Scope and Content
Title: System Development Foundation (Palo Alto, Calif.) Records,
Date (inclusive): 1957-1993
Collection number: M0504
System Development Foundation (Palo Alto, Calif.)
170 linear ft.
Stanford University. Libraries. Dept. of Special Collections and University Archives.
Property rights reside with the repository. Literary rights
reside with the creators of the documents or their heirs. To
obtain permission to publish or reproduce, please contact the
Public Services Librarian of the Dept. of Special Collections.
Gift of System Development Foundation, June and September 1988, and 1989.
System Development Foundation (Palo Alto, Calif.) Records. M0504. Dept. of Special Collections, Stanford University Libraries,
The System Development Foundation (SDF) got its start in the 1950s as a not-for-profit corporation researching and developing
computer software in the information sciences. To clarify its rather complex origins, which go back to The RAND Corporation
of Santa Monica, California, a bit of background information is required.
ORIGIN OF SDF In the 1950s, The RAND Corporation, a not-for-profit United States Government think tank, experimented with
a new system for training air-traffic controllers. Rand developed computer simulations for all the necessary instructional
steps and test situations and demonstrated that people newly trained on this system could outperform experienced people trained
in the program then used by the United States Air Force. The Air Force funded further development, and RAND created a new
System Development Division to handle this and similar projects.
Soon the new division was growing rapidly, and its work was beginning to diverge from the think tank's stated mission. As
a result, in November 1956 it was separated out and incorporated as the System Development Corporation (SDC), an independent
not-for-profit organization. It would maintain its close ties with RAND Corporation.
At the time, there were so few companies experienced in the uses of computers or in developing computer software that the
Air Force did not require open competition for the contracts it awarded SDC. During a decade of such preferential treatment,
up to 1966, SDC's operations grew significantly as the corporation branched into other software markets, such as the computerization
of Medicare's administration and computerized typesetting.
In 1966, there was a change in Air Force policy that profoundly affected SDC and eventually resulted in the formation of SDF:
henceforth, open bidding would be required on its software-development contracts. Essentially, SDC was thrown into the commercial
market. Within three years, SDC would request permission to become a profit-making organization.
The records in the Stanford collection reflect at least two different ways of looking at this change. One view, held by the
Internal Revenue Service (IRS), is that SDC had been operating progressively less like a not-for-profit organization even
before the Air Force decision. The second view is the one held by SDC--that, when faced with the Air Force's new policy, the
executives and Trustees of not-for-profit SDC decided that the corporation had profit-making potential. They then began planning
how to reorient its legal status. By 1969 their plans were complete and they proposed that SDC change from a not-for-profit
to a profit-making corporation. In their opinion, SDC's competition for contracts during the previous three years did not
represent an earlier shift towards profit-making status.
The Air Force, the IRS, and the California State Attorney General all had reservations about this proposed change of status.
SDC had been tax-exempt throughout its lifetime. Moreover, for all these years it had received contracts from tax-supported
institutions without having to bid for them.
Negotiations eventually yielded a compromise. The not-for-profit corporation would retain its tax-exempt status but take a
new name: The System Development Foundation (SDF). This Foundation would own most of a new, for-profit corporation which would
now be known as The System Development Corporation (sometimes referred to as "new SDC" or "SDC #2"). The Board of Trustees
of the original, not-for-profit SDC would become the Trustees of SDF, and a new Board of Directors would quickly be chosen
for profit-making SDC.
In return for a controlling share of the for-profit SDC, SDF transferred to the new corporation all of the actual facilities,
operations and contracts of not-for-profit SDC. In essence, one organization split into two, a profit-making corporation receiving
the established business; and a not-for-profit foundation receiving a large share of the corporation's stock. This, however,
is not how the Trustees and Directors of SDF and SDC--or the various concerned branches of the Government--saw it. Because
of the tax-exemption, they all considered SDF to be the same legal entity as the old not-for-profit corporation, and for-profit
SDC an entirely new corporation. The Foundation's corporate seal, for example, shows that SDF was incorporated in 1956, completely
ignoring the fact that it was known by another name at the time.
Because the original SDC had been tax-exempt for more than ten years and had been treated preferentially by government agencies
during that time, the Government was concerned that an established business would be appearing whose start-up funds had in
effect come from the U.S. Treasury. The Trustees also wished to avoid this perception and any possible back-taxes or penalties
such a perception would provoke. Thus, a further part of the agreement was that SDF would pay the Treasury half the value
of for-profit SDC. SDC was valued at eight million dollars at the time of the reorganization. SDF would therefore pay four
million dollars to the Treasury as a "voluntary contribution": two million dollars to be paid immediately with funds borrowed
from SDC; and two million more when SDF sold its stock in SDC. (SDC's Board of Directors and SDF's Board of Trustees intended
that SDC stock would be offered on the open market.) SDF's role would be to distribute to the American taxpayers the money
put into SDC by Government contracts. The money to be distributed--like the second $2 million in direct payments to the Treasury--would
come from the eventual stock sale. With the proceeds of this sale, SDF would make grants to tax-exempt institutions sponsoring
research in the fields in which the original SDC had been active.
The agreement was eventually approved, but SDC's competition was not pleased. The recently formed Association of Independent
Software Companies lobbied intensively to block the conversion to for-profit status, claiming among other things unfair competition
stemming from SDC's growth as a sole-source government contractor. SDC eventually agreed to make available its major findings,
research results and computer programs developed during its non-profit period. This helped alleviate some concerns, but not
all as indicated by the headline which Business Week used to announce SDC's reorganization, "Software Giant Goes Commercial."1
The change in status occurred in July, 1969. Once SDC's Trustees had selected a new Board of Directors, they relinquished
direct responsibility for SDC and assumed direction of SDF's affairs. SDF's original Board of Trustees in 1970 consisted of
Arnold O. Beckman, Edwin E. Huddleson, Jr., Augustus B. Kinzel, Lloyd N. Morrisett, Lt. General Donald L. Putt, Dr. Horton
Guyford Stever, Dr. Ralph W. Tyler, and Bethuel M. Webster. With the exception of a Trustee who had resigned in 1968, this
was the same group which had initiated the change to for-profit status in 1967. In addition, Huddleson had been one of the
original founders of the System Development Corporation in 1956. Following the reorganization, the SDF Trustees and SDC's
Board of Directors held periodic joint meetings. The Directors made all business decisions but were required to keep the Trustees,
as major shareholder, aware of all their proceedings.
Three separate plans to make stock available to the public were frustrated by circumstances beyond the control of those involved.
The first offering was scheduled for December 19, 1972, the day after President Nixon announced the resumption of the bombing
of Hanoi. This event sent the stock market into a downslide and the offering was cancelled. Attempts at public stock offerings
were made again in 1973 and 1976, but each time unfavorable market conditions resulted in the cancellation of the offering.2
The Treasury Department became uneasy with the situation because no grants seemed forthcoming, and the second two million
dollars was likewise delayed. The Internal Revenue Service again questioned whether non-profit SDC ought to have been accorded
tax-exempt status in the last few years before 1969. The IRS also was suspicious about the nature of the voluntary donation
to the U.S. Treasury. To prove their intent to give away the money, the SDF Trustees made a series of preliminary grants.
In 1974, the following four institutions each received 50,000 shares of SDC stock to support their research programs: the
California Institute of Technology, The RAND Corporation, Stanford University, and the University of California at Berkeley.
There were restrictions on the gift: the shares were not registered with the Government to be sold openly, and shares paid
virtually no dividends. The gifts were accepted, however, and each institution handled the gift according to its policies.
Stanford made an internal transfer and freed funds for immediate use; the other institutions waited until a tender offer was
made by SDC and by the outside corporation which would eventually purchase SDC for the stock they held.
An additional restriction on the Foundation was that its funds must be dispersed within a certain time frame. By the end of
the 1970s, SDF's funds were still tied up in SDC stock. The Trustees decided that they could no longer accept the responsibility
involved in waiting for a successful public offering of stock. They located an investment group, Lehman Brothers, willing
to purchase their shares and take over the financial risk. SDF would then have the cash to begin an active grant program.
However, the California State Attorney General refused to approve the agreement. The Attorney General pointed out that it
had been Lehman Brothers, as independent consultants to SDC in the 1960s, who recommended that SDC go commercial. When this
deal fell through, SDF sought another purchaser. In December of 1980, a controlling interest in SDC was sold to the Burroughs
Corporation, and SDC merged with this larger organization.
The history of SDC from its inception until the Burroughs merger is detailed in Claude Baum's above-referenced corporate history,
The System Builders: The Story of SDC (available in Special Collections Rare Books Reference and in Green Library stacks at
HD9696.C64 S83 1981). Baum's primary focus is on the Corporation during the years 1969-1980, not on the Foundation.
DEVELOPING THE PROGRAM Once SDC was sold and funds became available, the Trustees of SDF faced the task of developing an active
grant-making program. As Director of Programs they appointed Charles S. Smith, formerly with the Department of Energy in Washington
DC. He and a small staff began work in 1981.
Shortly after SDC made its grants of stock in 1974, it began to receive requests for money. Requests were put on file because
the Foundation was not yet active. The publicity surrounding the sale of SDC generated still more interest. Early requests
were politely acknowledged and put on file until a program could be created. It may have been hoped that these files could
serve as a resource in developing the program itself. In 1980, Ralph W. Tyler, President of the Board of Trustees until SDF's
close in 1988, began asking other Trustees and contacts across the country to suggest people who might benefit from--or help
develop--the Foundation's program. Suggestions received by Tyler and information gathered by Smith and his staff about SDC's
former fields of concentration and the people involved formed the basis of the Foundation's early grants.
SDF intended to fund research in those areas in which the old not-for-profit SDC had worked. Smith's first goal was to inform
the Trustees of current research and funding patterns in these fields. To this end, Smith and his staff arranged a series
of seminars in fields in which SDF would likely fund research. The seminars were also intended to survey existing funding
patterns, because the Trustees wanted to complement available funding sources rather than to compete with them. Specific titles
of the seminars are mentioned in SDF's 1982 Annual Report.
Presentations by invited experts gave the Board the necessary background for formulating a set of funding guidelines. These
guidelines, issued in December 1981, declared SDF's intention to support research in principles of information science, computer
representation or modeling in biological and machine information processing (as in neurobiology, cognitive sciences, non-Von
Neumann computer architecture, and robotics), principles of human-machine interface, and the interface between the computer
and artistic endeavor. These were eventually formalized into eight areas that would remain constant for the life of the Foundation:
principles of information science, computational linguistics and speech, symbolic mathematics, robotics, non-Von Neumann computation,
neurosciences, human-machine interface, and computer music.
Charles Smith was now authorized to solicit proposals actively. Likely proposals were presented for action to the Board as
a part of the materials to review for their meetings. During this time, Smith also contacted experts in the various areas
of interest to SDF. These reviewers and consultants proved very helpful in developing SDF's policies, and the policy of confidential
review by outside experts that developed from this consultation policy would become a permanent feature of the Foundation.
SDF issued its first annual report on June 30, 1982. It noted the Trustee seminars, outlined the areas of interest as formalized
in December 1981, and contained recommendations on how to apply for funding. It was hoped that this report would reduce the
number of out-of-scope proposals received, especially the charitable requests, as well as publicize SDF's efforts more widely
among those who would benefit from its funding policies.
There soon developed a regular pattern of proposal and response. Initial contact could be made either by SDF or by an interested
researcher, but most often interactions began with a recommendation by someone already familiar with or associated with the
Foundation. Researchers were asked to submit a short proposal, along with related reprints to serve as background material
and to establish the credentials of the investigating team. If such a proposal seemed to be in line with the SDF program,
it was sent out to independent reviewers. Sometimes Charles Smith or a reviewer would visit the researcher's laboratory to
get a clearer sense of what was hoped for in the proposed project. Smith often worked with researchers who had promising proposals,
helping them to clarify their research questions and to make a clear statement of their goals in the funding request.
Quality of research was not the sole criterion upon which the Trustees based their funding decisions. For example, SDF wished
to commit its resources to important projects that seemed unlikely to receive money from other institutions. Smith sometimes
helped researchers revise their proposals for submission to the National Science Foundation or the Department of Defense.
If a researcher seemed already occupied with a multitude of projects or duties unrelated to the proposed research, SDF was
hesitant to fund yet another project, considering that it might not receive enough attention. On the other hand, at times
it was obvious that special funding of a researcher's project would alleviate pressures of other university duties; this would
have been an additional reason to award a grant.
When the staff had gathered the outside reviews of a proposal, it was brought before the Board of Trustees. The Trustees met
quarterly, and their agenda materials contained information on each proposal to be considered. For the first year of operations,
the Trustees insisted upon receiving copies of all documents related to the proposals under consideration. By December of
1982, however, it was clear that this would not be feasible. The volume of paper was simply too great, and the material was
too technical for the Trustees to absorb. The Board decided to rely on the recommendations of the reviewers, who had been
chosen because they were experts in their fields. The SDF staff wrote summary sheets for the Trustees, collating the information
gathered about each proposal.
On the basis of these staff summaries and the discussions during Board meetings, the Trustees decided whether to make a grant
or not. Sometimes, proposals would be partially or conditionally funded, or the principal investigator on a particularly promising
project would be asked to explain more clearly how the project fit in with SDF's program. On rare occasions, a small grant
would be made to cover development costs for a larger proposal.
From the early 1980s onward, SDF had intended to operate for a limited time. Its Trustees believed this would ensure that
their funds would have a larger impact than if diluted across a longer period. In 1984, the Foundation reached a point where
half of its resources had been committed. The Trustees decided to cease encouraging new proposals and to concentrate on previously
funded projects or closely related ones. To this end, they reorganized the Foundation somewhat. Charles Smith resigned as
Director of Programs, agreeing to remain affiliated with SDF as an independent consultant. The Director's job description
was altered; and in August of 1984, Carl M. York became Director of Program Administration.
Before York arrived, SDF's clerical staff cleared the files of proposals that had been superseded or seemingly forgotten by
their researchers, as well as those that were inappropriate to the Foundation's new focus.
MAJOR GRANTS AND SPONSORED PROJECTS SDF funded research across a wide area; for a thorough discussion, the researcher is referred
to the Foundation's final annual report, appended to this collection guide.
In the mid-1980s, the staff of SDF began investigating the possibility of obtaining a reduced price for computer equipment
for its grantees. Xerox Corporation's then-new Dandetiger computers became the focus. Eventually several researchers opted
to use some of their SDF funds for this purchase.
The 1984 Annual Report notes SDF's interest in holding benchmark symposia in its funding areas. The 1986 Annual Report announces
dates for three symposia in neuroscience, robotics and computer music and for four workshops, all in computational linguistics.
Original hopes to hold symposia in all eight areas of concentration were abandoned after consultation with researchers in
the fields. One researcher in computational linguistics, for example, suggested that it might be premature to hold a retrospective
symposium in such a new field. He felt that the effort and money put into summary papers would be better spent on pushing
forward--examining research goals and exchanging ideas on current research. The four computational linguistics workshops were
designed to bring together researchers in that field so that they might exchange information and learn about one another's
WINDING UP THE FOUNDATION As early as August 1984, when York arrived, the staff of SDF knew that the Foundation would close
about 1988, but the exact date was not firm until 1986. In that year, the closing date was finalized for June 30, 1988. Staff
members were asked to work full time through 1987. Anyone willing to work up to or beyond June 30, 1988, would be eligible
for severance pay. Some members agreed to work beyond that time as consultants, to assure the proper winding up of SDF's responsibilities.
SDF was concerned about grants it had issued whose terms went beyond, or might be extended beyond, that time. Many ideas were
suggested to deal with this eventuality; the final decision harked back to SDC's original articles and bylaws of 1956. These
dictated that, should the not-for-profit organization finish business with a financial surplus, it should give that surplus
back to RAND or to a similarly tax-exempt research institution. SDF arranged to make a set of closing grants to The RAND Corporation
to ensure proper administration of continuing research projects and proper fulfillment of SDF's legal obligations. RAND received
approximately $7 million and assumed legal responsibility "up to but not exceeding the amount of the grant."
Toward the end of SDF's lifetime, its trustees began to explore possible ways of measuring the Foundation's impact on the
areas funded. The Board chose to sponsor a series of symposia, to place SDF's records in an archive, and to fund a history
of the Foundation. The Stanford University Libraries' Department of Special Collections was chosen to house the records, and
a grant was made to process the collection. An additional grant was made to the University Libraries for funding documentation
and research projects to evaluate SDF's impact on the evolution of contemporary science and technology.
Principal investigators for grants active after SDF's final dissolution in June 1988 were requested to send their expenditures
reports to RAND and to send research reports to the Stanford University Libraries for addition to the Records of the System
Scope and Content
The System Development Foundation was a scientific funding organization which distributed all its funds within a finite period
of time. The Foundation was formed in 1969 from a corporation in existence since 1956, made its first grants (in the form
of stock) in 1974, and was involved in an active grant-making program from 1980 to 1988. The majority of the records held
by Stanford University Libraries date from 1980-1988. A small amount of material dates from the years 1956-1969, when SDF's
predecessor, the System Development Corporation, was a not-for-profit corporation. The majority of not-for-profit SDC's corporate
records were transferred to for-profit SDC, and then to The Burroughs Corporation upon SDC's purchase in 1980. Burroughs later
merged with The Unisys Corporation; interested researchers are referred to the Unisys Corporation Archives in Bluebell, Pennsylvania.
A larger group of documents at Stanford date from 1969-1980, the period when SDF had been incorporated and SDC had become
a for-profit corporation; but SDF's assets were tied up in SDC, and the grant-making program had not yet begun. The documents
from SDF's active period include minutes and agenda materials, administrative correspondence files for proposals received,
financial and administrative records of the Foundation itself, and general reference files. A small amount of material will
continue to be added to the collection from late 1988 until all grant periods have ended, which is expected to be 1993, in
the form of reports from grants lasting beyond the dissolution of SDF.
When the foundation was dissolved on June 30, 1988, it placed its corporate records with Stanford University Libraries, Department
of Special Collections. An addition to the collection was made in August of 1989 when the Foundation's final financial obligations
were fulfilled, and small increments have been added since then. A percentage of the collection was weeded as duplicates,
routine financial documents, or irrelevant material; personal documents were returned to the appropriate individual. Materials
of a confidential nature have been restricted for a period of 20 years and will not be available to researchers until after
December 31, 2008. Restricted materials have been filed separately in parallel files shelved at the end of each series. A
separation sheet identifying the general contents of each Restricted document or group of documents has been inserted in place
of the documents removed.
The Loma Prieta earthquake of October 17, 1989, severly damaged the room in which the collection was housed and interrupted
its processing. Unfortunately, during the following weeks as materials were moved to temporary storage and new workspace was
found, a few materials from the SDF collection were lost. Where these have been identified, a note has been included indicating
that specific materials were not found during subsequent processing.
The following terms have been used to index the description of this collection in the library's online public access catalog.
Abbs, James H., 1941-
Brady, Michael, 1945-
Chowning, John M.
Chudnovsky, D. (David), 1947-
Crick, Francis, 1916-
Grosz, Barbara J.
Hudspeth, A. James.
Jacobsen, Stephen C.
Knuth, Donald Ervin, 1938-
McCarthy, John J., 1953-
Partee, Barbara H.
Perry, John, 1943-
Pierce, John R.
Putt, Donald L.
Smith, Charles S.
Tukey, John Wilder, 1915-
Tyler, Ralph W.
Wood, John E.
Center for the Study of Language and Information (U>S.)
Stanford University. Center for Computer Research in Music and.
System Development Corporation.