In this week’s issue of The New Yorker, the illustrious Ken Auletta, who recently profiled Sheryl Sandberg’s attempts to “upend Silicon Valley’s male-dominated culture,” looks at the Bay Area from a different perspective. This time, he analyzes how Stanford became “the farm system for Silicon Valley,” and whether the “gold-rush mentality” among both Stanford’s students and faculty is good for the university.
Tucked inside the story are also a number of details about why Stanford, which was widely considered a frontrunner to open a its first-ever second campus on Roosevelt Island, abruptly dropped its bid at the last minute.
In our post-mortem about the botched deal in December, Betabeat previously reported how Stanford balked at costly penalties for failure to meet deadlines, even if the factors were outside the university’s control, such as toxicity on the Roosevelt Island site. Stanford wasn’t the only institution whose legal teams threw up a red flag. Other universities that applied and those familiar with the city’s development process cited an alarming vulnerability to legal action. Stanford appeared to be particularly insulted by last-minute attempts to pit Stanford against Cornell in an attempt to see which institution would make more concessions.
(Aggressive negotiating tactics and contracts with onerous demands in the city’s favor have been a hallmark of Seth Pinsky’s career as president of New York City Economic Development Corporation.)
Mr. Auletta’s investigation offers more details and insights along those lines.
According to Mr. Auletta, Stanford President John Hennessy was pissed that the school was being held to impossible deadlines:
On December 16, 2011, Stanford announced that it was withdrawing its bid. Publicly, the university was vague about the decision, and, in a statement, Hennessy praised “the mayor’s bold vision.” But he was seething. In January, he told me that the city had changed the terms of the proposed deal. After seven universities had submitted their bids, he said, the city suddenly wanted Stanford to agree that the campus would be operational, with a full complement of faculty, sooner than Stanford thought was feasible.
Mr. Auletta cites “city lawyers,” and not the Mayor’s office as responsible for the millions of dollars in penalties sprung on Stanford during negotiations:
The city, according to Debra Zumwalt, Stanford’s general counsel and lead negotiator, added “many millions of dollars in penalties that were not in the original proposal, including penalizing Stanford for failure to obtain approvals on a certain schedule, even if the delays were the fault of the city and not Stanford. . . . I have been a lawyer for over thirty years, and I have never seen negotiations that were handled so poorly by a reputable party.” One demand that particularly infuriated Stanford was a fine of twenty million dollars if the City Council, not Stanford, delayed approval of the project. These demands came from city lawyers, not from the Mayor or from a deputy mayor, Robert Steel, who did not participate in the final round of negotiations with Stanford officials.
Deputy Mayor Robert Steel, who had “an agreeable conversation” with President Hennessy the same week Stanford dropped out, insists that there were no last-minute changes, but in fact schools were pitted against each other to see who would offer the city a better deal, Mr. Aulleta reports.
All the stipulations that Stanford now complains about, he says, were part of the city’s original package. Actually, they weren’t. In the city’s proposal request, the due dates and penalties were left blank. Seth Pinsky, the president of the New York City Economic Development Corporation, who was one of the city’s lead negotiators, says that these were to be filled in by each bidder and then discussed in negotiations. “The more aggressive they were on the schedule and the more aggressive they were on the amount, the more favorably” the city looked at the bid, Pinsky told me. In the negotiations, he said, he tried to get each bidder to boost its offer by alerting it of more favorable competing bids.
Along with responsibility for the toxicity of the Roosevelt Island site, Stanford was asked to shoulder penalties as high as $25 million for delays outside of its control:
At one point, Stanford asked about an ambiguous clause in the city’s proposal request: would the university have to indemnify the city if it were sued for, say, polluted water on Roosevelt Island? The city responded that the university would. According to Pinsky, city lawyers said that this was “not likely to produce significant problems,” and that other bidders did not object. To Pinsky and the city, these demands—and the twenty-million-dollar penalty if the City Council’s approval was delayed—were “not uncommon,” since developers often “take liability for public approvals.” To Stanford, the stipulations made it seem as if the goal posts were not fixed.
This may not be the end of Stanford’s presence in New York City, however:
Jeff Koseff, who played golf with Hennessy within a few days of Stanford’s withdrawal, recalls, “He was already talking about what we could do next.” One venture that Hennessy was exploring, though there is as yet no concrete plan, is working with the City College of New York to establish a Stanford beachhead in Manhattan. Deputy Mayor Steel says, “I’d be ecstatic.” Still, a Stanford official is dubious: “John’s disillusionment with the city is pretty thorough.”
A partnership with City College was one facet’s of Stanford’s initial bid for the campus competition.