Reading the educational public policy literature of the late 1990’s, when the neo-liberal agenda for the for-profit management of schools was becoming a formal reality in American consciousness and public education, one might conclude from media reports that a new, burgeoning market stood on the horizon of educational reform dramatically poised to fix what ails the nation’s public schools; or at least that is what much of the literature was enthusiastically reporting at the time. Take for example the Mackinac Center for Public Policy, a notable conservative think tank. In August of 1999 they reported with sheer exuberance that:
Michigan is home to the nation’s third-largest number of charter schools, many of which rely on private, for-profit companies for administration and management. The companies, commonly known as education management organizations (EMOs), manage approximately 70% of the state’s 144 charters. But some EMOs are not content to simply manage charter schools for others in some cases they are starting up their own schools, creating greater educational choice and competition for Michigan families. One such company is National Heritage Academies (NHA), a Grand Rapids-based EMO. Founded by J. C. Huizenga in 1995, NHA is rapidly achieving its goal, which is to create and manage a strong network of K-8 charter school academies. Huizenga operated just one charter school in NHA’s first year. Three years later, the company is managing 13 schools in western Michigan and plans to open nine more schools this fall. Like other EMOs, NHA has sought private, outside investors. To date, it has raised $100 million in investor capital in addition to millions of dollars provided by Huizenga from his own personal finances. Yet, even with this level of funding, the risk is great, and there are no guarantees of success. Charter schools cannot sell bonds for buildings and equipment like traditional public schools. First-year charters must be fully staffed and teaching students long before any money comes from Lansing. The high up-front costs for starting charter schools cause a negative cash flow for many months and also keep many “mom and pop” charter schools from entering the market. On the plus side, the high up-front costs may also lead charters to use more cost-saving measures such as contracting out school support services. NHA, for example, contracts out 100% of its food and custodial services to other private firms.
The Educational Policy Studies Laboratory at Arizona State University has been reporting extensively on for-profit management of public schools, including charter schools, for more than ten years. Each year they issue a Profiles of For-Profit Education Management Organizations in which they look at data that documents the number of for-profit firms (EMOs) involved in the management of publicly funded schools. They include data that identifies the schools these firms manage, the number of schools they manage, and the number of students they serve and other sundry disclosure data. In 2008 they released their first study of non-profit educational management of schools, which we will look at later in the chapter.
First, turning our attention to the 2007-2008 Profiles of For Profit Education Management Organizations Tenth annual report, authors of the report, Alex Molnar, Gary Miron and Jessica Urschel, sum up the argument conservatives use to garner public support for the for-profit EMOs this way:
While faith in market competition as an effective engine of reform provides a general theoretical basis for both EMO-run district and charter public schools, the specifics of the competition are somewhat different in each instance. Adherents of market-based school reform favor charter schools in the belief that they provide competition that will force existing public schools to improve their outcomes or be put out of operation. Support for for-profit management of district schools, meanwhile, arises essentially from a belief that private business models are more efficient and effective than nonprofit, government operated institutions. A for-profit company contracted to manage district public schools, it is reasoned, will have incentives (making a profit in the short term and retaining a profitable contract in the long term) to seek efficiencies and improve student outcomes and achievement. The competition, in this context, takes place not among schools or districts themselves, but among current or potential managers of schools (Molnar, Miron and Urschel, 2008).
So the assumptions, at least by some, behind the educational and economic theory supporting the for-profit EMO is clear, according to Molnar, EMO advocates believe: competition in the management of public schools will raise all boats; this is important for the argument is not simply that competition in the types of schools students may go to (though that too is part of the educational privatization agenda) is essential to improve public schools; free market ideologues go even further, arguing that if schools compete effectively in how they manage a school, be it a charter or district school, student performance will rise and efficiency will increase. But is this really true and is it really the true underlying ideology of conservative forces that support charter schools and EMOs? In other words, is the real goal of these companies to improve traditional public school performance across the national educational line through competition, as they claim, which would include both charter schools and traditional public schools? Or is the real unstated purpose and rarely spoken of objective to actually replace traditional public schools with a business form of ‘privately run educational retail franchises’, in the form of charter schools?
For profit EMO’s are now big players in the rocketing charter school movement that has swept the country and their relationships, agendas, and claims must be critically examined and thoroughly scrutinized. We will attempt to do this in this chapter. First, however, it is important to understand what a for-profit educational management organization (EMO) is and what they propose to do, have done or haven’t done in the name of improving public schools.
Defining Terms: What is a for-profit EMO?
Just what is a for-profit educational management organization (EMO)? The answer must initially be ascertained by first defining the notion of the ‘privatization’ of ‘public services’, in general. As we noted in chapter five, the transfer of public duties traditionally performed by government actors and/or agencies to privately held or publicly traded companies for profit who assume complete responsibility for the public assets and answer only to their shareholders or owners, can be called ‘privatization’ (also referred to abstractly as neo-liberal economic policy). When public educational duties are ‘privatized’, thereby transferred from the public to the private sector (in this case comprising the ‘management’ of schools with all the myriad of responsibilities this entails), and subsequently this private management is contracted for with a public school entity, be it a public educational district or simply a public school (charter or otherwise), we can say that this private company is or will be a ‘for-profit management’ company or what is now called in contemporary educational jargon, an Educational Management Organization (EMO). The Education Policy Studies Laboratory, at the College of Education at Arizona State University is more thorough and specific in their definition of an EMO:
We define an education management organization, or EMO, as an organization or firm that manages schools that receive public funds, including district and charter public schools. A contract details the terms under which executive authority to run one or more schools is given to an EMO in return for a commitment to produce measurable outcomes within a given time frame. The EMOs profiled in this report operate under the same admissions rules as regular public schools and are operated for profit. The term “education management organization” and the acronym “EMO” are most commonly used to describe these private organizations that manage public schools under contract. However, other names or labels such as “education service providers” are sometimes used to describe these companies. An important distinction should be made between EMOs that have executive authority over a school and service contractors that are often referred to as “vendors.” Vendors provide specific services for fee, such as accounting, payroll and benefits, transportation, financial and legal advice, personnel recruitment, professional development, and special education. EMOs vary on a number of dimensions, such as whether they have for-profit or nonprofit status, whether they work with charter schools or district schools or both, or whether they are a large regional or national franchise or a single-site operator. Historically, only a small portion of EMOs have been nonprofits. In recent years, however, nonprofit EMOs (sometimes referred to as CMOs charter management organizations) have expanded rapidly (ibid).
Gary Miron, Alex Molnar and Jessica Urschel, authors of the report, note that EMOs vary on a number of legal standards, such as whether they have for-profit or non-profit status or whether they contract with charter schools or district schools or both. They even differentiate EMOs as to whether they are large regional businesses with ‘national educational retail franchises’, or simply single-site operators.
A Public-Private Partnership? What is the economic relationship between EMOs and traditional public schools and/or charter schools?
Getting back to the economics and legalities of the EMOs and their operations, to reiterate, the transfer of public duties traditionally performed by government actors to private companies who assume complete responsibility for the public assets and answer only to their shareholders is ‘privatization’; yet the argument often made by both the private and public sectors who support the EMO idea is that state takeovers of school districts or other forced transfers of school management to for-profit school management corporations (EMOs) are not strictly speaking, privatizations, but rather represent a ‘private-public partnership’. How, you might ask could this be called a private-public partnership when public taxpayer monies are transferred directly into the coffers of for-profit management companies for the services they are contracted to render? The reasoning set forth for the public-private partnership claim rests on the assumption that because the private EMOs (under a contractual relationship with individual charter schools, the districts or the state) remain accountable to governmental entities, the conclusion is that this relationship is therefore really a form of a ‘private-public partnership’, not an outright privatization. But as the Profiles report noted, “A contract details the terms under which executive authority to run one or more schools is given to an EMO in return for a commitment to produce measurable outcomes within a given time frame” (ibid). Thus the relationship is not a ‘partnership, but a contractual relationship subject to legal terms and outcomes.
Adherents to the ‘public-private partnership’ argument claim that schools remain open to the public while taxpayers continue to finance education by subsidizing the private management of schools, therefore forming the ‘partnership’. Furthermore, they argue, the public school administration or the state bureaucracy can always terminate the for-profit management company’s contract if they are dissatisfied with their performance and resume school operations as they had in the past or in the alternative produce new institutional arrangements that they deem more favorable. But what makes this any different than a mere contractual relationship for services entered into for profit between a public entity (in this case say a charter school or school districts) and a private for-profit firm like an EMO? How can this contractual arrangement and the institutional, economic and legal consequences that follow from the agreement between the two parties be categorized as a ‘public-private partnership’ when profits and returns not only drive the EMO business model but are expropriated by the EMO as a result of the fiduciary responsibilities an EMO has to their shareholders or partners? In fact, the use of the term ‘partnership’ is the real key to understanding the way EMOs have framed the issue for the public, insofar as the term implies a mutual playing ground between parties in the contract. According to Jonathan Kozol, educational writer and best selling author:
One of the early strategies employed by private corporations to soften resistance to their presence in our public schools was the creation of so-called business partnerships between the poorest inner-city schools and large companies. The financial side of the partnership usually turned out to be inconsequential. Kerr-McGee, the multinational petrochemical giant, gave one impoverished public school in Oklahoma City the trivial annual sum of $36 for each pupil. In return, one of the company’s executives was appointed to direct a “governance committee” to oversee the school operations, and the school consented to be known not simply as a public elementary school but as an “Enterprise School”. Throughout the 1990s, many inner-city schools underwent the same accommodation to the goals and even to the lexicon of their benefactors in the private sector. “Academy of Enterprise” became a common term adopted by such schools in genuflection to their corporate patrons. Principals I met in schools like these would tell me they wished no longer to be known as “principals” but preferred to be known as “Building CEOs” or “Building Managers”, in which cases their teachers frequently would be described as “classroom managers”. Mission statements heralding the need for children to be trained to serve our nation’s interests in “the global marketplace” were posted on the walls of many schools I visited. In practice, however, students were more often being trained for careers at supermarket checkout counters or for the bottom level “service jobs” at nursing homes (Kozol 2007).
From the point of view of author and attorney Kathleen Conn, she agrees with the implications we can draw from Kozol’s observation: there simply are no private-public partnerships with EMOs nor can there ever be; the whole notion is woven out of uncritically accepted ideological cloth. And this might go a long way to explain the eagerness to embrace the language of corporations when referring to principals as ‘CEOs’ and teachers as ‘managers’.
According to an article written by Conn in the Journal of Law and Education that specifically looks at the legal and economic responsibilities of EMOs and concludes the idea behind the EMO economic model is simple legality:
In the euphoria of “solving” America’s educational woes, a basic inconsistency in the notion of private, for-profit corporations controlling public education escaped serious consideration. Private corporations are legal entities established within a paradigm of maximization of profits for those who provide the working capital of the organization, the shareholders. The directors of such corporations owe fiduciary duties of care and loyalty to the shareholders. They owe, under the law, no concomitant duties to other constituencies (Conn 2002).
It is clear to any beginning business student that any director or directors of corporations have a fiduciary duty of loyalty that requires that all profits of the corporation accrue to shareholders; this is the simple logic of the economics of corporations and the fundamentals of the capitalist system. As Conn noted, the Michigan Supreme Court, addressing the demands of shareholders in the early twentieth century, stated the principle succinctly:
A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes (ibid).
So in the case of corporate EMOs, just like any other business, the corporate EMO is organized and day to day practices of the organization carried on primarily for the profit of the stockholders, or in the case of single operators the private venture capitalists looking for a return on their investment; and this means the powers and actions of the directors of these corporation are to be employed exclusively to that end. The directors of these companies really have no other legal choice, for they have accepted the fundamental economic and legal fiduciary duties in the corporate context that comprise the twin sisters of loyalty and care in the running of their organizations with the sole intent of maximizing profits for shareholders. The only discretion that directors have in assuring profit maximization is in the choice of means they choose to attain this end, nothing more. Non-shareholders, or what are often referred to as ‘constituencies’, simply have no property interest in the corporation and thus few rights in terms of power, decision-making and control. Due to the lack of constituency property interests in an EMO, the issue of public private partnership is not only moot but in fact a complete misrepresentation of real legal relationships due to the reality that the public at large, the district or charter school, the students and parents being served by the EMO corporation within the public arena would be considered ‘constituencies’ under the law and constituencies do not have the power, authority and control over the fiduciary duties necessary for shareholder wealth maximization. In corporate terms they are ‘second class citizens’.
So what does all this mean? The answer is simple: when a for-profit EMO takes over the functions of traditional public education or the day to day operations of a charter school the companies’ non-shareholding ‘constituencies’, in this case the students, parents teachers, and workers at the school, have little or no bargaining power with the corporate directors due to the directors’ fiduciary duties to shareholders; they in fact may arguably be at the mercy of the companies in the absence of adequate regulatory safeguards or union contracts and collective bargaining agreements, all of which are of course an absolute anathema to the ideological interests of privatization supporters. And because dollars spent on education are not available as dollars for shareholder dividends, in order to realize profits for investors in these for-profit educational management organizations, the bottom line is that EMOs must seek to increase their share of the educational pie through the ‘volume’ business of attracting increasing numbers of students, as well as spend less than they collect; the scramble to keep costs down becomes part and parcel of the profit seeking as they seek simultaneously to expand market share. And these entities do this in myriad ways.
According to Conn, companies like EdisonLearning and other EMO corporations actually accomplish cost cutting in two ways.
First, and perhaps least importantly, school management companies contract with vendors of non-educational supplies and services, trying to get volume discounts on everything from tissues to floor strippers. These strategies, while they may save money, have limited, if any, real educational significance (ibid).
This of course resembles the Wal-Mart business model of bargaining and contracting with suppliers. But as Conn astutely realizes, the second way companies and private operators or EMOs keep costs down is through corporate bottom line choices that can have immediate and outright devastating effects on practical issues of educational significance, such as choices related to cutting or increasing class sizes, the type, pay and quality of the teachers, and the quality and quantity of educational resources and instructional materials provided to students. So it seems the real ‘choice’ is buried within a particular EMOs plans for profit maximization.
Take the notion of charter schools: here, for-profit school management companies (EMOs) are free to hire non-certified teachers who then legally become employees for the EMOs, not the public schools they manage. This is an important distinction for EMO hired teachers do not work for the districts or charter schools they may labor in; they have virtually been ‘contracted out’ to EMOs. The EMOs often hire non-certified teachers in an effort to keep labor costs and the cost of any benefits accrued to labor significantly low. This also allows their management to control the daily routines of work. They also employ certified teachers who cannot obtain jobs in the public sector, but at salaries far lower than those in comparable publicly run schools, again for the same reason. This is all part and parcel of an effort to reduce labor costs and to assure non-unionization and thereby avoid the need to collectively bargain for the distribution of shareholder or privately held profits. But if this is good for the bottom line, for capital and its owners, is it really good for teachers, educational workers, parents, students or even education in general as the public has been continually told over the years by the companies and their media counterparts and think tanks? It would help to take a look at some facts.
EMO run charter schools, for example, have higher rates of teacher turnover than other entities. Edison Schools, Inc, admitted in 2005 to a teacher turnover rate of 23%, twice the national average for urban public schools (Molnar, Miron and Urschel, 2008). Is this cost effective and is it educationally wise to have such high turnovers in the teaching profession? Or does it mean that valuable resources are wasted continually training new teachers as the attrition rate rises? How can this be seen as fiscally and educationally responsible to the public it proclaims to serve, especially when public funds are deployed?
EMOs also experience significant cost savings in the area of the educational resources they choose to utilize. Most EMOs come equipped with their own ‘model curriculum’ as part of their contract with charter schools and/or districts; this is usually part of their management ‘packet’ to be employed and used at each school, or franchise, the EMO manages. This of course leads to cost saving reductions by offering up easily produced ‘cookie cutter’ or ‘one size fits all’ curriculum, thus realizing a savings far more extensive than what public schools spend for creative, non-standardized diversified curricula. Let’s face it, teacher conceived curriculum takes time, patience and a commitment on behalf of the school management and staff for more allocated preparation time for the construction of meaningful curriculum and educational activities for students. It involves working with other teachers in mentoring relationships in order to formulate ideas and best practices; this is a collaborative activity done by teachers with and for students. Creative and innovative curriculum construction is often individually geared to specific students and themes and rebels against pre-packaging or standardization.
Yet from the point of view of the for-profit EMO this is a problem for at least two reasons: one, collaboration among teachers is problematic for the EMO business plan which seeks only profits, for it often leads to teacher organized off-site meetings to talk about the conditions of work, the possibilities for unionization and a discussion of collective interests. Secondly, what these companies wish to do is create large ready-made curriculum that can be used with a high volume of students with a onetime up-front financial investment in both the curriculum and the teacher ‘training’ necessary to implement the curriculum. As author and educational researcher David Plank noted back in 2000, a way for EMOs to profit is to scale down their economies and they do this by reducing pupil costs. He goes on to explain:
Scale economies rely on the possibility of lowering per-pupil costs by spreading them over larger numbers of students. For example, a national firm offering a standardized curriculum for hundreds or even thousands of schools may significantly reduce the per-pupil cost of curriculum development and instructional materials in the schools they manage. Similarly, it may be possible to standardize financial and other administrative services for large numbers of schools, reducing the per-pupil cost of providing these services. When economies of scale are present, firms can profit by increasing the number of students they serve (Plank et al. 2000).
So, for example, teachers are often given a pre-conceived and ready-made curriculum and then are trained as ‘managers’ to implement it throughout the educational retail chains owned and operated by the EMOs. In sum, it’s obviously cheaper for the EMOs as well as private charter school operators to encourage the adoption of one-size fits all curriculum than it is to provide paid time for teachers to collectively conceive of their own curriculum which could then also lead to the teachers identifying their class interests with each other, not management.
Once again, we are left with the question of how any of this can possibly serve to create ‘innovation’ in instruction and ‘empowerment’ for teachers and students, two of repeated arguments we find in the soaring rhetoric supporting the idea of the charter school movement. If the lesson plans come equipped with the ‘school management package’, then once again, as we saw in the last chapter in the historical development of education, teachers are divorced from curriculum conception and reduced to mere ‘managers’ of packaged student ‘delivery systems’, not the chief architectures of cooperative educational excellence and curriculum development. Nor can educational innovation be highlighted, shared and modeled for the benefit of introducing creativity at either traditional public schools or charter schools. Instead, teachers in many EMO run schools are ‘tethered to the carpet loom’, required to teach to the pre-packaged curriculum which is largely wedded to arguably inauthentic standardized testing and an environment of competition. This ‘commodification’ of educational curriculum and teaching runs not only counter to the arguments historically made by charter school advocates regarding innovation and best practices, but is problematic for teaching and learning. It can also open the door to unscrupulous business entities who seek to introduce their ‘educational products’ into charter schools without any regard to innovation, best practices or educational values.
EMOs and the educational products industry
The truth of the matter is that many private companies do work hand in hand with EMOs to provide ‘educational products’ to them as part of their ‘school management package’ which they can then take ‘on the road’ for display to districts and charter schools.
Take the Curriculum on Wheels (COWS) ‘product’ sold by Ignite!Learning. Ignite!Learning is owned and operated by former President George W. Bush’s brother, Neil Bush and was founded in 1999, just one year before the passage of No Child Left Behind. At the company’s website their is plenty of talk about Ignite!Learning’s “educational products” but noticeably teaching is never mentioned. Instead “easy to use delivery” are the words used to describe the pre-packaged curriculum promoted by the company (Ignite!Learning Website). While former president, George W. Bush, formulated and successfully passed the No Child Left Behind to promote ‘teaching to the tests’, brother Neil is busy ‘selling to the tests’. His curriculum promises higher test scores.
What Ignite!Learning does is sell a ‘computerized learning center’ with the apt acronym of COW, for Curriculum On Wheels, to school districts, charter schools and any EMO company or school wishing curriculum to add to their ‘management package’ or curriculum. Made up to look like a purple cow, the assemblage is a self contained software projector that is actually wheeled into classrooms where it uses electronically made jingles and cartoon videos to ‘deliver instruction’ to students. The teacher, or ‘classroom manager’, is reduced to running the COW. Each COW costs $3,800 and at least 13 school districts in 22 states have used No Child Left Behind monies to purchase them. The money allocated is said to be primarily intended to help disadvantaged kids learn reading and math – yet surprisingly, Neil’s COWs don’t teach either of these subjects (Hightower 2006).
Business Week noted in 2006:
Now, after five years of development and backing by investors like Saudi Prince Alwaleed Bin Talal and onetime junk-bond king Michael R. Milken, Neil Bush aims to roll his high-tech teacher’s helpers into classrooms nationwide. He calls them “curriculum on wheels,” or COWs. The $3,800 purple plug-and-play computer/projectors display lively videos and cartoons: the XYZ Affair of the late 1790s as operetta, the 1828 Tariff of Abominations as horror flick. The device plays songs that are supposed to aid the memorization of the 22 rivers of Texas or other facts that might crop up in state tests of “essential knowledge (Epstein, 2006).
According to an article in the New York Times in 2007 that reviewed the company, there were problems:
The inspector general of the Department of Education, John P. Higgins Jr, said he would review the matter after a group, Citizens for Responsibility and Ethics in Washington, detailed at least $1 million in spending from the No Child Left Behind program by school districts in Texas, Florida and Nevada to buy products made by Mr. Bush’s company, Ignite!Learning of Austin, Texas. Members of the group and other critics in Texas contend that school districts are buying Ignite’s signature product, the Curriculum on Wheels, because of political considerations. The product, they said, does not meet standards for financing under the No Child Left Behind Act, which allocates federal money to help students raise their achievement levels, particularly in elementary school reading.
Much of the product’s success in Texas dates from a March 2006 donation by Barbara Bush, who gave eight units to schools attended by large numbers of hurricane evacuees.
And so, as we saw when we looked at the No Child Left Behind Act, passed in 2001 by the then George W. Bush administration, in addition to emphasizing ‘public’ choice as an alternative to students in “failing” Title 1 schools, the federal budget for fiscal year 2002 allocated $200 million in grants for “expanding the number of high-quality charter schools available to students across the Nation” (No Child Left Behind Act of 2001 § 5201(3)). This provided the opportunity for ‘market penetration’ on behalf of many of the privatized companies offering ‘teach to the test’ curriculums like those of Ignite!Learning. Now, with education reduced more and more to a business model, ‘delivery systems’ replaced teaching, ‘delivery platforms’ replaced classroom instruction, ‘pre-packaged curriculum’ replaced ‘teacher led conception and innovation’ and ‘students’ came to be looked at as ‘products’ to be produced. With classrooms, many of them charter schools, thanks to No Child Left Behind, now full of COWs and similar ‘educational products’, teachers no longer have to know how, let alone what to teach. They become mere instrumentalities in the commodification of education for profit. This, claim opponents, is hardly curriculum innovation and excellence, but instead resembles more of a well-coordinated division of labor that is designed to further a business model, not the education of children. More discouraging is the fact that it is being marketed in ‘low income communities’. This should be of no surprise, for as we will see, it is this burgeoning ‘sub prime’ market of children that seems to appeal to the new EMO entrepreneurs and many charter school advocates looking to make hefty profits.
So, in summary, if the fiduciary duty of a director of a corporate EMO is to maximize shareholder profit and do so by putting profits first, then how are non-shareholder ‘constituencies’, otherwise known as ‘our nation’s children and their parents’, not to mention the general public at large, to be protected under an EMO agreement? Conn answers only by noting that this protection could be afforded by explicit side contracts or regulatory schemes:
Some commentators argue that, if non-shareholder constituencies need protection, explicit contracts and regulatory statutes, rather than fiduciary duties, should determine management’s obligations (Conn 2002).
But that is the last thing free market advocates who zealously advocate deregulation and charter schools want —- more regulation or more contractual side agreements that would legally hold them responsible to government agencies. They are looking for unbridled territory free from any regulations or government constraints, and this say opponents of the idea, is the problem.
Who protects educational ‘constituencies?
The answer as to who protects educational ‘constituencies’ can be found in legal cases and constituency laws that support the notion that the nature of the corporation itself can impose upon its directors fiduciary duties of loyalty that flow to the public, for the public good, not just to the shareholders.
Let’s look first at a decision by the courts in this matter, discussed by Conn in her article in the law journal. The case involved the responsibilities of the directors and owners of a professional baseball club to their ‘constituencies’, in this case the fans. The court held that the directors of the corporation, in deciding whether to install lights for night baseball games, had a duty to consider the safety of the patrons attending night games in a deteriorating neighborhood. The court also asserted that the directors had an interest in the long-term health of the neighborhood in which their stadium was located. However, the court explicitly stated that deciding the correctness of the directors’ decision whether or not to consider these non-shareholder interests was “beyond [the court's] jurisdiction and ability.” (ibid)
In light of the court’s seeming unwillingness to grant fiduciary responsibilities to directors of corporations which would protect the public, some cities and states have passed ‘constituency statues’ that expressly spell out the fiduciary duties corporations owe to the public. The legislatures of approximately thirty states have enacted “other constituency” statutes allowing corporate directors to consider non-shareholder interests in corporate decision-making. Yet unfortunately, these statutes are merely permissive, they carry no real legal weight. Again, Conn is salient here:
Pennsylvania, one of the first states to enact an “other constituency” statute, has experienced several challenges to the statute’s constitutionality. The first occurred in a derivative action to enjoin Strawbridge and Clothier, the department store giant, from presenting to shareholders a stock reclassification plan that would have defeated a raider’s tender offer.” The court refused to grant the injunction, holding that Strawbridge directors rightly considered the potential effect a successful tender offer would have had on the company’s employees, customers, and community. More recently, application of the Pennsylvania statute was upheld in a 1996 court decision in which Conrail sought a friendly merger with CSX Corporation, rejecting a more lucrative Norfolk Southern bid that cost shareholders $1.5 billion. Conrail argued, and the court accepted, that, under the Pennsylvania statute, corporations have the right to consider constituencies other than shareholders and shareholders’ financial interests in making business decisions (ibid).
Another state, Connecticut, enacted what can be called a mandatory ‘other-constituency statute’ that attempts to compel directors to consider stakeholder or ‘constituency’ interests in decision-making but this statute has also has failed to make an impact precisely because it lacks any enforcement mechanism (ibid). So can charter schools that contract with EMOs pass constituency statutes? The answer, legally, is ‘no’ and this then begs the question of both how the schools will be run as well as who will control the decision-making in the interest of students, teachers and their parents.
In sum, case law and statutes, even other-constituency statutes make it clear that a director’s duties of loyalty, in regards to a corporate entity, flows exclusively to shareholders for the express purpose of maximization of profits. In the context of public education, the primacy of shareholder wealth maximization legally means the directors of a for-profit school-management corporation (EMO) owe fiduciary duties of loyalty to one constituency only: their shareholders. And if this is the case, which the courts have ruled it is, then students’ educational needs can simply never be legally on a par with shareholder needs and this means that EMO’s really seek to replace public governance with corporate governance, public decision-making with corporate decision-making. The corporate or independently owned business model must, by the very nature of the laws governing it as an economic and legal entity, put profits before kids. At the present time, the only response a traditional public school, charter school or a state can make in response to a non-performing for-profit EMO or single operator is to cancel its contract for malfeasance or close its charter school completely. The former requires time, hefty legal fees and devotion of staff. The latter remedy, besides leaving students in the lurch and potentially resulting in unplanned-for overcrowding in the traditional public school districts that must accept the displaced students, is simply insufficient to recover the public costs of the educational losses experienced by the students and the state and the management nightmares that entail when contracts are vitiated or cancelled. Nor does it seem to be fair.
But even assuming that advocates of corporate EMOs are right and the concept of a ‘public-private partnership’ position with EMOs is really what it is painted to be: a boon for both ‘partners’, then it begs a number of questions regarding governance, accountability, student performance, financial transfer of public funds, transparency and ultimately decision-making.
Then why EMOs?
In a later article we will look at the many of the questions and the claims made by EMOs and their supporters that the for-profit management of schools, notably charter schools, leads to higher performance by students, more efficient operations of schools and the various and sundry counterarguments to the entire notion of for-profit management of schools. However, it is suffice to say that part of the reason EMOs have gained in popularity is that school boards and superintendents often see the idea of for-profit management of schools as a an economic ‘boon’ in times of economic turbulence and amid a shortage of public funds. It is tempting for school boards and superintendents to see for-profit management firms as a quick, painless panacea for educational ills. But many educators argue that there is no such corporate driven panacea – that good schools, well designed curriculum, and excellent teaching practices have to be painstakingly built on the local level by staff and students with the support of parents and school administrators. In the end, these educators argue that the improvement of schools is the result of the hard work of school staff with administrative and parental support. Everything, these EMOs say they can do, claim opponents of the idea, has already been done in publicly run public schools; every curriculum and program these EMOs use, the argument goes, is also available for every public school in America to implement on its own without adding corporate managers and subsidizing for-profit EMOs
Couple this fact with vivacious and often heated corporate and think tank rhetoric eschewing the public management of schools and pushing for the wholesale privatization of every aspect of education, it is not hard to see how a perfect storm was created for the EMOs creation and growth in the last few decades. The media carry a great deal of blame in not critically and thoroughly covering the issue of EMOs and charter schools while promoting, uncritically, the notion of ‘public choice’. However the notion of ‘choice’ means many things to many different constituencies, but this was hardly covered by an eager media seeking to promote privatization. The public was greeted, as they have been in the private health care industry, with the idea that the more ‘choices’ they have within an unregulated, market driven economic system the better off they’ll be. Market driven organizations function far better than ‘government monopolies’, was and is the message delivered by pundits in the press and the Washington think tanks devoted to neo-liberal economics. However this is problematic for as one philosopher once said, “We all make choices but we do not all choose the circumstances under which we make them” (Marx, 2007).
There are many definitions of ‘public choice’, and the voices for the idea are diverse, as noted in chapter five. As researchers and authors, Ron Corwin and Joseph Schneider recently wrote in their book, The Charter School Hoax:
When we see the implausible claims and boasts asserted by rabid choice proponents, we always wonder who is speaking, and who is listening. We know there is more than one voice, more than one audience. Some of the fans of choice are idealistic educational reformers who honestly believe that choice will improve public education and are eagerly searching for ways to prove it. Others are cunning disciples of free markets who, under the guise of bogus pledges and unfounded allegations, have succeeded in creating publicly funded safe havens. Their rants against bureaucracy and their impossible promises were from the start devious plots to justify what amounts to a special status for select groups (Corwin and Schneider 2007, 13).
Take a recent report entitled, NCLB’s Ultimate Restructuring Alternatives: Do they Improve the Quality of Education? Author of the report, William J. Mathis Associate Professor at the University of Vermont, found that:
EMOs appeal to politicians and to some parents for many of the same reasons as state takeovers. Center city urban blight, poor building maintenance, disruption, poorly qualified teachers, safety, high dropouts and poor test scores sound a siren call. When EMO managers say they will come in and sort out corruption, throw out bad teachers, impose curricular reforms, break the union strangle-hold, dismiss the bureaucrats and save money in the process, the promise makes for a potent political message (Mathis, 2009).
And although EMOs would like to present themselves as ‘turnaround artists’ or ‘takeover artists’ whose mission is to boost test standardized scores and revolutionize the delivery of instruction by running schools for profit, many critics would shake their heads in disagreement arguing that too many public servants are being beguiled by these same corporations or privately owned for-profit businesses into believing the neo-liberal argument of market efficiency through deregulated educational competition masquerading as ‘public choice’. This is true, they say, when it comes to everything from raising test scores, organizing the workplace, hiring and firing teachers and reforming the day to day operations of education in general. In our next article we will look more critically at EMO’s and the rise of charter schools.