and promise. Providing broad access to a Harvard education is an essential expression of our meritocratic values — and of our responsibility to the nation and the world.

We will press ahead with the effort to encourage academic connections across our schools — whether the focus is the future of cities or the future of the global economy, stem cell science or climate change, the meaning of human rights or the interplay of politics and religion. More and more, our students and our faculty should come to see themselves not just as members of separate schools or departments, but as members of a university, with all it has to offer.

We will renew and extend our commitment to the liberal arts tradition — not only through our new Gen Ed program, but by encouraging all our students, at every level, to see the problems of the moment in their larger historical and intellectual context — by expecting them to challenge conventional wisdom — by bridging the divide between scientific and humanistic inquiry, and recognizing that creativity resides in both — by pressing back against any notion that pursuing knowledge for its own sake is somehow antithetical to creating knowledge for the world.

We will need to reshape structures and practices that create roadblocks to collaboration or tend to value individual prerogative at the expense of common progress. No easy or overnight task — but an important project that has become an urgent one, especially in a time of suddenly greater constraint.

And we need to engage the world, locally and globally — as responsible citizens committed to public purposes, as students and scholars ready to help solve complex problems with rigor and imagination, as people who live by the ethical standards we teach, as individuals who repay the privilege of being in a rare place like this by using our knowledge to help advance the well-being of people in the world beyond our walls.

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Each one of us connects to these aspirations in different ways, from different angles, with different ideas and experience to add to the mix. How do we make these broad aspirations real? Let me move to a few concrete examples — some in areas that are largely administrative; others that are more purely academic.

Over the centuries, Harvard has — without question — built the greatest university library in the world, one of our proudest treasures. But the question remains, how do we optimally organize our libraries for the future? Our system now includes more than 70 distinct libraries. And curious practices have grown up as the system has grown — obstacles to sharing and coordination. Our collections are amazing; our staff is remarkable; but there are aspects of our structures and economic arrangements that don’t make sense. They create disincentives for our libraries to develop common platforms and services.

How can we rethink things in ways that put the highest premium on maximizing access to materials essential for education and scholarship? That capture the vast possibilities of a digital age while sustaining our commitment to the printed word? That ensure we invest in what really matters most to us, rather than spend our resources on what matters less? A task force of faculty and staff has taken on a range of these questions, and I look forward to reviewing and acting on its recommendations. Change in our library system is not a choice but a necessity; we need to ensure that we make that change in the wisest possible way. Maintaining our libraries’ pre-eminence will depend upon our ability to adapt in an intellectually, technologically, and financially altered world.

Information technology presents another opportunity. Some of our schools have excellent IT operations, and we need to keep them strong. Other schools are less well-positioned. And, despite goodwill and hard work all around, our highly decentralized approach has created a situation in which autonomy has often trumped compatibility and led to costly duplication — and in which collaboration, both intellectual and administrative, tends to be inhibited rather than enhanced.

The challenge of sharing resources to enhance opportunities is also at the heart of how we need to think about our academic programs. Harvard is a university with an unsurpassed collection of strengths. Look around the university — look around at the people in this room — and you’ll find a wealth and breadth of talent and imagination and experience that would be hard to match anywhere else. But Harvard also has a history of its parts not benefiting from one another as they might. At least in some areas, we’ve begun to change that history. Let me just cite two of what could be many examples — these two because they can illustrate broader points.

Consider the College’s new General Education program. It aims to connect learning more purposefully with life beyond Harvard. It aims to stimulate a new generation of courses and fresh approaches to teaching. It aims to prepare students not just for careers but for rounded, fulfilling, civically engaged lives — whether they’re learning how to design and carry out an experiment, or debating theories of justice and equality, or understanding why great literature or great art can move us to tears, or to action.

More than that, the Gen Ed program invites our faculty to join intellectual forces — and our students to trespass across the usual academic boundary lines. A biologist and a political philosopher together teach the ethics of biotechnology. A law professor and a labor economist examine the present financial crisis and its global repercussions. An English professor and a theater director explore dreams in Shakespeare — and connect the classroom experience to live performances.

As it evolves, Gen Ed stands to benefit from growing participation by faculty members from beyond the FAS. Professors from public health and medicine and divinity and law have already started us down that path. And our larger objective should extend well beyond the College. Across the university, we should be actively multiplying the occasions for faculty to teach — and for students to take courses — beyond their own schools. Faculty are eager to do so; students are eager to welcome them. Yet we have created bureaucratic hurdles that impede our own desires and purposes. We must change cross-school teaching and learning from a difficult challenge to a ready and widespread opportunity.

We’ve seen encouraging recent developments — like the new doctoral program in education leadership, and the recently created joint degree programs in business and government, as well as law and public health. Some of what’s happening is less conspicuous but, for the people involved, no less significant — whether it’s a landscape design student learning about green technologies at the Engineering School, or a divinity student studying Islamic law at the Law School, or a student of brain science becoming equally at home in both the Medical School and the FAS. Especially with our more unified academic calendar, our students increasingly should come to see themselves as full-fledged members of not just an individual school but Harvard as a university.

Take another example that reaches across our usual boundaries: our growing efforts in global health. Improving the health of populations at home and around the world is a challenge of immense importance to society. It’s an area in which faculty members throughout our schools have a tremendous breadth of expertise. It’s an area in which our students — graduate and undergraduate — have intense interest. And it’s an area where fields like medicine and public health come together with public policy and economics, with law and business, with knowledge of the history and values and mores of different societies and cultures, with expertise in environmental conditions and biostatistics and effective methods of mass education.

Individuals and small groups can accomplish a great deal in global health by working within their disciplines. But Harvard can accomplish a great deal more if we find ways to help faculty colleagues engage their common interests and enable learning across school lines. Thanks to an intensive planning effort, involving some 200 faculty throughout the schools, aspiration is converging with reality. New research clusters are multiplying — on chronic diseases, on children’s health, on innovative technologies. New courses are taking shape — on nutrition and global health, on the silent epidemic of cardiovascular disease in the developing world, on the imperative of basing health policy on the best available evidence.

Such developments are significant not just for global health. They point to a range of broader institutional goals: Modeling a culture of collaboration and creating structures to support it. Stimulating the interplay of basic and applied research. Connecting that research directly to the education of our students, including undergraduates, in the classroom and the lab and the field. Extending our global reach. Helping improve the human condition in ways that universities are uniquely well-positioned to do.

Global health is one important example — but just one. The larger point is this: Whether our endowment is $37 billion or $26 billion, there is a wealth of intellectual opportunity within this university. Much of it lies in probing deeper and deeper within the disciplines. But much of it lies in breaking out of our usual boxes and tapping into the resources we might find not just across the hall, but across the street, or across the campus, or across the river. We need one another to do our best work.

We will manage through our financial challenges. Doing so will involve difficult choices and sacrifices, but if we make them in a spirit of shared commitment, I am confident we will emerge from this period as an even stronger and more vital Harvard than we are today. But it will demand that each one of us be engaged. It will require us to renew our dedication to our core academic purposes, but develop greater flexibility about exactly how best to achieve them. It will require us to look for ways not to protect our own corner of the world, but to connect our work to that of our colleagues across the university. It will require, finally, that we take full advantage of a resource we have not always used as effectively as we might — one another. If we do, we may someday look back on our current financial necessities as our mother of invention.

Thank you.