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HP Charity to Cut Staff, Slash Grants

Giving: Declines in the stock market ravage the Packard Foundation's endowment, which has shrunk to $3.8 billion from $15 billion in 2000.

September 21, 2002|JOSEPH MENN | TIMES STAFF WRITER

SAN FRANCISCO — Coming to grips with a massive decline in the value of Hewlett-Packard Co. stock, the David and Lucile Packard Foundation said Friday that it will cut as many as half its 160 staffers and further reduce its charitable grants.

The endowment of the 38-year-old Los Altos foundation, which little more than two years ago was worth $15 billion and second only to the Bill and Melinda Gates Foundation in size, has dwindled to $3.8 billion, the group said.

More than 70% of the endowment is in HP stock, which has dropped from above $68 in 2000 to $12.94 Friday. An additional 15% is in shares of Agilent Technologies Inc., an HP spinoff that has lost more than half its value since a 1999 initial public offering.

Begun by HP co-founder David Packard and his wife, the foundation has been by far the largest private donor in Silicon Valley and neighboring counties, funding everything from hospitals to arts education in elementary schools. It has also won wide praise for the strategic planning behind its giving.

Among other things, it pioneered funding to improve the effectiveness of nonprofits, instead of just throwing dollars at worthy causes. After soul-wrenching board discussions, the Packard Foundation will drop two of its six major programs, philanthropic effectiveness and arts funding.

A third big program area, science, will be merged with conservation. The foundation will continue its programs focusing on population planning and on "children, families and communities."

The amount of money given out next year will drop to $200 million from $250 million this year, far short of the $451 million it dispensed in 2000.

The cutbacks at the Packard Foundation are among the sharpest by a big donor in recent years. But the stock market drop has hit many other funders, and deserving organizations are suffering nationwide.

In nearby Los Gatos, the Valley Foundation cut its awards about 15% this year and expects to trim at least that much again next year. In Atlanta, the Robert W. Woodruff Foundation, whose fortune stems from the Coca-Cola Co., reduced its grant pool by $10 million in the last two years.

Other endowments with less exposure to the stock market have done much better--including the $24-billion Gates Foundation, which has no Microsoft Corp. stock.

The divergence has driven a debate about diversifying holdings, especially at trusts where so much rides on a single company's fortune.

But Jan Masoaka, executive director of a Packard beneficiary called CompassPoint Nonprofit Services, said she admired the group for respecting the wishes of David Packard, who died in 1996.

"For better or worse, it connects the foundation with the company that created the wealth of the fund. This money didn't fall out of the sky on David Packard's head," Masoaka said. "The point is honoring the instructions of the founder and his belief they should be connected to one another."

The Packard Foundation has tried to soften the blow by stretching out dollars over multiyear periods and by giving away a greater percentage of its endowment than it would normally, said spokesman Chris DeCardy.

The organization held onto its staff last year to better manage the funding it had left while hoping that the economy and technology stocks would recover. And it voted its HP shares against Hewlett-Packard's controversial acquisition of Compaq Computer Corp., which has continued to depress HP's stock since the deal closed.

"We didn't know what was going to happen with the endowment and with the market," DeCardy said. "This is not going to be one of those V-shaped recessions, so for the long term, we need to make that internal adjustment."

The worst part is that the cutbacks come when beneficiaries need it most. Just as the fizzling economy is deepening people's need for help, contributions are drying up from big philanthropic groups, individuals made wealthy by the market and government agencies.

"It's really a quadruple-whammy," DeCardy said.

Some of the foundation's grant recipients said they were saddened but unsurprised by the turn of events, given HP's decline.

"It's very unfortunate," said Eric Heitz, president of the China Sustainable Energy Program, which is using $8 million this year for initiatives to reduce China's dependence on coal. "Packard was really involved in creative philanthropy on a large scale."

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