Box 1, Folder – Folder 35A
November 6, 1991, Review of Stock Repurchase Action, Statement to All HP Managers
11/6/91, Copy of typewritten text of remarks
It is not clear how this was communicated, but it is clear that Packard felt strongly about the subject, and wished that managers be made aware of his, and Hewlett’s, feelings on the subject.
“During the period from 1980 until 1988 both Bill Hewlett and I refrained from any involvement in the management of the Hewlett-Packard Company. We felt we had a good management team well oriented in the traditional management policies we had followed over the past 40 years. I was troubled by the statement that HP was to become a more customer driven company because I felt that we had given the requirements of our customers a high priority from the very beginning. Our overall performance had been very good with earnings growing from less than $1.00 in 1980 to over $3.50 at the end of 1988, and the stock price increasing from $15 to over $90, and we had $2 billion in cash.
“When it was proposed that we use that cash to buy back HP stock I had an intuitive feeling that we were doing the wrong thing but we had a strong finance committee and most of our directors had experience in such matters so I was hesitant to bring the issue to a head at that time. You may recall I did predict that this action would bring the stock price down to about half its current value, to the mid $20s within the following year. And that is actually what happened.
“Hind-sight is always more accurate than fore-sight and we should look at what actually happened. The book price of the stock was $15.49 as of 10/31/85. It increased to $17.29 in 1986, $29.57 in 1987, $22.70 in 1988, and it would have been $25.86 in 1989 without the repurchase of stock. The repurchase brought the book value down to $22.91 as of 10/31/89. The remaining shareholders thus each lost $2.95 in book value. There were 237,644,000 shares outstanding after the repurchase and so the total loss they suffered was $701,049,000!!!!
“To compound the felony HP’s employees lost $24 million dollars a year in cash profit sharing and this is not just a one year loss but a loss in every year that follows in an amount in proportion to the interest return on $2 billion. The U.S. employees also lost a similar amount in retirement funds.
“The only stock repurchase plan that would benefit the company would be when the stock could be purchased below the book value.
HIND-SIGHT CLEARLY TELLS US THAT THE STOCK REPURCHASE ACTION HAS BEEN A DISASTER FOR THE COMPANY AND IT WOULD BE IRRESPONSIBLE FOR THE DIRECTORS TO AUTHOURIZE ANY FURTHER REPURCHASE OF HP STOCK UNLESS IT CAN BE REPURCHASED BELOW THE BOOK VALUE.”
Box 5, Folder 39A – General Speeches
February 28, 1991, Speech at Colorado University, Colorado Springs, CO
Packard was Keynote speaker at Banquet in honor the school’s 25th Anniversary
2/28/91, Copy of typewritten text of speech
Packard reviews some HP history, particularly its close association with Stanford, which became a very important factor in the growing company’s ability to attract and retain technical personnel. So, in 1950, when they decided to establish operations outside the Palo Alto area, proximity to a university was high on their list, along with a location that would provide an attractive living area for employees. Access to an airport was also important.
He says Colorado looked good to them and Boulder was their first choice – but they couldn’t find a satisfactory location. They decided on Loveland, where operations were started in leased facilities in 1959.
Operations in Loveland “turned out very well” and so in 1962 they decided to look for another site in Colorado. Again they looked for a site in Boulder, but without success. They did, however, find two possibilities – one in Denver, and another in Colorado Springs. “The Colorado Springs site had one fault,” Packard says, “It was too far from the University of Colorado – and neither the Air Force Academy or Colorado College could provide the continuing educational needs of our technical people.”
Packard recalls leaving Colorado Springs one fine spring day to drive up to Denver and take another at the location there. “As I came over the ridge above the city,” he says, “all I could see was a thick layer of brown smog where the city should be. That settled the matter – Colorado Springs it would be.”
However, he says he was “still troubled about the lack of a university that we needed to help us keep our technical staff at the forefront of the rapidly expanding electronics field.” Saying he has always been an optimist in dealing with such problems, he felt sure they could some how get the University of Colorado to help. “A U.C. branch here would help in bringing more high technology companies to Colorado Springs….With the help of the University, the Legislature, and the Governor, the University of Colorado at Colorado Springs was opened to classes in September 1965.
Packard says he does not deserve very much of the credit for this U.C. facility in Colorado Springs. “Many other people in the Hewlett-Packard Company were involved, and many people in other high technology companies in Colorado Springs helped, and it would not have happened without the help of many people in the State government….I am very pleased to be with you tonight to join with all of you in thanking the Dean and all of the people at the University of Colorado in Colorado Springs for their twenty five years of dedicated [help] to both Colorado springs and to the State of Colorado.”
Packard notes that we are all joined in “thanksgiving for the magnificent performance of our armed forces in the Desert Storm operation.” He comments that this victory was made possible in large part due to the most “sophisticated military equipment in the world, operated by the most capable and most dedicated military people in the world. This city, Colorado Springs with many high technology firms producing this equipment, and with the Airforce Academy training the military people to operate this equipment has every reason to take great pride in being an important part of the most successful military operation the world has ever seen.”
Packard takes a moment to change direction and offer some criticism directed at Colorado’s representatives in Congress. He adds that he feels he has the right to do so because Colorado is his home state. “I simply can not refrain,” he says, “from telling you that I am ashamed of some of the people you have sent to Washington. If our Armed Forces had been developed along the lines they recommended we would likely be hanging our heads in shame tonight.”
He says he wants to conclude with some “guidelines which I think should be considered for C.U.C.S. in the years ahead. There has been considerable concern during the past few years about our ability to maintain our leadership in technology, particularly over the Japanese and other Asian countries and the counties of Europe as well….I think it’s time to get back to some of the fundamentals of this issue. The development, manufacturing and marketing of new products with the highest quality and lowest cost is a highly integrated procedure. High reliability and efficient manufacturability must be designed into the product in the original development. The performance to meet the needs of the customer must also be designed into the product in the original development. I hope you will give more emphasis to teaching your students that the design, the manufacturing, and the marketing has to be a fully integrated procedure especially for new high technology products.
“I do not share the concern that we will not be able to retain our technological leadership. Our government could be more helpful, the playing field is not always level, especially in respect to the Japanese. My main concern is that we are not doing our own job as well as we should. And I am sure we can, and I think we will, do better.
“Thank you for asking me to join in honoring the Colorado State University in Colorado Springs on this important Anniversary.”
2/28/91, Printed invitation to the Banquet
2/28/91, Copy of typewritten sheet, plus attachment, giving information about the University
2/4/91, Letter to Packard from Peiter A. Frick, Dean of the College of Engineering and Applied Science thanking him for agreeing to join them at their Anniversary, and giving some details about the evening.
2/27/91, Copy of a typewritten sheet listing Packard’s itinerary for the trip
Undated, Typewritten sheet listing dates HP’s facilities in Colorado were opened
Box 5, Folder 39B – General Speeches
April 25, 1991, Hearing on the Indirect Cost of University Research Before the Subcommittee on Science of the House of Representatives Committee on Science, Space, and Technology, Washington D.C.
4/25/91, Typewritten text of Packard’s statement
Packard says he is “…pleased to appear before you today at this hearing on the Indirect Costs of University Research.” He has some recommendations to make, he says, and states that if these are adopted “…they will enable universities to conduct substantially more research with the funds provided by the federal government than they are able to do today. My recommendations will include the Administrative Cost issue, Direct Cost matters, Buildings and Equipment, and some of the other issues covered in the White House Science Council Panel on the Health of the U. S. Colleges and Universities, which I co-chaired with Dr. Allan Bromley from May 1984 until February 1986….He says he realizes there will not be time to consider all of his recommendations in detail, “but I think it is very important for this committee to address the overall problem, not just the indirect cost problem.
“In my opinion,” Packard says, “there is no issue before the Congress that is more important than determining how America can maintain its position of world wide leadership in technology that has been achieved since World War II. The matters to be discussed at this hearing are an important part of this issue, but I want to begin with a brief summary of how the federal support of university research began and why it is so important.”
Packard tells how President Roosevelt, when it became evident that the United States might become involved in World War II, appointed Dr. Vannevar Bush to head a new agency called the National Defense Research Committee, in June, 1940. The object of this Committee was to recruit and use America’s best scientific talent to win the war, and Dr. Bush began by recruiting six thousand of the country’s leading scientists, engineers and doctors. By the end of the war this committee, known as the Office of Scientific Research and Development, had thirty thousand scientists, engineers and doctors engaged in this endeavor to use science to win the war.
“Some of these scientists,” Packard says, “concentrated on the specific objective of making the atom bomb. Others concentrated on applying scientific research and product development to all other aspects of the war effort. They developed better radar and radar counter measures, the proximity fuse, better sonar equipment for our submarines, countermeasure equipment for submarine warfare, which confused the enemy about the location of our submarines, and a great many types of equipment and systems described as electronic warfare.”
Packard describes the work of this research and development project as “…the most important determinate in the allied victory over the enemy in Europe and in our success in retaking the islands in the western Pacific from Japan.”
“This unprecedented endeavor is described in detail in a book, Modern Arms and Free Men, written by Vannevar Bush in 1949, and every member of this committee should read this book if they have not done so.”
Because the project was so successful, Packard says Vannevar Bush felt something similar should be continued after the war, and he quotes Bush as follows: ‘On the wisdom with which we bring science to bear in the war against disease, in the creation of new industries, and in the strengthening of our armed forces depends in large measure our future as a nation.’
“Vannevar Bush’s advice was followed,” Packard says, “and the outcome has been exactly what he predicted. The United States is today the leader of the world in Technology, We have made great progress in the war against disease. We have created vast new industries, and our brilliant military victory, Desert Storm, was assured because our distinguished military leaders and our highly skilled, brave and dedicated men and women in uniform had the best weapons in the world.
Packard says it is essential that all involved in reviewing the present issue, members of this committee, of the entire Congress, and of the Administration, realize that “the subject we were asked to discuss with you today, Administrative Overhead, is only a small part of the major issue which is: How can this research and development endeavor, which has served our country so well since World War II, be continued with equal success in the years ahead.”
Packard makes three recommendations, not going into detail due to time limitations, but says he will be available for questions and discussion afterwards.
ADMINISTRATIVE OVERHEAD: “Administrative overhead should be paid for by the federal government as a fixed percentage of direct research cost.” He suggests about 50% for private universities, less for state supported universities. Packard says this fixed allowance need not be audited, and he believes the elimination of this requirement would reduce the cost to both the schools and to the government. Packard also points out that it would eliminate “the current anguish about the legality and propriety of administrative overhead costs. Such overhead would include occupancy costs, light, heat, janitorial services and routine maintenance – but not the original cost of the buildings and of major equipment.”
COST OF BUILDINGS AND MAJOR EQUIPMENT: “The cost of buildings and major equipment paid for by university funds should be reimbursed in government contracts by a payment of the government’s fair share of interest at the average level of the current return on university endowments and by an allowance for depreciation. He includes some thoughts on how this should be determined.”
THE MANAGEMENT OF DIRECT COSTS: These are, Packard says, “…the salaries and the fringe benefits of the scientists, engineers and doctors who are doing the research, and costs of assistants, including graduate students, and the materials, etc. needed in their work. The direct costs should be precisely defined and be uniform for all contracts.” Packard believes too many reports and too much paper work is required of the people doing the work. He says “Some of the government contracts require the research people to make three reports every month, a financial report, a scientific report, and a report of their work for people who do not understand science….There is a large variation in the amount of reporting required among government agencies. The reporting should be reduced to a bare minimum, and uniformity among all government agencies should be required.”
For some additional recommendations Packard refers members of the Committee to the Packard-Bromley report of 1986. “For example,” he says, “most projects should be funded for at least three years; and there is no way to accurately measure the division of the research person’s time between teaching and research, and there is absolutely no reason to try to do so.”
Packard says the three key recommendations he has made here “must be implemented as an integrated unit. All federal agencies must be required to adopt them. If this is done there will be significant cost savings, and there will be more research from a lower level of funding.
“It is the oversight responsibility of the Congress to determine whether the tax payer is receiving full value for the federal dollars spent on research at U. S. universities. The answer is a resounding No! And it is primarily the fault of the Congress!
“That completes a brief summary of my views on the subject. I will be pleased to respond to your questions and participate in the discussion.”
4/11/91, Copy of a letter to Packard from Rick Boucher, Chairman, Subcommittee on Science inviting him to appear before the committee to discuss the subject of the Indirect Costs of University Research. He attaches a summary statement of the purpose of the hearing.
4/16/91, Copy of a letter to Packard from D. Allan Bromley who co-chaired a Panel on the Health of U.S. Colleges and Universities with Packard in 1984-1986. Dr. Bromley gives his thoughts on the matter under consideration, and encloses excerpts from various reports.
5/6/91, Copy of a letter from Packard to Chairman Boucher and Members of the Subcommittee. Packard comments on several issues which were discussed at the hearing which, he says, need clarification.
He says “There seemed to be general agreement that a fixed rate for administrative overhead would be desirable. There was a suggestion that it should contain a cost of living factor.” Packard points out that since the fixed rate would be based on the actual direct costs at the various universities involved the issue of cost of living would be automatically built in. So the fixed cost rate should not have a cost of living factor.
“There was also the suggestion that this fixed rate should be subject to negotiation by universities which considered it unfair. I would strongly oppose this position. One of the most important arguments for a fixed rate is to eliminate the extensive auditing and negotiating about administrative overhead costs and charges. This would save both the Federal government and the universities millions of dollars every year; dollars that are spent under the present system and are a total waste.”
Packard goes into considerable detail on how the matter of depreciation might be handled. “The problem,” he says, “comes from the fact that federal contracts provide for depreciation whereas most universities have no depreciation costs.”
“The depreciation allowances on government contracts are generally paid into the general funds of the university. As one Stanford study admitted ‘…these funds play an extremely important role as a source of income to the Operating Budget.’ I do not think Stanford’s situation is different from most universities. Furthermore, this has been done with the cooperation of the ONR as well as other funding agencies.
“This committee should not consider it fundamentally wrong for the Federal Government to underwrite some of the operating costs of our universities. That is a subject you must address. If you agree, the only issue is whether there is a better way for this to be done.
“If you agree, I would make this recommendation. All depreciation allowances which do not go into debt service should be allocated to a special building account and should not go to the general fund account. Allocations from this building fund account should be applied to new research buildings and equipment or major renovations of research facilities…..”
“Anything that can be done to deal with this problem in a realistic way will cost the Federal Government more money. If the Federal Government is not willing to provide more money to support this nation’s universities, there is only one possible outcome – American universities will have to retrench.
“This is the basic decision this committee has to address. Should the Federal Government provide more money to support our universities or not. I personally do not think retrenchment would necessarily be a disaster.
“I am quite sure that implementing the recommendations I have given you will allow the American taxpayer to receive more value for the federal dollars that are provided, and my recommendations are more important if the overall decision is not to increase the funding.
“A satisfactory solution will be difficult at best. It will be impossible if the pork barrel propensities of the members of the Congress cannot be brought into control.”
7/1/91, Letter to Packard from Roland W. Schmitt, President, Ressselaer University, discussing the issues addressed by the committee.
February, 1986, Copy of the bound report “Report of the White House Science Science Council Panel on the Health of U.S. Colleges and Universities. The Panel was chaired by David Packard and D. Allan Bromley
Newspaper clippings. These discuss various actions being taken by governmental agencies due to the perceived abuses by Stanford and other universities.
4/23/91, San Jose Mercury News
4/26/91, San Jose Mercury News
4/26/91, The Stanford Daily
Box 5, Folder 39C – General Speeches
May 13, 1991 – Remarks Before the Computer and Business Manufacturers Association
At their 75 Anniversary Event, Washington D.C.
5/13/91, Copy of typed text of speech
Packard says he was asked by John Pickett, President of the Association to join them for dinner, and his only task would be to introduce Secretary Mosbacher – but he was told he could make a few remarks on his own if he wished. He proceeds to take advantage of this invitation, and his subject is the abuses in overhead charges from many research universities. He tells the story much as he did in the statement to the House Subcommittee described in the above speech dated April 25, 1991. Since the material is essentially the same it is not repeated again here.
Box 5, Folder 39D – General Speeches
May 20, 1991, The Health of U.S. Research Colleges and Universities, location not given
5/20/91, Copy of typewritten text of speech. This is again the same speech as given April 25, 1991 and is not repeated here.
Box 5, Folder 39E – General Speeches
June 27, 1991, Remarks at the Reception of the Marine Board at the Monterey Bay Aquarium, Monterey, CA
6/27/91, Copy of typewritten outline of speech
Since the speech is typed in outline form, the description here is broadened a little to provide more continuity.
Packard says he is humble to be speaking to such a distinguished group.
He says his interest in marine science began about 14 years ago with the development of the Monterey Bay Aquarium.
“The oceans are the most important frontier and we do not know as much as we should about them. At the Aquarium we concluded that unmanned remotely operated deep sea vehicles were the most efficient way to explore the oceans.
“Space based systems are also important for ocean research as they can also be unmanned and remotely operated.
“Computers are also important tools but not enough is known about modeling large systems and we do not have adequate input data.
“Environmental issues are overcharged with emotion and risk
“MBARI [Marine Bay Aquarium Research Institute] was founded to apply the latest technology to measure and study marine technology. Monterey Bay is an ideal location to develop and apply technology and I think we have made a good start in the past three and a half years.
“I am most pleased that Peter Brewer has agreed to be our Executive Director. He has been here since the first of the year and he is off to a very good start.
“Now we will have a brief presentation of some of the work we are doing. Mike Lee was involved in the acquisition and outfitting of our ROV. Bruce Robison is doing research on the marine biology of the mid water stream. His work has been to about 1500 feet and he still will be working at deeper levels in the months ahead.
“After the presentation we can respond to some questions.”
Box 5, Folder 40 – General Speeches
August 1, 1991, Hearing on NASA’s Midlife Crisis: Context for Reform, before the House of Representatives Subcommittee on Investigations and Oversight, Committee on Science, Space and Technology, Washington D.C.
8/1/91, Typewritten text of Packard’s remarks to the Subcommittee.
Packard says he is pleased to be able to present his views on how the recommendations of the President’s Blue Ribbon Commission on Defense Management [which he chaired]– might apply to the management problems of NASA. See speech dated March 26, 1986 for complete list of speeches covering work of the Commission.
“The final report of the Commission was submitted to the President,” Packard says, “on June 30, 1986.” The recommendations which I believe might be useful to this Sub-Committee are covered in an Interim Report to the President, dated February 28, 1986, and in my foreword of the main report. [See Packard speech May 1, 1986 to American Institute of Aeronautics and Astronautics]”
“The most important recommendation of the entire report was that the Chairman of the Joint Chiefs (JCS) should be designated as the principal uniformed military advisor to the President, and that the position of a four-star Vice Chairman should be established as the sixth member of the JCS. The responsibility of the Vice-Chairman is to provide a channel for commands to and reports from the Commanders-in-Chief of the Unified ands Specified Commands (CINCS) to the Chairmen of the JCS.
“This recommendation was put into law by the Goldwater-Nichols act of 1986. I consider this the most important action to improve defense management since World War II because it made it possible to manage the entire military establishment in a coherent way. This made it possible for the President, the Secretary of Defense, the Chairman of the JCS and the commander of the forces in the field to bring all of our military strength, active and reserve personnel and equipment, from all four services, together in the most effective joint operation possible. The brilliant victory of Desert Storm would not have been possible without this important action.
“It is not clear to me how this lesson might be applied to the current management problems of NASA except to say that unless the divergent elements on NASA can be brought together in a strong uniform commitment to an appropriate goal, for every project undertaken by NASA, there can be no real improvement in the management of NASA. The APOLLO program had such a commitment, by any ordinary standard it was a mission impossible, but I can not recall anyone, even among those who knew the tremendous technical challenges, risks as we now call them, who had any doubts about our ability to land a man on the moon. That kind of a commitment must be established to support whatever projects NASA undertakes for the future. If this is not done NASA will simply go on from a Midlife Crisis to an Old Age Status as just another Federal Bureaucracy.”
Saying that there are other recommendation in the Defense Management Report that have relevance for NASA, Packard quotes form his foreword to the report: ‘The Commission’s recommendations are intended to help establish strong centralized policies that are both sound in themselves and rigidly adhered to throughout. In any large organization policies must be executed through discrete structures…..this requires that we cultivate resilient centers of management excellence dedicated to advancing (NASA’s) overall goals and objectives.’
Packard says he will respond to written questions submitted by the Sub-Committee:
The first question asks for a definition of ‘risk’ and asks how such risk could be allocated between public and private sectors.
Packard says he has had considerable trouble with ‘risk’ as used in government contracting. “I do not recall” he says, “thinking about risk until I came to the Department of Defense in 1969. I managed [at HP] the development of hundreds of new products at the frontier of technology and I can recall only a few that were not successful. Our management program had a tight coupling between development, manufacturing, and marketing and we made trade-off’s between cost, performance and time to market from the beginning to the end of the project. The cost of the new product development almost always ended up higher than the original estimate, and it usually took longer. We did not consider this a risk to the success of the program but rather a management problem.
“After a very short time at the Pentagon I realized the real problem was that the defense contractors and the defense buyers were simply playing games with each other. The defense contractors were making bids that were lower than what they knew the costs were likely to be. Both were playing games with the Congress to get a program approved by submitting cost proposals which they knew were too low at the time they were submitted. The ‘risk’ was that they might not be bailed out.”
Packard says he thinks the optimal solution would be “to hold the contractors strictly responsible for the technical integrity of the product, and in the end the government will have to pay the bill. The Hubble space Telescope is a good example. As I understand the situation, the contractor failed to do a rather simple test that would have identified the problem so that it could be corrected before launch. The contractor should have received a severe penalty for such a failure; even one that might have put him out of business.
“Our Defense Management Report does place a great deal of emphasis on contractor self-government. The Congress would not accept our recommendations on this issue. I did not then, and do not now, see this as eliminating government oversight. I think that infractions of self government by contractors should carry such heavy penalties that they would have to become self policing. This would be in my opinion the best way to allocate these responsibilities between the public and the private sectors.”
The next two questions submitted by the sub-committee were ‘Please describe for the Subcommittee your findings on the long-range planning process employed by the Department of Defense, the President and the Congress and its effect on decisions reached in the budget process……’ And the next: ‘How do Congress and the Executive branch help and hinder Government managers.? ‘
Packard says “There has been too much micromanagement of defense programs by both the Congress and the office of the Secretary of Defense.
“We recommend more use of prototyping in defense programs. This gives the contractor complete freedom to make tradeoffs between cost and performance. While it is not practical to prototype very large programs, important parts of such programs can be prototyped.
“We recommend more use of commercial products in all defense projects. Because of the rapid progress of advanced technology in a number of fields, such as large scale integrated circuits, commercial products have much higher reliability and much lower cost than products developed to military specification. This also applies to components used in NASA projects.
“The use of commercial components was strongly opposed by the bureaucracy in DoD because it would eliminate the need for many people who have been involved in this work in the past.”
Next the Subcommittee had asked for comments on the changes that had been advocated by the Defense Management Commission – were they fully implemented, if not why not, and how might their recommendations change to fit NASA’s situation where they buy limited quantities of items.
Packard responds saying that the most important recommendations were fully implemented through the Goldwater-Nichols legislation. As to the purchase of limited quantities, Packard says he doesn’t “…think the fact that NASA buys a limited number of items would change our recommendations. It makes the purchase of commercial items more important because the savings would be larger.”
Next, the Subcommittee wanted to know ‘…what elements of total quality management philosophy could be implemented within the limits of government management?’
“That is what my foreword to the report is all about. The centers of management excellence which I recommend could not be excellent unless they fully embodied total quality of management.”
That was the end of Packard’s testimony.
