INTRODUCTION

Good afternoon and welcome. I am pleased to see so many people here today.

In the past year, Stanford has made important progress in several key directions. This afternoon, I would like to briefly review the advances we have made and then turn my attention to the future.

HIGHLIGHTS OF THE PAST YEAR

One of Stanford's great strengths is the quality of its students; both at the undergraduate and graduate level, the university attracts the very best minds in the world. Earlier this year five Stanford students or recent graduates were named Marshall Scholars and two were awarded Rhodes Scholarships. Although Stanford students have been selected for these prestigious scholarships in previous years, this is the best showing we have had in a single year. It is an indication of just how exceptional our students are and one measure of the success of the enhancements we have made to undergraduate education.

Of course, it is also an indication of the quality of our faculty, committed to pioneering research and excellence in teaching. Furthermore, high levels of student satisfaction clearly reflect the extraordinary efforts of our devoted staff.

More than a century ago, after the university had survived a number of challenges, David Starr Jordan wrote:

I may truthfully say, in honor of my colleagues, that some of the finest work in higher education anywhere dates from those six lean years; moreover, community effort and a common anxiety had bound us very closely together.

Although we have not faced six lean years, the past three years have been very trying, and I echo Jordan's pride in this community. We have been doing more with less for some time.

At last year's Academic Council meeting, I spoke about the financial challenges we faced. This year, I am delighted to say that the news is much better -- thanks in large part to your efforts. As you all know, at year-end we were pleasantly surprised to learn that we have a modest operating surplus outside of the hospitals of $46 million, after a deficit of $17 million last year. That surplus was hard earned -- the result of a better-than-expected return on our investments, the generosity of our alumni and friends, and significant budget cutting by the entire Stanford community. I know it has been a long couple of years for our faculty and staff, and I want to take this opportunity to thank each of you for your support and your sacrifices.

Although we are in a better situation this year, significant challenges remain, and we must continue to be diligent and contain costs. For example, health care costs rose 16 percent last year; maintaining reasonable coverage for our employees and retirees gets more and more difficult each year. And I believe that during the next few years, it is likely that health care benefits will consume a significant portion of the funds available for increasing faculty and staff compensation.

Additionally, with the market downturn, requests for undergraduate financial aid have increased, and several of our peer institutions have strengthened their aid programs. Harvard recently announced that it would provide full financial aid for students from the lowest income families. Stanford's financial aid program continues to be competitive, even with Harvard's changes.

In the last few years, increases in financial aid have largely offset tuition increases, and the fraction of students receiving loans as well as grants has increased. Enhancements in our financial aid program have also eased the burdens on middle-class families, but of course, they have further increased the strain on our budget.

In recent years, admission has grown more competitive in the undergraduate program and most of our graduate programs. This year, Stanford and several of our peers introduced the "Single Choice Early Action" program for undergraduate admission. The program was designed to reduce the pressure on applicants arising from the binding nature of early decision. We were, however, a bit overwhelmed by its popularity. In 2002, more than 2,400 students applied to Stanford for early decision consideration; under the new early action program, we received more than 4,000 applications in 2003. At the same time, the quality of the applicant pool increased both in early action and regular admission groups. This year, we offered 2,424 students admission -- only 12.6 percent of the 19,169 applicants. We look forwarding to welcoming these outstanding students to our campus.

Just as we are committed to attracting and providing financial support for the very best undergraduates, we are committed to offering these extraordinary students unparalleled opportunities so that they can develop their potential. A decade ago this fall, the Commission on Undergraduate Education issued a report that led to sweeping enhancements in undergraduate education. As you all know, the Campaign for Undergraduate Education, or CUE, was launched three and one-half years ago to make these enhancements permanent.

Over the past year, I have had opportunities to meet with alumni and friends at major gatherings in Boston, Los Angeles, Monterey, Phoenix and New York City, as well as on campus. Their support and enthusiasm for our university has been heartwarming, and they clearly agree with us on the impact of our undergraduate initiatives. They have been remarkably generous in their support, and to date, we have raised $930 million for CUE.

Our development staff has worked tirelessly to help us meet our goals, and last year we had the second best fundraising year in the university's history. Given the still fragile economy, this result is a testament to the hard work of our development staff and the remarkable loyalty and generosity of our alumni.

We recognize the importance of good relationships with our neighbors, as well as our alumni, and this year we continued to strengthen our ties to the community. We established a new program -- the Community Partnership Awards -- to recognize local individuals or organizations that have partnered with Stanford to serve our neighboring communities. A few weeks ago, we presented the first three awards to East Palo Alto Tennis and Tutoring, Partners in Caring and the Stanford Community Law Clinic. At the same time, we presented the Miriam Aaron Roland Volunteer Service Prize, a new award that recognizes faculty members who have demonstrated exceptional commitment to community service. This year, Boyd C. Paulson Jr., the Charles H. Leavell Professor of Civil Engineering, and Milbrey McLaughlin, the David Jacks Professor in Higher Education, were named the Roland Prize winners.

Our third annual Community Day was held on April 4, and we welcomed thousands of visitors to campus. More than 20 student groups and two dozen departments participated, and hundreds of staff and faculty volunteered their time to make the day a success. Thank you!

At last year's Academic Council meeting, I also spoke about our continued commitment to diversity and the establishment of the Diversity Action Council by the provost. One area of focus this past year has been to increase our engagement of our minority alumni. Harvard Law professor and former trustee Charles Ogletree has chaired a task force to focus on this issue. To further engage our minority alumni and to celebrate their remarkable accomplishments, the task force with the Alumni Association is organizing the first Minority Alumni Conference Weekend, which will be held on campus beginning two weeks from tomorrow.

Another area of ongoing focus has been to increase the representation of minorities and women on the faculty. We saw modest gains in the numbers of women and minorities on the faculty last year. Realizing the importance of our commitment in this area, we were delighted to bring Sally Dickson back to Stanford as associate vice provost for faculty development with a special focus on faculty diversity. Our additional efforts to build the pipeline by increasing the diversity of our graduate student population have resulted in growing numbers of minority graduate students. Building the diversity of our faculty must be a long-term effort for Stanford and for its peer institutions from which we hire our new faculty.

ADVANCES IN MULTIDISCIPLINARY RESEARCH

At Stanford, we believe that research and education are inherently symbiotic. So while we have strengthened the undergraduate program, we have never lost sight of the importance of maintaining our excellence as a research university. This year, we continued to break new ground in multidisciplinary research.

In October, we celebrated the opening of the James H. Clark Center, designed to foster groundbreaking work in bioscience and bioengineering. The Clark Center heralds a new era in how we pursue research and teaching. Increasingly, we are building problem-focused teams in the laboratory, drawing scholars from different disciplines both to teaching and research. Bio-X is one model of a research center organized around challenges and opportunities, bringing together faculty from different disciplines and departments as needed.

Of course, Bio-X is just one initiative among several in progress. International studies is another area of growing importance. In the fall, we created a new professorship and Center for Islamic Studies. Islam is the second largest religion in the world, and yet our knowledge about its history, culture and beliefs is surprisingly lacking. This new center, with its ambitious research and teaching program, will draw from multiple disciplines to change that. Broader planning efforts to expand and strengthen our research and teaching in international studies are under way.

CREATING A SUSTAINABLE FUTURE

A century ago, in an address to the Board of Trustees, Jane Stanford described the image that sustained her in difficult times:

I could see a hundred years ahead when all the present trials were forgotten, and all of the present active parties gone, and nothing remaining but the institution. I could see beyond all this the children's children's children coming here from the East, the West, the North, and the South.

Almost a hundred years have passed, and "the children's children's children" are today's students. Although we have made unprecedented strides in our knowledge and the university is recognized as a global leader in research and teaching, new challenges have replaced the trials of our first century.

Some of our most daunting challenges are environmental ones: How can we build a world that supports sustainable development for our "children's children's children"? Today, between 1 and 2 billion people lack access to safe drinking water, resulting in a devastating array of public health problems and disease. At the same time, we are literally changing the face of the planet: Human activities are driving the extinction of species at faster rates than we have ever seen. The world population is expected to grow by several billion people over the next half-century, and the world's energy demands are likely to grow even faster. The challenges before us are critical and enormous. We must find ways to produce and distribute food in a sustainable manner, to create sustainable and environmentally benign methods for energy generation, to develop ways to sustain our precious environmental resources -- especially clean water and air -- and to preserve biodiversity.

In recent years, we started asking ourselves: Given the university's great research and education programs, how can Stanford most effectively contribute to addressing these complex problems?

The university has broad strengths in the area of environmental scholarship -- from biology and earth sciences to environmental engineering, to economic environmental policy and environmental law. Many of the pioneers of environmental science -- including Paul Ehrlich, Donald Kennedy and Perry McCarty -- have been teaching and conducting their research at Stanford for some time. In addition to the School of Earth Sciences, in recent years we have developed a number of programs that address environmental issues, such as the Interdisciplinary Graduate Program in Environment and Resources, the Center for Environmental Science and Policy, the Global Climate and Energy Project, and the Environmental and Natural Resources Law and Policy Program.

What we have not had was a broad infrastructure designed to support and encourage the growth and interplay of these programs across the university. We learned a great deal in the process of creating Bio-X, and we feel that now is the time to begin building a new multidisciplinary center focused on the environment and sustainability.

Given this context, in October I announced the creation of the Stanford Institute for the Environment, an independent interdisciplinary center that will be the focal point for environmental research and education at Stanford. Its emphasis will be on sustainability. Under the leadership of Jeff Koseff and Buzz Thompson, this institute will create a research and teaching program that integrates science, technology and policy. Science will provide the foundation for a deeper understanding of the environment; technology will help us create innovative solutions to current problems; and development of new policies will lead to sustainable approaches to the environment.

The institute will also help us consolidate and enhance the university's many existing environmental programs and attract scholars doing cutting-edge research in these areas. A new seed research program -- similar to the highly acclaimed Interdisciplinary Initiatives Program established for Bio-X -- will be implemented to encourage multidisciplinary research collaborations on environmental questions.

This is an enormous undertaking, but if we are to learn how to live on this planet in an environmentally sustainable way, if we are to leave something for our "children's children's children," we must begin. I believe that the Stanford Institute for the Environment is uniquely positioned to lead the way and to make a difference in this worthwhile effort.

CONCLUSION

Although the year has had its challenges, I hope you will agree with me that we have made great strides and that you are looking forward to what lies ahead as much as I am. Thank you for your support over the past year and for your attention this afternoon.