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benno schmidt, jr.
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President of Yale University from 1986 to 1992 and a former dean of Columbia University Law School, Benno Schmidt is chairman of Edison Schools. His decision to leave Yale and join Edison gave Chris Whittle's fledgling venture much-needed credibility at the time. In this interview, Schmidt explains what drew him to Whittle and how their working relationship has evolved. He defends the company's vision of for-profit public education. There is "only one measure" of whether Edison is "a good thing," he tells FRONTLINE, "and that's are we doing a good job for the children." This interview was conducted in September 2002.

Tell me about getting wooed by Chris Whittle.

I met Chris by accident at a dinner party ... this must've been around 1990 or so. His idea [was to try] to bring fundamental public education reform about by creating a business that would try to bring scale and system and do things that businesses sometimes do a better job of doing than public entities -- like lining up incentives with performance, making rational choices about where to invest money to get excellent performance.

We set out to make a difference, not to prove that, Hey, we can come up with a curriculum that works. A lot of people have done that. No one has ever, at least in the modern era, come up with a scale solution to the problem of under-performing public schools.

I was quite intrigued, because, like a lot of people, I think, in that decade of the 1980s ... in which a lot of people who had not had much involvement with public education -- I certainly include myself in that category -- I'd been at Columbia and Yale, two places that are about as far away from the reality of what's going on in inner-city public schools in a way as you could be. But with the [publication of] A Nation at Risk, with more and more evidence accumulating about the huge inequalities in public education and about the way that particularly disadvantaged kids really were put in public schools where they had very little opportunity--

So you'd been thinking about it.

Yes, I'd been thinking about it. ... I'd been very concerned when I was at Columbia. It's impossible to be at a place like Columbia and not reflect some on the fact that ... here's a campus that is one of the world's great universities, one of the greatest symbols in the world, as Yale is, too, a symbol of opportunity and the power of learning, for individual fulfillment and promise and so on. Yet you can walk a few blocks in almost any direction from either the Columbia or Yale campus, and you'll find educational institutions in most cities, public schools, in which the children, if you're honest about it, have a very low statistical chance of having any of the powerful opportunities that education brings.

As it has to countless other Americans, this had come to me to seem like more and more a really fundamental schism in our society, and I was very worried about it. So Chris's idea struck me as something new, and something that had a lot of power.

So Chris Whittle broaches this idea at a dinner party. ...

Yes, he broached the idea at a dinner party. We had a nice chat about it. Most of the people at the dinner party thought he was completely crazy. Partly because of that, I, in a contrarian way, sort of talked about or reflected on the power of the idea.

Then a few months later he called me up. I was up at New Haven, and he said, "I'd like to come up and take you out to lunch." I said, "Well, I'd be glad." I had no idea what was on his mind. ... He started the lunch by saying, "I want to convince you to leave Yale to head up the Edison Project." I said, "Well, you know, some of our mutual friends told me that you really are crazy." I said, "You really are crazy. You want me to leave Yale to do what?"

So he then described his idea, and I said, "Well, I really don't think I'm the right person. I don't think it's in the cards for me, but I will talk with you about it. I'll try to think about it, because I think it's a great idea. We should try all kinds of approaches to improve our public schools."

So he wooed you? ...

Yes, he is very compelling, visionary, in his ability to convince and to make an idea powerful and compelling.

How did he convince you?

He really argued for the paramount importance of trying to do something good for inner-city public schools. By "paramount," I mean made the case -- which I think is right -- that there's no more important undertaking in our society. I don't just mean for educators, I mean for everybody.

As he talked, by the way, I turned him down, because I felt in 1991 that it was just impossible for me. But to my surprise, he came back a year later and we renewed the conversation. I had probably been stirring in the back of my mind the idea for that year, because I ultimately decided that it would be worth the risk. A big risk, I understood. It would be controversial, I understood. A lot of people would think, "crazy idea" -- that I understood.

But I thought that the goal was so important and the potential for success was high enough to make the risk worth taking.

What about the money part of it, for you, personally?

The money part I actually viewed as a negative, because when one is the president of a place like Yale, and not only that but a tenured professor on the law faculty -- I'd been a dean of a good law school, Columbia, and was a good academic lawyer -- you have both more security and a higher income than you might imagine, particularly if you stop being president and you can be a law professor and do some consulting and things like that.

So it wasn't the money, you're saying?

No, I was, in fact, concerned that I was giving up what was in effect lifetime financial security to go try something that at best would have to be regarded as very risky.

Not long after you joined, things went south with Whittle Communications. Did that change your role with Edison?

A little bit. My original role at Edison had been that I was the CEO, of course, and I was leading Edison in every way except one, and that was capital raising, where Chris was the guy who was responsible for raising the investment that we needed to make Edison happen. As we had formulated Edison, that investment was sizable, because we invested a great deal of money in research and development before we started ever operating our first group. We spent three years figuring out what we were going to do, how we were going to try to do it. By that, I mean both our educational program and the way in which we were going to try to steer our way into the very tough politics of public education around the U.S.

So when Whittle Communications started having its difficulties, Chris's ability to raise money for us became a little more doubtful. I mean, he and I then had to tackle that project together. So the main consequence of that was that whereas for the first couple of years of Edison, or for the first year or so, I was pretty much solely focused on the programmatic side, once Whittle Communications began to have trouble, I began to take on, with Chris's encouragement, a lot of the concern and responsibility for raising the money that Edison needed.

Did Chris Whittle become a liability?

No, I don't think he became a liability, although there was a period in there when some people who wanted to invest money in Edison wanted to be sure that he was not in a position to control that investment and how it would be used and how Edison would develop. So there was a period of time in there where I felt to get Edison off to a good start -- and Chris and I had a disagreement, a reasonable, rational one. He had his view about the continued importance of his role. I thought that at that time it was really necessary for him to take something of a back seat for a while, just because the sources of investment for us in some cases were concerned about him. So we had that out.

In our 10 years together, I'd say that's the only important thing we differed on. He had his view that his role was essential, and I thought at that time he needed to take a back seat. We remained friends through it, but we did have that fundamental disagreement. He did ultimately agree to step back for a time, and he did that.

In that period, when we essentially refinanced Edison along the lines of a different kind of capital plan -- what you would think of more as a venture capital sort of startup, rather than as it was originally envisioned by Chris, which was what you might think of as a major corporate development kind of startup. There's a big difference between how a venture capitalist invests in a start up and how, say, Time Warner invests in starting in a new magazine.

Chris's [original vision] was more the latter, and we had to turn to the former, to more of a venture capital model, in order to get the company financed. At that point, we did have this disagreement and he ultimately agreed to step back. I think that was the right decision. I think his decision to step forward a few years later was also the right decision. ...

Chris talked about the organized opposition to Edison. As Edison's gotten bigger, it's "We can't let this succeed." What is your sense, and why is there fierce opposition to Edison?

I think the opposition operates on a lot of different levels. Obviously public education in the United States is a massively large undertaking. Hundreds of billions of dollars a year are devoted to it. There are lots and lots of people and lots and lots of organizations who benefit from the current way that public education is structured.

Let's face it, it is structured in a way that parents have very little power in the system. Bureaucrats and politicians have a lot of power. In many places, teachers' associations and unions have a lot of power. And like most people who have power or benefit from resources in a traditional way of doing things, they don't want it to change.

It's the status quo.

Yes. Moreover, when you have a status quo that operates as a kind of monopoly -- and that is not a pure monopoly, but in many respects public education is a monopoly, people don't have an alternative in many cases to going to public schools -- I can't think of a monopoly in history that's willingly given up its power or invited in competition. I think the first thing that many people see when they look at Edison -- and this is true of other things, too, it's true of the charter school movement, too -- I think many people who are in public education see competition, and they don't want that.

I think the opposition, though, goes way beyond selfish concerns, and I don't want to pretend that most people in public education are selfish. I don't think they are. I think they want to do the right thing. But folks who have spent their lives in, say, public education, are people who by nature believe that the best possible outcomes are going to come through a political and a bureaucratic process -- not through a market-driven process where people are given choices and where choices are exercised to force excellence.

So the opposition is philosophical?

I think the opposition is also philosophical. ... I think the people in education -- not all, by any means -- tend to be people who have very little experience with private markets. They believe that politics and planning produces better outcomes than more of a market situation where people are free to make choices. That's been a fundamental philosophical debate in our country, and indeed around the world. It's the debate of the last half century.

Chris talked about being demonized. To what extent is Chris Whittle this lightening rod which is standing in the way, I guess, or is attracting all his opposition?

Well, I think Chris is a lightening rod, to some extent. But I think anybody who was identified with Edison would be a lightening rod. I think that a private for-profit entity in education is going to be viewed with skepticism, if not downright hostility ... by a lot of people who believe that a business only cares about making profits, and therefore we don't care about the kids; we care about profits, not the kids, and that's bad. Whereas, in their hypothesis, people who are not in it to make a profit, they care about the kids.

My own view is that that is a primitive conception of how markets work. But I do think that's a very sincere view of a lot of people. ...

I would never say, "Let's do away completely with government-supported and run public schools and let's leave it completely to the market to supply private schools." But what I do say is that a mixed system -- where you have "Let's see what works." Let's see what are the strengths of government-run, politically driven schools of the traditional kind. But what are the strengths of private enterprises operating schools under strict missions of accountability?

What I'd like to see is a mixed system, where parents and teachers and indeed communities, operating through their school board and so on, would have much more choice about being able to present to their communities and parents a lot of different kinds of public schools. I'd like to see universities running public schools. ...

Choice and variety.

Yes, my own view is we should not be too worried about religious institutions getting into the act. ... So I believe that choice, more freedom of choice -- not just free market, but under some real conditions of accountability. I mean, I'd like to see frauds shut down, and I want to see real information.

I want to go back to that liability issue. ... There are those who say, "Well, right now, Edison is in a precarious situation and Chris Whittle is a liability." Is Chris Whittle right now a liability to Edison?

I don't think so. I mean, obviously he is a lightening rod, and because he is a businessman, and educators tend to be skeptical about people in business, he does draw some of that flack. No, I don't think he's a liability. I think his energy, his vision, his resilience -- which is phenomenal, he never quits -- I think these will outweigh the extent to which he is in fact the rather natural lightening rod for a lot of people's fears or prejudices about a thing like Edison.

What will you do if Edison fails?

What will I do? I'd probably take a vacation for a while and get my breath. I don't know. I'd probably go back to teaching.

Do you think Edison will fail?

No, I don't think it will fail. I think it might, but I don't think it will. I mean, we've got to take the long view. We've had a lot of very grim moments at Edison over the 10 years. We have 84,000 children now in our schools. Seven years ago, we had none. That makes us the fastest growing school enterprise in the history of the universe. That's not to mention the 30,000 youngsters we serve in our summer schools, and that number is practically doubling every year. The point is we have a scale of activity -- we've never not grown -- where our future, I think in the end, is up to us.

If we perform well for these children, if the children in our schools make strong progress, if they do better in our schools than they would in the traditional public schools in the inner cities where they've been -- which is their real current alternative -- then I can't believe that Edison won't be a big success. This country is not about to turn its back on an approach to educating particularly disadvantaged kids in public schools where nothing that we've done has worked on any scale in the last 30 years -- nothing.

If we can prove that our schools work, I think we will cut through all the political opposition and the ideological opposition. That remains to be seen, I grant you. But no, I think we'll succeed.

We talked about how the collapse of Whittle Communications, right after you'd been recruited, or within a couple of years after you'd been recruited, changed the nature of your role with Edison. How did it change your image of Chris Whittle?

Well, that's complicated. The more I got to know Chris, the better I liked him. The more we worked together, the more I was impressed with how smart he is, how focused, his energy, all the things even his critics would say are virtues that he has in more than full measure. And he's a wonderful person to work with. He's a very interesting person and he's got a good sense of humor and fun. So the more I worked with him, the better I got to know him, the better I liked him and the more respect I had for him personally. But at the same time, I could see that the problems in his business were problems for investors, who obviously worry a lot about the reputation of people in whom they're investing.

This is the only important difference, dispute really, that Chris and I have had in the 10 years we've been working together. I did decide around 1994, 1995, that if Edison was going to get funded -- we had to develop new funding, because the old funding was part of his own enterprise, and that was not going to happen. So we needed to develop an entirely new source of financing. I became convinced -- and I think I was right at that time -- that he really needed to take a back seat in Edison for us to be successful. That was not an easy -- he ultimately agreed to do that. But I'm not going to kid you. That was not easy for him or for me.

Did it change your relationship? Did it change your esteem for him as a businessman?

No, no.

You didn't blame him for the failure of Whittle?

No, not really. I was the CEO of Edison, and Edison had been created, and was moving along in a certain way. It had totally different people in most cases than Whittle Communications. I mean, Edison sort of grew our own people and recruited our own people. It was fairly quickly moved to New York. It was always a completely different culture than Whittle Communications. It was different people. I was the head of it. Chris was obviously heavily involved. So no, I worried about it. I mean, we had plenty to worry about just with what Edison was trying to do.

But the main difference that I had with Chris, and the problem that I felt was that he was potentially at that time not helpful in raising the investment we needed. It was a reputational issue. It was never an issue of my losing faith in him as a person, or doubting his personal ability, much less any issue of integrity. I always had the highest opinion on those scores, and still do.

What happened in the early days of Edison, after we got our new financing in 1995, and we began to develop our plans and actually put them into schools and started actually operating, I think the initial response of the capital markets was very positive. We attracted investment from some of the smartest venture capital and early-stage private equity institutions. I think there was a period there from 1995 where we had plenty of problems, and Edison has never been easy. But the overall view was that we were creating something that both educationally and as a business had a great deal of power, a compelling vision. Chris deserved and got a great deal of the credit of that. He deserved it. Reputation is a matter of ebb and flow.

And we're at another ebb?

We're now at a bit of another ebb.

I have to ask you. Chris told us earlier that one of his weaknesses is he doesn't like to say no. He also said in a different context, "You know, I'm a builder." In his personal life, he's always got a construction project going on here and there. He likes to build things, and he likes to empower people, not restrain them or say no or be the grinch that stole Christmas. Now Edison is facing retrenchment. It's facing the need to streamline its headquarters operation, slow its pace of growth, build smaller, become leaner. Is that a job for Chris Whittle?

I think Chris needs to be surrounded by people who have some other strengths. My own opinion is Edison still needs that entrepreneurial vision and that building, empowering, that sense of possibility and drive. I think Edison needs that. But there's no question, there is no question that Edison also needs a very, very sharp and disciplined focus on our core business.

We had a half a dozen great ideas about other things to do, other than our core business, and sort of what comes right out of our core. We need to focus on our core business. We need to focus on the quality of what we do, not the quantity of it. We do have 84,000 kids and we are the fastest growing school system -- if you think of us that way -- that's ever been.

But we need to put our focus now on quality. We need not to worry about growth. Growth will come naturally through quality, in my opinion. We need to focus an awful lot on cost. We've spent a lot of money at Edison, in effect, investing and spending now for what will be five or six years from now.

You can afford to do that in a capital market that is prepared to back very aggressive long-term, high-growth operations. The capital markets don't do that today, and I think we were slow to recognize that. You know, that's a big change. My own view is that Edison was probably not the next best thing that the capital markets thought we were for a number of years there in the late 1990s. But we're not the sad sack that the capital markets think we are today. I mean, we're still growing strongly. The actual academic performance and quality of our schools is clearly getting better.

If we stick to our knitting and focus intently on what we now have and what we can do, I think we're going to be fine. But it's going to take the capital markets. We're going to have to show the capital markets that we can take enough cost out that we're stopping spending today for building the grand dream of 10 years from now; that what we've got is not only a first-class educational operation, but a first-class operation in terms of controlling costs, controlling our need for capital investment and making a reasonable profit to give our shareholders some return. That what we have to do today.

Now, nobody understands this better than Chris. By temperament, I think Chris -- and I, too -- we need some people around us who, who not only understand it, but know how to drive that approach right down through the organization. We've brought such people in now.

But that's going to be a change in culture, it sounds like.

That is going to be a change in culture.

You mentioned a shift in the tolerance of the capital markets for the long-term dream. There's been another shift in the perception of business, that it has been in one tawdry scandal after another. How has that compounded the difficulties that Edison faces as people grow more mistrustful of business, of profit making endeavors in general? Are you confronting the fears that a penny saved will be a penny earned at the expense of the children in the classroom? ...

Right, right. I do think there's much more skepticism about business, about the motives of people in business. They're just in it to get rich, or you know, managers don't care about their shareholders, much less their customers. There's no question there's, understandably, much more of a prevalent view now of that.

But we've had that argument from the beginning of Edison, and honestly, it's hard to sort out what are the ultimate sources of antagonism and opposition, because they're political, they're ideological. People have selfish interests that are opposed to it. ... There's a mix of reasons. But I think that as much as anything what's happened to us in the last two years, especially the last year, is that our potential scale of activity got to be so much bigger than what we had earlier been driving toward.

When the discussion was serious about us possibly taking over the entire Philadelphia school system, when Governor Ridge was governor and pressing that agenda very hard, I think people who were and always have been our opponents, and maybe some people on the fence, woke up and said, "Wait a minute. This isn't just about a few schools in Kansas City and a few schools in Wichita or wherever. This may be about a fundamental structural change in the whole political foundation of public education." I think that prospect of such a big and controversial change caused the decibel level, caused the volume of our critics and opponents to go way, way up. ...

There are nearly 100,000 public schools in the United States. We're now in 130-some or something like that. We're tiny in relation to the whole. We could grow like gangbusters for 10 years, and we'd still be tiny in relation to the whole. But the reason there are more stories about us than anything else happening in education reform, and more controversy, is, I think, because of the perception that potentially we represent a kind of tipping point away from the traditional system, that's controlled by politics and the bureaucracy, toward a system that's more about choice and markets, where parents are going to have much more power.

That is a big change. It involves huge vested interests. The whole Philadelphia discussion just ratcheted up the challenge that we represented. ... The idea that the seventh-largest school system in the country might move from a political bureaucratic-controlled system to more of a choice-based, market-driven system -- that just raised our profile.

It sure did.

It's easy to look back in hindsight. But I think the fair criticism of Edison is that we don't look at that kind of an opportunity the way a normal business would.

What do you mean?

We're mission-driven. ... If a powerful and highly respected governor of a major state comes to us and says, "I have a school system that is a shambles and I want you to help us fix it," we are mission-driven. We are not inclined to say no, even if we think, "Gee, in the politics of public education, this is going to be a major, major struggle, and maybe we're not quite ready for that."

Should you have said no to Philadelphia?

No, I don't think so. It's easy in retrospect to go back and say, "Gee, we sure took our lumps in that process," and we have. But think about it. To say that it's an unpredictable process is an understatement. No one had ever tried anything like that before.

We knew it would be controversial. Who knew that Tom Ridge would be going to Washington? I mean, unless you say, "We're not going to go into unpredictable, high-risk situations" -- and we're not going to do that, we're just not that kind of people. We want to change public education. So when we get a chance to do it, our tendency is to say, "We'll give it a shot."...

Some of our new key people on the management team understand that Chris and I need some people around us from time to time to say, "Hey, hold on. Don't be in such a hurry. Maybe we should go a little slower." But you'll never understand both the strengths and the weaknesses of Edison if you don't understand that the people who work here, from Chris and me to the receptionist, are people who are here because they really are seized with a mission of public education reform. That's our great strength. It's why we attract good people; it's why nobody has left Edison to speak of. We keep our people, even when our stock goes down into the tank. But it also explains why we're perhaps, sometimes imprudently, ready to take on almost any challenge. ...

You can take the proverb of your choice about whether leopards don't change their spots. People do learn. I mean, one of the things that makes humans what they are is they do learn, and Chris and I both have learned a lot in the last couple of years, or in the last 10 years about this. We're steering away from the future Philadelphias, I think, for awhile. We're going to make Philadelphia work; we're going to make it great, but we're going to be focusing on somewhat more modest undertakings, not trying to climb Mount Everest.

How critical is it, Benno, that you make profitability as promised in the coming school year? I mean, there's been promises of profitability three years out, three years out, moving through Edison's history. Is your back to the wall? Is there any room to disappoint Wall Street again?

I don't think so. I don't think so. I think we are past the point generally, and we are definitely past the point in my opinion specifically as far as Edison is concerned, where the capital markets will fund us and provide new investment unless we show we can make a profit.

So you have to make a profit this year?

We've said we will make a profit next year. You said the next school year. You're right about that. This year we have to show that we can very substantially increase our positive cash flow.

Going to do that?

Yes. Sure going to try. I think we're going to do it.

You've invested a lot in Edison in terms of your career, plus you gave up the time you've spent. How much money, how much of your personal fortune do you have tied up with Edison, and what happens if it fails? What happens if it succeeds?

Well, when we refinanced Edison back in 1995, both Chris and I borrowed whatever we could to help finance Edison. In my case, that was a couple of million dollars. So that's what I had, that's basically what I've invested in Edison. You mean in terms of cash. I'm not talking about time or worries or wrinkled brow. So I've invested $2 million, and for me, that's a lot of money.

Now if it succeeds, if the stock rebounds and your stake in Edison suddenly becomes worth a fortune, will it be OK with you to make a fortune running public schools? Will that pose any philosophical problems for you about doing well by doing good?

No, no. I will judge whether Edison is a good thing and whether I think it's a good thing for me to have done, in my view, there's only one measure on that, and that's are we doing a good job for the children.

So if you could reform American education, move it in the direction you think it's important for it to go and not make a dime out of this, would that be OK?

That would be OK with me, but I'm afraid that I believe that's a contradiction in terms.

Why?

Because unless Edison succeeds as a business, it will not succeed as an educational venture at the scale that I would regard as representing a success. ...

As I have defined success, it has to have a fairly big scale. ... This is an intuitive judgment ... how many schools, how big a scale does Edison have to have to make a real difference in the structure of public education, and to start making competition and choice work? I would argue it has to have at least 1 percent, which would be 1,000 schools. Others might well argue it means 2 percent or 3 percent to have that impact.

Some people would say, in conventional business terms, "Well, you're not going to change a whole field unless you have at least 10 percent of the field." Now, that's huge. For Edison to get there, it has to be a highly successful business. ... I mean, we pulled this thing together for a while under this cloud that we're now under. But the conditions for our reach in scale are business success as well as educational success. ...

I think it's quite possible that I'll sit in my rocking chair and say to myself, "Darn it all, we did a good enough job educationally, we should've succeeded as a business. We should have been able to take Edison to 1,000, to 2,000 schools, to really make a structural impact on this huge system, this huge thing of public education." But to me, it's always been the case that Edison needs both. It needs both educational success and it needs business success. One without the other, it just doesn't do what we set out to do.

We set out to make a difference, not to prove that, "Hey, we can come up with a curriculum that works." I mean, a lot of people have done that. No one has ever, at least in the modern era, come up with a scale solution to the problem of under-performing public schools.

You're convinced that becoming profitable will give it that staying power and that size?

Yes. It's the only way that we will have staying power, the ability to attract more capital, the ability to attract really highly qualified people. That's a big part of what we're trying to do, obviously, the ability to keep people in a highly creative, dynamic organization. Highly creative and dynamic organizations are not organizations that are struggling for the next breath. I mean, that's just not the way it works.

 

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