February 4, 1997: In his State of the Union address, President Clinton calls for 3,000 charter schools (a potential market for for-profit companies) by the year 2000
Governor's-eye view
Among the most important customers of for-profit companies in the business of public education are the governors of the states where the businesses operate. One such governor is Republican John Engler of Michigan, a high-profile leader on educational policy. In 1993 his state passed a charter-school law, opening the way for for-profit companies to run public schools. Engler recently spoke to Inc. senior editor Joseph Rosenbloom:
Q: Why the willingness to experiment with school privatization now?
A: There's a growing understanding that monopolies, whether they're in the telephone, utility, or some other sector, aren't always the most willing to change, and frankly, we're not willing to risk having kids in a system that doesn't do the best for them. We're paying top dollar for public education in America. There are a number of positive things taking place, yet increasingly there's concern that we've got to move faster.
Q: Can you boil down the argument for the for-profit model?
A: It's choice and competition.
Q: Please explain.
A: Giving parents options that allow them to pick the best possible education for their children, by comparison shopping, if necessary--looking at the performance of their school and comparing it with another school.
Q: Who's against the idea?
A: The teachers' unions have opposed it. A lot of teachers are more open-minded.
Q: Is there a risk of teachers' being mistreated?
A: I don't think so. No more so than any other company would mistreat its employees. We know today about high-performing companies in America. Those that treat their employees well, those that have the right kind of corporate culture, are going to do well.
Q: Will you have accountability? Will a company lose its contract if it doesn't measure up?
A: The odds are good that there'll be at least as much accountability as we have in the traditional public schools today.
Q: Can the companies make a profit?
A: The jury is still very much out on that. I'll let the shareholders worry about that.
Q: Are the for-profit companies improving student performance?
A: Well, the best evidence is the actions being taken by school districts to form blue-ribbon committees and decide to change their curricula, to end social promotions, to end a whole host of things that aren't necessary.
Trailblazers' tale of early woes
It's a tough assignment: improve America's schools and earn a buck doing it. Two trailblazers in the for-profit school business, the TesseracT Group and the Edison Project, charged down the path years ago. Both stumbled badly.
TesseracT was the true pioneer (see " Educating the Market," July 1991). Known as Education Alternatives Inc. until last year, the Minneapolis-based company set out in 1986 to build a network of private schools. When that looked too costly, it began managing public schools for urban districts. But politics got in the way. Education Alternatives' first contract, awarded in 1990, to manage an elementary school in an impoverished area of Miami, was not renewed in 1995 because of pressure from skeptics. Its second contract, in 1992, to manage nine schools in Baltimore, fell apart in 1995 when unions balked at staff changes, an independent review did not show significant academic improvement, and Mayor Kurt Schmoke slashed the company's budget.
In 1994, Education Alternatives' third contract, to run a school district in Hartford, looked great on paper. But the company found it had little management control. So in 1996 the company, now called TesseracT, agreed to exit for a $6-million settlement. TesseracT Chairman and CEO John Golle maintains that the company did a "good job" but failed to change the "system" for lack of authority.
TesseracT is now specializing in charter schools, public schools that are managed outside of local control. The strategy has given it a new lease on life. For the fiscal year ending June 1997, it had revenues of $4.8 million and earnings of $600,000. The company runs 16 charter schools in Arizona and has won contracts to open 15 more schools in that state, as well as 2 in Texas and one in New Jersey.
The Edison Project, based in New York City, blundered at first, too. Founded in 1991 by media entrepreneur Chris Whittle, the company embarked on an ambitious strategy to create a national chain of 200 private schools by 1996. As his number two, he hired Benno C. Schmidt Jr., then the Yale University president. But while Whittle was devoting 90% of his time to Edison, his media business sagged. Scrambling to pay off a $100-million bridge loan, he sold the media business in 1994, and he revamped and at least temporarily scaled back his plans for Edison. "Had I been smart, I would have sold my media business the day I started Edison," he says. "Instead, I tried to do both."
Edison never opened a private school. The company retooled its strategy in the early 1990s, shifting its focus to public schools. It now operates 25 of them in eight states, including 12 charter schools, and is looking for more. "My long-term vision has not changed," Whittle insists. "I think we can have an enterprise that runs thousands of schools in the United States." --Claire Poole
