Board Chair John M. Sobrato: Higher Ed Trends, Real Estate, and Philanthropy
John Michael Sobrato is Chair of the Board of Trustees at Santa Clara and Chairman of The Sobrato Organization. There are a few different parts of The Sobrato Organization that we cover in this conversation.
First is the real estate business, which has developed over 21 million square feet of office, R&D and multifamily complexes since the 1960s. A few of the company’s notable office buildings include the former Apple Campus, the Service Now HQ, and offices for Amazon, Google, Netflix, Facebook, Pinterest, NVidia and more.
This enormous success has fueled the philanthropy arm of the business, Sobrato Philanthropies, which has deployed more than $552 million giving to education, career pathways, and essential human services, primarily in Silicon Valley. Every year since 2013, the Sobrato Family has been named the number one or two most generous corporation in Silicon Valley by the Silicon Valley Business Journal ahead of major high-tech companies. Additionally, both John A. and John M. Sobrato and their spouses have taken the Giving Pledge and stated that 100% of their wealth will go to the family foundation.
The third area of the business is Sobrato Capital, an investment arm that manages money in both public and private companies.
In this conversation, we touch on the evolving business model of Santa Clara, the ethics of profit maximization, lessons from the Sobrato family business, social impact, working through challenges on the Santa Clara Board of Trustees, the role of philanthropy versus government, and what John is most proud of in his career.
Gavin Cosgrave: As a Santa Clara student, father of Santa Clara students, and now chairman of the board, you’ve seen Santa Clara from many different angles. Is there anything you appreciate about Santa Clara now that you didn’t before?
John M. Sobrato: As I’ve progressed from student to father of two boys who graduated from Santa Clara to being on the board of trustees to chairing the board, I’ve seen just how unsustainable the business model is. It’s not just a Santa Clara phenomenon, but it affects Santa Clara since we’re no different than any other institution of higher learning.
Affordability and accessibility is a big deal, and a real challenge. Maybe a dozen universities have endowments big enough to accept student s need-blind, but those universities aren’t accessible. Stanford, Harvard or even Berkeley only accept a small percentage of students. So they’re affordable but not accessible. Then there are schools that are accessible but don’t have the financial resources to make them affordable.
It’s a real challenge. Depending on what statistics you look at, it used to be that a year of college was 20% of the average median income. Today it’s well over 50%. If you do the math, the cost of a college education has gone up eight times faster than the median income. Student loans and debt are how people are paying, but that’s not sustainable. We just can’t march along increasing tuition 3% per year while median income remains relatively flat. We have to experiment with new ways of doing things.
GC: How is Santa Clara adapting for the future?
JMS: Fortunately Santa Clara is on a very solid financial footing. Unfortunately we don’t have an endowment big enough that we can hire need-blind, but we do have a billion-dollar endowment. We have time to experiment.
It’s pretty interesting that colleges and universities in general, Santa Clara no exception, teach the same way we did when we were founded in 1851. You’ve got a professor speaking from anywhere from 10-30 or maybe up to 50 students. I can’t think of many things we do the same way today as the 1800s. That’s the fundamental problem. At Santa Clara, I think it’s 65-70% of our costs are staff: people that teach here and provide services to students. We can’t really address accessibility and affordability unless we have professors able to teach students.
I think it’s using technology in a way where you take pieces that can be done outside of the classroom and put it there so that the professor’s time is focused on the labs and discussions—the things that make Santa Clara unique. I don’t mean to suggest Santa Clara is going to become an online school like university of Phoenix or something, but I do think we’re going to need to experiment with new ways of teaching in an effort to increase teacher productivity to get the cost per student down.
GC: What was it like working with your father?
JMS: One thing my father did really well is that there was always plenty of room for both of us, even though my father is a larger-than-life personality and did the heavy lifting to build the business. He provided space for me to succeed or fail, so I always felt like it was rewarding. Even today, my dad’s in his early 80’s and he’s still very involved in the key decisions of the business. Even though I’m sneaking up on 60 here pretty quick, it’s still a family business. It’s not like a corporation, there’s continued involvement. There’s that emotional connection in a family business.
GC: What’s the link between the real estate business and the philanthropy arm?
JMS: One of the topics we’ve been thinking about is how much we want to run the business with charitable objectives in mind. What we have done to date is that the business is the for-profit machine and we try to maximize returns. The business is the engine that generates what will ultimately leave philanthropic resources for the family. My parents have left 100% of their estate to charity. We run the business with the goal of generating philanthropic resources.
As an example we’re thinking about, we own thousands of apartment units. Instead of leasing them to individuals at the market rate, should we use some of those apartments to house teachers, police, fireman. Should we set up some apartments where we try to support an important constituent in the community? If we do, that’ll mean less money to the foundation for other purposes, so how do you balance the two?
Up until this point the two have been relatively siloed where the business makes money and the foundation spends it, but we do want to mix it a little bit.
GC: What do you think the role of businesses should be to make a social impact?
JMS: It’s a really interesting topic. Many companies have taken stances on social issues that have nothing to do with their core business. We’re able to do advocacy on the nonprofit side because we have these separate buckets, but corporations don’t.
I think, in terms of the business, we have always tried to operate with integrity—to do what we say we’re going to do—and not do anything we perceive to be harmful. But we’ve also maximized profit. If someone can’t pay rent in an apartment, they get evicted. Versus trying to understand their personal situation and providing some support. Where do you draw that line? What we have done is run things siloed. We may be providing financial support thorough organizations like Catholic Charities that help people stay in their homes. As we have more time to think about these things, should the left hand be more coordinated with the right hand? It’s only been basic: be honest and don’t do anything blatantly bad for the environment or community but run it at the business. That’s one of the things we haven’t fully thought through.
The other piece of the family’s for-profit base besides real estate is a big basket of marketable securities just like the university’s endowment. Should we screen the companies we invest in as passive investors based on how they treat the environment and people? That’s also a topic that’s invoked today. We do it on the foundation side, but we haven’t done it on the for-profit side yet. In part because if we recast the portfolio we have a lot of tax due. Our thinking is that if we lose a big chunk of capital, ultimately it’s all going to charity, so is it better to screen our portfolio or just move it to a screened index when it goes to charity. We are certainly cognizant that we’re doing things that might be inconsistent on the for-profit side with things we want to achieve on the nonprofit side.
GC: How do you see the difference between philanthropy and government intervention? What’s the role of the private and public sectors?
JMS: I see philanthropy as the lab. It’s hard for governments to try new things because if they do something that doesn’t work, they get criticized for wasting money. Frankly I just don’t think the government is that creative. I see philanthropy as the risk-taking piece of trying to make change. Philanthropists can try something, and if it doesn’t work, they can try something new and be experimental. If you do have something that works, you have model that you can try scaling up. You can present that to the government and demonstrate with third-party evaluations that this works. It’s something now that’s not as risky to put tax dollars behind.
Whatever the issue may be, philanthropy should be the risk-taker and demonstrate to the public sector what works and what doesn’t.
GC: What message would you send to every person in the United States?
JMS: I really think divisiveness is a real issue. One of the things I always try to do (now I’m a democrat and not very supportive of our current leadership) is listen to both sides. I try to hear how people think, and part of the problem with social media is people tend to just listen to things that reinforce opinions they already have. They hang around people that think like they do, so there’s a complete lack of ability to understand the other side. My advice to everyone would be to, as difficult as it is today, to remain open minded. Be exposed to and listen to the views of those who don’t think like yourself in an effort to address the challenges that aren’t being addressed, whether it’s healthcare reform, immigration, environmental regulation, climate change…