Business Schools

Chris Whittle has made a career of being a thorn in earnest liberal sides. In 1979 the oft-bow-tied entrepreneur bought a financially moribund Esquire, transforming it from a bible of literary journalism into an advertiser-friendly lifestyle brand. He went on to create Channel One, an in-school TV news network complete with commercials. With Channel One, Whittle not only gave Anderson Cooper his start in broadcast journalism, but also peddled junk foods to captive kids. Those who saw classrooms as sanctuaries from the demands of the marketplace were, predictably, outraged.

But when it came to education, Whittle was just getting started. In 1992, he launched Edison Schools, an almost irrationally ambitious attempt to put one in 10 American public schools under private, for-profit management within three decades. Whittle targeted low-performing urban schools filled with poor children. Wall Street bit, salivating over the prospect of doing God's work while turning a profit. Through economies-of-scale, Whittle promised, Edison would be able to cut out administrative costs, operate outside of restrictions imposed by teachers' unions, and focus single-mindedly on academic benchmarks and accountability. The "Edison School Design" would combine a number of reform strategies proven effective for low-income students, including small schools-within-schools, longer school days and years, frequent diagnostic testing, and uniform reading and math curricula.

It sounded too good to be true -- and for the most part, it was. The company went public in 1999 and traded for $40 per share at its 2001 peak. But Edison fell from grace as its track record emerged -- years in the red, unremarkable academics, accounting irregularities that led to an SEC investigation, and trouble retaining teachers. In a massive buyout facilitated by then-Gov. Jeb Bush of Florida, a proponent of for-profit education, Edison became a private company again in 2003. Many districts severed their ties to Edison, though the company continued to plug along, determined to take advantage of a provision in No Child Left Behind that encouraged private managers to take over failing public schools.

Meanwhile, Whittle stepped down as CEO. Late last year he rolled out a project that seems to better suit his instincts: a chain of for-profit, full-price prep schools in cities around the world, slated to open in 2011. "Nations Academy" will cater to the children of diplomats and corporate high-flyers. A year's tuition will approach that of an Ivy League university.

The news of Whittle's retreat from the world of public-education reform comes at a telling time. Edison, once the brand synonymous with for-profit education, has largely given up on making public schools profitable. On June 30, the company acquired Provost Systems, an educational software firm based in California, and rechristened itself EdisonLearning. Running schools, it turned out, wasn't a cash cow. The company now hopes that selling technology products to schools will be.

Does Edison's failure to make its core business self-sustaining neutralize arguments in favor of for-profit education? Experts sympathetic to Edison say educational bureaucracies have hamstrung the company's efforts; in many of its managed schools, Edison didn't have the right to hire its own principals or teachers dedicated to the company's learning model. But it's also undeniable that Edison schools varied greatly in quality and that in some cases, corners were cut.

There's evidence that some Edison schools provided inadequate services to disabled children and coached kids on standardized test answers. The biggest question though, and the one around which there has been the most debate, is how well Edison teaches poor children to read and do math. The most recent research from Philadelphia, the home of the largest experiment to date in for-profit public education, found that Edison's 20 schools outpaced the district as a whole in reading and math gains this year. But a more comprehensive 2007 RAND Corporation report on the Philadelphia schools concludes, "We find no evidence of differential academic benefits that would support additional expenditures on private managers." In response to Edison's uneven numbers -- and a scandal in which a 12-year-old boy was raped inside of an Edison middle school -- Pennsylvania has retaken responsibility for four of the company's Philadelphia schools and put 12 more on provisional one-year contracts. In short, there's no easy way to evaluate Edison's academics. What is clear is that the company has never lived up to its hype.

Edison learned what career educators have always known: Managing schools isn't as simple as it first might seem. The idea behind for-profit public education was that districts would turn over school budgets to Edison, plus supplemental funds meant to offset the costs of educating a population that was, in Philadelphia's case, 70 percent low-income and 80-percent non-white. Edison was supposed to run an über-efficient operation and pocket the surplus. But it never worked that way.

"Some of their individual contracts have been profitable, but overall, the company has not been able to make enough money at its individual school sites to cover the cost of its central operations and make a profit at the same time," explains Edison-watcher Thomas Tochs, co-director of the Washington, D.C.-based think tank Education Sector.

Edison's purchase of Provost Systems could remedy the profitability problem. Virtual learning "can be a high-margin business because once you create a product, you can use it over and over," Toch says. Many rural schools, for example, have trouble attracting faculty qualified to teach college preparatory classes. But via the Internet, Advanced Placement science or math lectures can be delivered on-demand to students across the country.

Edison will use its remaining managed schools to showcase such online learning tools. The hope is that educational technology might allow the company, for the first time, to build the economies of scale that evaded it in the school management business. Frederick Hess, director of education policy at the American Enterprise Institute, says, "There are natural markets here. One likely possibility is that Edison's remaining school sites will become pretty useful to them for marketing purposes, in terms of establishing their brand. Like Apple stores."

Expanding into online and software-based learning might also allow Edison to benefit financially from the eventual reauthorization of No Child Left Behind, which could provide more federal funding for a variety of education programs, including in-school technology. "NCLB, I'm a proponent of it," Joseph Wise, Edison's chief education officer, told the Prospect. "But it has a significant number of design flaws. There was no money to really boost technology to get at kids' learning needs."

The shift into educational technology is politically savvy -- an Edison hallmark. When providing tutoring and summer school for struggling kids emerged as a popular way to make a buck out of NCLB, Edison jumped in. Now the company finds itself in step with John McCain, who has been speaking frequently about his commitment to virtual learning and public charter schools -- two Edison priorities. "In 2000, eight years ago, we weren't looking at thousands of public charter schools," top McCain education adviser Lisa Graham-Keegan said in Washington last week. "[Charter schools] have not been centrist forever! They are now -- the world is changing. And virtual education is changing the world."

It isn't hard to imagine EdisonLearning adapting to this new education reform climate; after all, the company has rebounded from a series of crises. Today, the energy in education reform has largely shifted away from privatization experiments and toward nonprofit programs such as Teach For America and New Leaders for New Schools, which attempt to draw the brightest college graduates into the profession. And ultimately, for a company that never managed to get past the "ick" factor associated with for-profit public schools, diversification is probably a sensible goal, both in terms of finances and branding.

Lawrence Jones-Mahoney, an 18-year-old graduate of West Philadelphia High School, has been active in protesting Edison's involvement in his school district, and seems to understand the company well. "They're trying to be like a PR firm," he says. Indeed, Edison has always been as consumed with managing its image as it has been with managing schools, hence its very appropriate change in name. The question remains at what cost to the real bottom line -- educating kids.

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