Answer your own question. It's been five years.
It's been about five years, and of course, it's been somewhat longer with Edison. But most of these companies got underway in the mid-1990s. Now, in the new century, we can step back and we can say, "What do we know about it?" I think it's too early to answer definitively whether these companies are operating better schools. But I think we can say that there are many important ideas that they're bringing to public education, particularly to urban public schooling, and that they had advanced the debate generally.
In particular, Edison's engagement, Edison's bold promises, have spurred a real response from the existing public schools.
What kind of a response? ... You were saying that Edison has brought many things, many new ideas to the table, and that being there has had some effect on the system at large.
Absolutely. When Edison came into districts and said, "We're going to open a new school that is going to achieve at a substantially higher standard," that sent shock waves through American urban schooling. The ideas were not necessarily innovative in many ways. They were simple ideas: a longer school day and school year, tossing aside the agrarian calendar of the past -- after all, an idea from another century -- having foreign language instruction from kindergarten on, having an ambitious program based on research-proven methods that were known to work, as opposed to the current fad of the moment in curriculum and pedagogy.
These were simple ideas, but in a sense, they were very radical ideas. In combination, they've promised to elevate student achievement substantially. So school districts did respond. It did have an impact. In many places, the ideas that Edison pioneered are now rather commonplace. There are many other people that are saying, "We can start foreign language early on. We can have a longer school day and school year." So those ideas have become the direction of schooling today.
Something we've seen in a number of districts is that when Edison arrives with those good things that you've talked about, the reaction from teachers and from some local unions is, "Let's do everything we can to see Edison fail."
Yes. The biggest obstacle that Edison has encountered, other than the problem of real estate, is of course political antagonism. This is a problem that has affected not just Edison, but all of its competitors, and the problem has gotten no better over time. Edison thought -- as a political strategy, I would surmise -- that by making friends with the unions and the districts, as opposed to adopting an antagonistic stance, it would buy them peace; it would buy them cooperation. In reality, it got very little for that.
Today it encounters essentially as much, maybe more resistance, in new districts that it enters than it did in the beginning. We see that first in New York City where it sought to manage many schools here, and we also saw that most recently ... in Philadelphia. So indeed now what Edison is looking to do is to back away from some of those largest plays involving whole districts, and look towards other settings, like charter schools, where there is substantially less political heat to be had. They can get on with their task, which, after all, is to run schools.
Edison will come into town. We saw this a lot in Chester, Pennsylvania. ... Things won't be delivered on time to schools, things won't be fixed in schools that are Edison schools. ... The unions will pass out letters that say, "You don't have to do everything that Edison wants you to do, you don't have to stay late, you don't have to stay long, it's not in your contract." How unique is it to public education that some folks would adopt an attitude that would rather see children fail than Edison succeed?
Well, [public education] is an institution that has been more about its employees in many ways than about its clients. It has existed, in some sense, for the benefit of the people who work in it, rather than for the outcomes it creates for its clients. What Edison is doing is turning that on its head, trying to operate schools that are accountable for results. Indeed, it'll lose its contracts if it doesn't perform at a high level.
That's a radically different cultural message, and many districts have found that very difficult to accommodate. But if you look at some of the other choices that other companies are making, they're trying to avoid that problem. That's why many of Edison's competitors have not gone after existing school districts. They have chosen not to manage existing public schools, but rather to set up new schools ... that don't inherit the culture, the existing staff, the existing collective bargaining rules and contracts of the surrounding district.
In fact, many of these companies have thought that that set of conditions was essential for success. Really, Edison is rather alone in thinking that it can go into existing school systems, and with the very weak hand that it is dealt of control, of power, for it to do what it needs to do to somehow get much better results.
Then why did it go there?
I think that Edison saw that that was the biggest opportunity, that creating one school at a time was a very slow process, winning a charter, opening a school. It's a lot of work to build revenues slowly and to create a company of size. Whittle has always been a man that has been driven by the grand idea, and wanted very much to build a company quickly to scale that would incorporate hundreds of thousands of students receiving the Edison education that would have a billion dollars in revenues. To get there quickly, on a time frame that is compatible with pressures from investors, because that's a big driver, I think it was necessary to go after large school districts. But that proved to be enormously difficult. Philadelphia is the most striking example.
You said pressure from investors. Let's talk a little bit about the IPO. ... In 1999, the company went public. How did going public change the expectations for Edison schools?
We have to situate this in the history of capital markets in America. You can't underestimate the effect of changes in the attitudes of Wall Street towards these companies in trying to understand the history of Edison and its peers. When Edison was preparing to go public, going public was nirvana. It was the way to success. It would bring cheaper money, better access to capital. Everyone's eyes, in the education industry and of course beyond, was on reaching the stage of a public company.
When Edison first came out, it was a success. The stock climbed from about the $18 range to a high of $40, and then it all began to atrophy from there on. But what was also underestimated was the enormous pressures of being a public company. It wasn't all a good thing. It brought much more scrutiny, much more attention to managing the public perception of the company, and the perception of stockholders, and it was a great big distraction.
So if you look at other companies, companies that have chosen a different financing strategy may have more success. Companies that have a single major private investor-- In a way that's the ideal, because then you don't have to worry about raising money again. You don't have to worry about going public. You don't have to worry about the attitudes of the Street, and you can focus on doing your business.
So how did the pace that the company was taking toward profitability, the timeline -- how did that change before and after the IPO?
Before the IPO, it was the era of the dotcom. So everyone thought that what mattered was the so-called top line, the total revenues of the company. This was a brief period of complete insanity where companies were being valued for their top line. After all, what really matters, what creates value in the company, is earnings, is the potential of profitability. But instead, the Street at the time was associating value with growth.
So like many of the companies of that time that were entering this new market -- this new market was potentially enormous, a $300 billion area of activity -- many companies were focused on just getting bigger, because bigger meant higher valuations and the ability to sell less of the company to raise more money. Remember, these companies had a ferocious appetite for capital, primarily due to the real estate problem.
So in those days, what mattered was size. Edison focused on getting big quickly, and that translated into value on the Street. And you know what, it worked. The company went out at a high stock price and it went just higher from there on. But then all of a sudden the world changed. ... The window on going public closed, and the way companies were valued returned to the way they always had been valued -- on the basis of whether or not they made money, or maybe whether they would make money soon. And by those traditional measures, by the same measures, Edison wasn't a very valuable company.
The rules of the game changed on Edison?
The rules of the game changed overnight. Edison was stuck, like many other newly public companies, having built the business around one perception, on appetite on the part of the Street, that was suddenly no longer what people wanted. What people wanted were solid companies that had current earnings and the prospects for still greater earnings in the very short term. Edison was none of those things. ...
In 1999, where did Edison envision itself as a company four, five years down the road? What were their corporate aspirations, if you will? Do you have a sense?
... Edison wanted to create a very large company that would be the market leader in this space. By getting big quickly, it would capture market share; it would be the number one. It would be the brand leader in for-profit education.
Why were they so focused on being big?
They were focused on being big for a very practical reason, which is that the margins in this business are small. The business model for Edison, like for its competitors, was always premised on having enough schools contributing -- to use a euphemism -- paying management fees to cover the cost of corporate overhead. In Edison's case, that overhead was especially large because the salaries of the principals were very high; the costs of all the central office was much higher than in much leaner operations that we saw in some of the competitors. So Edison's nut that it had to cover was much, much bigger. That meant many, many more schools.
There are a couple of different ways to grow a business. You can either imagine opening up a little store and you find that customers keep flocking in, more than you can handle, and therefore you have to expand. That's not what was going on here with Edison, is it?
It can't be what's going on here. It can't work like opening one store and then opening another, because the central resources that you need to create something of value to your customers are substantial. You have to have a curriculum development shop. That could be a whole company in and of itself. You have to have people who are experts in assessment. You have to have people who are very good at regulatory relationships.
Education is an enormously regulated industry. You have to have people that are good at the student enrollment and outreach function. You have to have people who can do IT well. All those things translate into overhead and still more overhead.
To deliver quality services to your client schools so that they feel that they're getting a quality product that is worth the fee that they're paying, in the end requires a substantial number of people with a lot of different kinds of expertise, and it's expensive. So what that, in turn, means is that you can't grow very slowly. You have to have a significant number of schools, because otherwise you're going to be losing money and lots of money for a long time. And investors' willingness to pay for that is limited. ...
The pressure to grow comes from the essence of the business model, that you need many schools to cover the cost of your central corporate office, the people who do all the things that provide value to the schools. You couldn't afford to have an assessment expert; you couldn't afford to have people writing curricula; you couldn't afford to have people developing software applications for school management and for curriculum if you just had one or two client schools. Your only hope is to amortize those big costs across many schools.
So all these companies, like Edison, operated in the red, the very red, for a long time until they had enough schools that the management fees that those individual schools paid was greater than the corporate overhead. It hasn't happened yet for Edison. It's only happened for one company in this business so far, although Edison projects that it's imminent.
In 1999-2000, they've got all these departments. They know they need a lot of schools to cover that overhead. What was the strategy that they took to add schools, to grow it rapidly?
I think that strategy changed at different points in their development. ... I think at the beginning ... it was a different business plan, to open 1,000 private tuition schools. ... That's an interesting part of their history.
Edison, more than many companies, has changed its business model over time, at least three times. The next iteration was contracts with existing schools, and also a mix of charter schools. For a long while, the mix appeared to be about two-third contract schools or existing public school systems, and one-third charters. Then, most recently, or more recently, the company changed to focusing on very large contracts, like New York, and when that didn't work, Philadelphia. ...
The benefit of charter schools, of course, is that you have a much better chance at opening a good school. You can control who works in the building. You can have everyone choosing to work there because they believe in the educational vision, the particular educational strategy and methods that are going to be deployed. ...
And this is especially important, since they are out to prove a point -- that they can do better?
That's right. It's one thing to come up with a strong school design; it's another to implement it. Edison, like the other companies in this space, found that the rub was in implementation. There were so many obstacles to translating that school design, that set of instructional choices, that longer school day in the year into a living, breathing school that worked at a much higher level. One of the big obstacles was the real estate problem. Another was the culture of the existing school system.
If teachers didn't want to be there, didn't want to use these new methods, they would simply close the door and not use them. So what charter schools offered was a clean slate. You could hire every individual who worked in that building. You could find out whether they believed in the methods that you wanted to use. The hope was you could have a like-minded faculty that was all pointing in the same direction, all determined to make the school work. That's very compelling.
What's the downside then?
The downside is that it's a slow growth strategy. For all the effort that goes into it, you only get one school. Even if you have 500 kids in that school, it's a slow way to create a large organization educating a great many children. ...
Do you think at some point there was a change in the company's strategy, moving away from charters? If so, why?
I think there was a focus on getting a large play, on getting a big district, that would bring in tens of thousands of students from day one that had the potential to add a third again to the size of the company with one additional contract. That was very compelling. That would mean that, all of a sudden, they would have enough schools to absorb their overhead and that they would become a profitable company. It's a very compelling idea. It turned out to be enormously difficult.
In what way?
The act of going to a large urban district and offering to take over, not one or two, but to take over 10 or 20 or 30 schools is politically explosive. It's a totally different proposition than saying, "We'll toil away in our corner and create one fine school and then show you what we can do with more."
Given that today Edison is saying, "We're going to retrench, we're going to cut back on that strategy," how are they ever going to get to scale?
Their demand for scale is different today. So they've done something which many have urged that they do much sooner. They've taken a hard, cold eye to their portfolio of schools and said, "Which of these schools are schools that actually help us; that, first, have the conditions where we can be academically successful, and that second, pay us a fee -- are willing to pay us the cost of what it takes to provide the services?"
So they have -- rather ruthlessly, as they needed to -- cut out schools that don't meet those criteria. That's exactly what Edison needed to do. So now they're in a situation where, as a result of being careful about what schools they take on and what schools they retain, and cutting fairly heavily at their corporate overhead, they're much, much closer to being a viable, profitable company. ...
There are other aspects of the company that some folks have described as sort of "Alice in Wonderland" aspects. ... When you look at the way Edison counts schools, one building is counted three times; [the way they reported] their revenue before the SEC inquiry. ... The buildings, the revenue, some folks have called those things, in particular, efforts to make the company look bigger on paper to satisfy Wall Street, I suppose. How much validity do you see in that charge? ...
It wasn't unusual. All companies at that time that were coming out of the block were focused on going public and going public quickly. The driver for going public was not earnings; it was size. In the case of school management companies, size translated into students and students into number of schools.
So Edison might have been a bit guilty of projecting being larger than it was by how it counted schools, but there was also a reason on the merits for doing it. Every time they opened the next set of grades, whether it be the middle school or high school, they counted as an additional school. It did provide a more uniformed measure for looking at the actual size of the company. But it was easily derided, and they were accused for being misleading or disingenuous as a result.
Edison also ran into trouble later for how it counted revenues, or, as accountants would say, how it recognized revenues. But in fact, managing schools was a new industry. The accounting industry hadn't decided how school management companies should do their books. ...
I think Edison was following accounting advice in an emerging area, namely school management, where there were no established accounting rules on how to roll up the revenues from the different schools that they managed. Edison, like others -- including the company that I ran, Advantage -- followed the rules of the time. When those rules changed, Edison was obliged to restate its revenues.
I don't see that as any kind of deliberate effort to mislead, or wrongdoing. It was simply that they were working in an emerging area of accounting rule making.
In many schools that we've visited, especially in Philadelphia, we found that sort of front-line teachers were very concerned. They feared that Edison would come in, renegotiate their contract, attempt to pay them less, attempt to bring in cheap labor, basically attempt to cut costs on the salary side. To what extent is there truth or validity in any of those fears?
I don't think they could. I don't think that they have the authority in the situations where they operate in traditional school districts to be able to change the salaries. The teachers are governed by the existing collective bargaining agreements. So I think that that fear was probably groundless.
But looking at the company as a whole, do you think that teachers have anything to fear -- their salaries, their compensation, their contracts? Do they have anything to fear from Edison?
I don't think they have anything to fear from Edison. I think that Edison is obliged to pay the market rate for teachers, and that is going to be determined by the great majority of schools that are conventionally managed, not by Edison. Now, Edison like others will make choices about how to staff a school. It may use more aides. It may use more low-paid teaching assistants and fewer high-priced teachers in some settings. But that, after all, is the objective. The objective is efficiency. The objective is to achieve greater academic gains at lower costs. How can that be faulted?
I'd like you to respond to an argument we heard yesterday from someone we interviewed, who said, "I don't trust companies like Edison. I don't trust this sector. I don't trust this industry, because ultimately, at the end of the day, the interests of investors will come before the interests of students." To what extent has that played out with these companies?
It's a fallacy to see the interests of investors and the interests of quality as being opposed. In fact, when we think about the market, that is the fundamental mechanism of the market. Companies succeed when they deliver better quality. Then they gain more clients, and they grow, and they begin to make money. If Edison offers a poor quality product, or if any company offers a poor quality product, they won't be invited back, they won't retain their existing clients, and they certainly won't gain more.
So there is no tension between quality and making a profit. In fact, they're inextricably linked. ...
Can you imagine Edison telling Wall Street that "You come second?"
This reflects the most astonishing misunderstanding of how markets and business function. In this industry, like in really any other, unless you deliver quality, you don't get customers, you don't stay in business, and you certainly don't make money for your investors. So in the case of Edison, if Edison doesn't deliver a product that is unequivocally better than the existing public schools, they will not retain their existing accounts, and they certainly won't be invited to manage other schools around the country.
So there is no tension between making profit and delivering quality. In fact, they're absolutely joined at the hip in this industry, as in others. In fact, if we look at this, it's also ironic that this is raised, because if we look at the case of Edison, the flow of money has been completely in the other direction. This has not been a case where public monies have gone to line Chris Whittle's pockets or anybody else's. Quite the reverse. It's been private capital that Edison has raised to the tune of probably close to $200 million that has flown into public schooling and has benefited families and children.
Yes, one day that tide might turn, but it hasn't happened yet. And when it does, it'll be because Edison is demonstrably delivering a better product, and that means better-educated kids and satisfied parents. ...
Broaden it out from Edison. Take all the companies. The way that markets work is they eliminate companies. Not all these companies are going to be around five years from now. Why should we be giving a public responsibility to companies that we know the market will get rid of?
Absolutely, this is the best thing that could happen -- that the companies that don't work, that don't deliver good education, better education, should be flushed away. That's precisely what we should rejoice about the functioning of the market. That's what we should celebrate, that there is that automatic mechanism of renewal and improvement. Companies that don't do well, that don't deliver good service, are taken away. They fail.
Companies that don't do well fail, and no longer can impose their shoddy education, their product, on families and children. The ones that survive are the ones that are delivering the superior product. That's the mechanism that we want to be able to tap into, and for the first time have benefit families.
But for students in those companies that maybe go under, because they're sorted out by the marketplace, is that a wise way to run a system?
Yes, because when you think about it, it's not about the school failing when the company fails. What happens ... if you look at the actual results of situations where public schools are managed by private companies, when the private companies do fail, the school continues. So schools that have lost their contract, decided to self-operate, go on. There's a seamless transition to the next school year even though the company may no longer be using a management company at all. It may be so-called self-operating, or it may have chosen to work with a different management company. But the school survives. Indeed, it moves along. It's progressing, and the children are unaffected by that, except perhaps to get something better. ...
A few clients who broke ties with Edison said to me, "It was like Edison wasn't here anymore. We never saw them. They kind of disappeared." ... To what extent did the need to grow impair relations with existing clients?
I think that that is a challenge for Edison and for the industry, which is how do you provide quality services on a ongoing basis when management time is being distracted by the new thing, opening the Philadelphia schools, opening the four new schools that have to open in September? That's going to take away from the focus on quality at the existing sites. Edison, like its competitors, struggled with this. ...
Everyone in the industry struggled with this. Every fall came a new crisis: How do we, in six months, sometimes four months, find buildings, hire staff, enroll hundreds and hundreds of students at many different new locations? That became what management was inevitably focused on. I'm sure this was no different at Edison. It was such an overwhelming task. Some would say a crazy task.
So there wasn't a whole lot left over to focus on the core business, which is, "Hey, we already have all these schools. How do we know that the academic program is being implemented well? What do we do about the three or four school principals who are clearly not on the A-list that need to be replaced?" All those things get less attention inevitably than the big problems, which is, "How do we make good on our promise of opening the next batch of schools? How do we raise the staggering amount of new capital that we need to do that? How do we confront the constant political barrage that we get from being in the business that we're in?"...
Back in 1999 (you have personal experience in this, because you started your own company), to what extent did companies like yours and Edison's anticipate the degree of difficulty that you would face in this field?
None of us in this business anticipated the difficulty. This was a new business that was crafted on bold promises. Business people looked at public education, often with derision, and they said, "These schools don't work very well. If only the private sector were involved, if only business got to work running the schools." So they engaged in big promises. In those promises, they overstated how easy it would be to do better, and they also overstated how poorly the existing schools were performing.
In reality, the existing schools were better than they were saying, and it was going to be much, much harder to do better. They learned that lesson very painfully over a long time, and the result was a measure of humility that we didn't see in the early days of the schooling business.
Yes, humility. If you've been going around the country saying, "We're going to open schools where kids are going to move from the twentieth percentile on national test to the sixtieth percentile. They're going to all be taking advanced placement classes, they're going to be admitted to the finest colleges and universities," and instead what you're struggling with is moving kids from the twentieth percentile to the twenty-fifth percentile, and they're still failing all of the state tests, that is a very different activity. It teaches humility.
Someone said to me, "Business has finally learned what everyone else has known all along."
Well, they have learned what a lot of other people knew. But they're also to be celebrated for trying to do a lot better, and not simply accepting that American schools don't work very well and there isn't a whole lot that can be done about it unless we fix every other social problem around us.
What I admire about what people like Chris Whittle did is they said, "End of excuses. We're not going to talk about how we have to solve every other social problem. Instead we're going to say, 'With the existing framework, we can do much, much better.'" And you know what? They're right. We can, and we know that because they are isolated examples of highly performing urban schools in every major city in America.
So the question before us is, how can we move beyond a few anecdotal successes? These schools in the midst of the same depressing socioeconomic ingredients where their kids are doing much, much better. The question is, what are they doing, and isn't there a way where we could replicate this? Could the private sector be a tool for getting there?
There are those who say, "Yes, the schools have done better. Academically, they're better. They're nicer, they're cleaner, the teachers are happier, they work harder. However, the business just doesn't add up. You can't pay for it."
Oh, you absolutely can pay for it. Let us remember that we're talking about an institution that has been untouched by competition, that is funded at the highest level of almost any industrialized country in the world, with the possible exception of Canada. It's a little-known fact [that] we spend more on our schools than almost everyone around us. So you have high per-student spending. Now, of course, maybe we should spend still more. I'm actually quite sympathetic to that argument. But there's tremendous resources. This is not a problem of input, as they say in the field. This is a problem of what you do with the resources.
So if you could, for the same dollars in, get much better outcomes, then you could have the profitable enterprise.
But if you have to be big, given the small margins, and if going big means running into a buzzsaw like Philadelphia, what's the chance of this movement ever being big enough to pay for itself, for companies like Edison?
In fact, if you look at companies that artfully manipulated around the political obstacles, they were able to build a business that got to outcomes and got to profitability much faster than Edison. The best example of that is a company called National Heritage Academies, which chose to focus in primarily one location, namely Michigan, which had a favorable set of rules where they could get a significant number of charters, and where there wasn't the constant political opposition and media scrutiny that Edison invited at every turn. That permitted them to focus on the knitting. It permitted them to open schools, implement a quality product. Now with about $100 million in revenues, this is the first education management company that claims to be profitable.
But can any company ever get big enough so that they make a difference? Edison is all of 130 schools -- a drop in the bucket ... compared to the 100,000 schools we have out there. If Edison ... getting to 130 schools has run into the kind of opposition that the company has run into, what is the prospect for any company getting big enough to really make a difference?
I think that what's going to happen is that, if Edison and others start to show that their students are performing at a much higher standard, it's going to call the question. People are going to say, "Why aren't we doing more of this? Why don't we have more choices?" Remember, most of these schools are oversubscribed. They have substantial waiting lists of parents. If the question is, "Are these schools popular with parents?" they are overwhelmingly so. If the question is, "Are these schools popular with the education establishment and the special interests that want to protect the status quo?" no, they're not.
But when the question becomes, "How come my child can't attend the Edison school or the school around the corner, but my neighbor can? Why am I being deprived of a superior education?" then we'll start to see the politics of this beginning to change. Of course, that's precisely what the establishment fears. ...
So if it's difficult to do, how much of a future does this have?
I think the future is promising. It may not happened today. It might not even happen in this generation of companies, but this is not a short-term play. The problem of under-performing schools, particularly urban schools, has been with us for decades. This is simply a blip in the story of American education. If these particular companies don't make it with their educational models, with their business models, there will be another bite at the apple. There will be new entrepreneurs who step forward and say, "We have another formula, another method." There will be new rulemaking by legislators and others who want to open up the closed world of public education and invite people in from the private sector to try their hand at it.
So it may not happen this year, but it might happen five years or ten years from now. We know this: We know that [much] of what is being done now in privately managed schools is working. Some of it is not. By combining those successful practices into a new approach, it might be possible to have an educational and business homerun. ...
Did [Edison] have to be as expensive as it was? ...
Probably not. Edison always wanted to do things the best way and that was always the most expensive way, beginning with the management for which they've been much criticized. But in that came quality. Chris Whittle attracted some of the best minds in education and he rewarded them very handsomely. That created a huge outcry. That wasn't the only place where Edison spent a lot of money. But at the end of the day, what that gave them was quality. They have a quality school design, they have quality services, but it was terribly expensive. ...
Where else have they overspent?
I'm not sure they've overspent. But in the business of for-profit education, as any new field, there are different corporate cultures. Some cultures are very driven to frugality, just by nature of the people who are at the helm. They don't like to spend money. They want to find a way to cut every corner, and that's a very sage strategy.
Edison didn't do that. Chris Whittle always wanted the finest in life, and he wanted the finest at Edison, the finest people, the finest resources, the best technology, the best curriculum developers, and he was willing to pay for it. Because he is such a successful fundraiser, he was able to raise the capital to pay for it. That simply was Edison's culture. ...
Chris has said that he's not the same manager that he was back in the Whittle Communications days. To what extent do you think Chris Whittle has changed in that department?
I suspect he's changed a good deal. I think when he looks at his baby, Edison Schools, it is the culmination of his work, his career. It simply has to succeed. He knows, at this point -- he must know -- that that requires some skills which may not come naturally, and one of them is tremendous financial discipline at this point. He has to be able to make some very unpleasant choices, and those come in two kinds. One is about schools. It's about shedding schools that aren't willing to pay the bill for the services. It's about letting go of probably some very valuable people who he can't afford to retain, and about making other tough choices to reduce corporate overhead.
But I see Edison making those choices. Chris may not be leading the charge, but he's not obstructing it, either. ...
There are those who think Chris Whittle ought to step aside, that the business is better off without him. What do you think?
I disagree with that. I think that that's a reflexive response from venture capitalists and the like, and maybe the Street -- to say the company has reached a stage where for it to succeed it needs a different leader and Chris's skills are not in the area that the company needs now, which is to be disciplined, to be tough. But let us remember, it is Chris's vision, his inexhaustible drive, his intellect, which is extraordinary, which is why Edison exists at all. So you can't throw out Chris Whittle and still retain Edison Schools. ...
Looking back on the company and its current financial condition, what mistakes do you think that they've made?
The mistakes that Edison has made have primarily been ones of implementation, like so many companies. The problem here is not in school design, in what we decide to do in the building. The problem is how to get it into the building. How do you find a suitable building? How do you find the right school leader? How do you implement your curriculum accurately in the building?
Those have proven to be enormously difficult operational challenges for Edison. Time will tell whether they can do those things well enough to create a successful business.
Why have they proven difficult?
Because it turns out that, as educators say, "doing school" is very tough. Schools are surprisingly complex operations. They appear simple; kids sitting in classroom led by teachers. In reality, everything that goes on in that building, the movement of starting at the beginning of the day, of hundreds of kids on and off buses into the right classrooms, administering complex federal programs like the free and reduced price lunch program, complying with thousands of state and federal laws and regulations, administering precisely academic programs that don't work well unless they're exactly right in the classroom-- Those turn out to be operationally, to use a business word, very tough.
Many companies like Edison underestimated the operational complexity of the business that they found themselves in. They also thought the people from related industries, apparently similar activities, like the hospitality industry or retail, other so-called site-based businesses, that that expertise could be translated into running schools well. Turned out it was almost no connection between those two. The people that were brought in to do those things were at a loss when it came to running schools.
So the problem that Edison has faced, like so many other companies in this area, has really been how to find leaders at the school level who have the charismatic skills, the management skills, the operational expertise, to be able to run a great school. It turns out that those people are far and few between because the list of requirements is enormous. You have to be an experienced educator. You have to be a charismatic leader. You have to be able to express audacious goals for student achievement, and convince everyone that they're going to obtain them in every interaction that you have -- with a child in the morning, with a parent visiting the building, with a teacher that you're coaching. Those people are very hard to find.
If you look at Edison's portfolio of schools, what you find with the competitors, as everywhere, is a great mix of schools' quality. Some are very good, some are quite mediocre, probably not better, not worse, but no better than the surrounding schools.
What does it say about us that we even need private companies, that private companies have become a necessity in what should be a public responsibility, that is public education?
We need to be more thoughtful about what we mean by a public education. We all have a nostalgic connection or equation between public education and the present delivery vehicle, if you will, of publicly staffed, essentially government-run schools. But let's think more deeply about what is public education. Isn't public education really something that is open to all, that is publicly funded, and that produces academic outcomes that are in the public interest -- educated children that are capable to take their place in American life?
If we look at it through that lens, then we have to ask, "Is the present structure of government provision of public education the best way to reach those public goals? Or are they other definitions of public education that might include private management of public schools that might be far more effective at creating truly public schools?" Schools that are publicly funded, yes, that are open to all, yes, but that also work a great deal better than the schools that far too many kids are consigned to today.
You know, Chris Whittle set out to prove that business could do better with the same amount of dollars. How has he done on that point?
I think he's got a long way to go. In fact, to know that, we need to look at the academic outcomes of Edison schools and compare them to the surrounding system. Well, that turns out to be very difficult to do. So to answer the question of whether Edison schools are working better than the surrounding schools turns out to be a real tough question. ...
Chris Whittle wanted this to be a big company. He wanted to make money and he wanted to do good, too, and he wanted to do it on a big scale. He's ambitious. To what extent may he have been undermined by his own ambition?
Oh, let's not reach any early decisions about that. This story is far from over. Edison is a very determined company, and Chris has a whole lot of energy left in him. He's got a very committed staff, he's retained talent in key places, and he'll keep going. He may well make this work. ...
What do you think Wall Street thinks of Edison now, and of these companies now?
I think they're enormously skeptical at this point about education companies generally. I think that, they are now far more aware of, two things. One is the great difficulty of doing better educationally than the surrounding schools -- that simply having entrepreneurs go to work in education is not going to automatically drive superior achievement. In fact, it's a very difficult, almost intractable problem. Secondly, the level of the externalities, the outside factors, primarily political that inhibit business success are staggering. As long as the regulatory environment remains the same, it may be very difficult to make these work.
Was that a surprise?
I think the extent of it was a surprise. I think the number of political battles that Edison Schools and all of its competitors had to fight just to get through the day, just to open schools, and to be able to function, was enormous. This has proved to be a huge distraction to doing the core business, which is providing the quality education. So as long as those factors remain in place, so long as it remains so difficult to focus on the business of educating children, I think that that's a big obstacle to success and further investment. ...
Let's talk about Chester, Pennsylvania. What was Chester for Edison? ...
I think, for everyone, Chester had very bad genes from the start. It was not a good situation. You didn't have the financial conditions to be successful, you didn't have the community commitment, and you didn't have the authority and autonomy in the schools that you need. You need all three factors to be successful in this game.
You need to have a supportive community setting in which to do this work. You need to have economics by which you can survive, and you need the kinds of autonomy and authority to be able to hire and fire staff, to change job descriptions, and do all the things that a CEO in any other setting would take for granted.
Chester didn't offer those characteristics, and so it was problem a mistake to get involved from the beginning. Many organizations turned it down for that reason. ...
Where do you think the antipathy that's been directed towards Edison arises? In this realm, business has become the bogeyman, the villain of the piece. Why do you think that is?
I don't know that we have clear answers about that. I think that, as Americans, we reserve a special place for the public schools in our heart, and that place doesn't have to do with business. Maybe it's because of the myth of the public school, of the common school, which is a very, very powerful, emotional and psychological notion for everybody, I think. But also I think perhaps because we wish to have one last zone where the market doesn't intrude on American life. Perhaps there is a sense that, as much as we all benefit from the market, we also feel that it is in some sense imperialistically pushing into every last zone of American life that it doesn't touch. So perhaps that's part of our discomfort.
But of course the fact is that education badly needs the rigors and disciplines of market forces. We can't afford to have such a critical institution, an institution that is critical to the essence of the American dream -- a level playing field for all -- work as poorly as this one does. It's not unreasonable to think that if it were exposed to the pressure for improvement that competition engenders, it might get a lot better, and rather quickly. ...
We've heard the notion that the schools ought to be a place of innocence, where a childhood can unfold apart from crass commercial concerns and profit and loss. Is that a realistic picture of what happens in a school?
First of all, that profit and loss is not a dynamic that is going to affect the culture or what happens within the building. I simply don't believe it. I think that what happens in a classroom and the way teachers relate to children. The quality of that interaction, the love that is conveyed, the caring, those are attributes of good schools, whether they're not-for-profit or public schools or for-profit schools. There's no inherent connection there at all.
Remember, schools that are run by for-profit companies and also not-for-profit private organizations are hugely popular with parents. If they felt that their children were entering a building that wasn't an innocent and loving and caring place, they wouldn't keep their children there. These schools have enormous waiting lists. That means that parents see something that attracts them very deeply. That's not commercialism, and that's not a for-profit dynamic.
Parents are indifferent about whether the school is run for-profit or not. What they care about is that the school is effective, the school is safe, and the school is caring. Very often, for-profit schools have proven to be all of those things when the public school around the corner, to which we have a very deep loyalty, is none of those things.
So where does the opposition come from, if not from parents?
The opposition I think comes from the strength of a deep myth in American life about public schooling. We think of the public school in its present form, run by government, organized around local school committees, as being equivalent to public education. In fact, if we look deeper in our history in this country, we'll see that public education in that form is a relatively recent phenomenon. In the early days of this country, public schooling was fulfilled with an array of different structures. Some were church-run schools, some were for-profits, some were public schools as we conceive of them today. They competed for children and they competed for resources.
The essential elements of public education are not the structures that we see it embodied in today. The critical elements are open access to all and public funding, and that is what we seek to preserve. Of course, the advancement of the public interest is a highly educated population. So when we put to the test is a form of public education truly public, we shouldn't be asking, "Is it run by school committees, is it overseen by a superintendent, is it staffed by public employees?" We should be asking, "Does it advance the public interest of a highly-educated citizenry? Is it open to all who want to come, and is it publicly funded and doesn't charge tuition?" If we use those tests, then I think we would awaken ourselves to a far broader range of truly public schools, in a form that might be unfamiliar to us, but might be work better.
Well, it's not just that the forms we're seeing now are unfamiliar. They are openly excoriated, openly vilified.
I think we have to ask, who are they excoriated by? They're not excoriated by urban parents who sign up to them in droves. They are not excoriated by the teachers who work in them. They are excoriated perhaps only by the entrenched education interests who are powerful voices in American politics. After all, the teachers' union -- and I'm pro-union; I believe that the teacher's union has done an awful lot of good in its long history -- but it's current inflexible stance against private management is simply destructive. It doesn't align with how the public, and particularly parents whose options are poor, feel about them.
Parents who have no other options, whose only choices are between one under-performing school and another, are not going to quibble about the ideological question of public or private management. What they want is a school that works better and is safer. If it's privately run, they're going to go for it. ...
I think another component of it is the schools of education in this country. I think that teachers and those who work in education are very aggressively socialized to dislike business, to fear business, to fear business's intrusion into the schools. That is a kind of very deep ideological conditioning on the actors who work in the present system of public education. That perpetuates these kinds of fears which then seep down to parents and to voters to distrust the idea of businesses getting involved in education.
Now, of course there are going to be businesses that exploit and that do a bad job. But we have to believe that at the end of the day the ones that survive are the ones that offer a better service and a better product. Of course, remember the level of scrutiny that private companies are under in this business. This is not a place where you could pull off some cheap tricks and make a lot of money. Every action that you take is watched, is scrutinized, is evaluated and is going to be reported in the media.
What's your measure of the people who work [for Edison]? They, too, have been vilified as, profit-driven, in trying to cash off their options and that sort of thing. What reading do you have of what motivates those folks to do this?
I think that if Chris Whittle and others wanted to make money, if that was their primary motive in life or at this stage of life, they would have found a far simpler way to do it.
I think that those people are there because they want to make a mark on American life, and the mark that they have chosen is to do something about the under-performance of public schools. So I think it's a deep social commitment. It is connected with an economic opportunity. They've chosen to do it through a vehicle that, if it all works out, if they succeed at the first, which is running better schools, they'll also have a chance to be financially rewarded. I think that's a good thing. ...
[Edison] has a lot riding on test scores. Around the country, they've seen gains of 5 percent, 10 percent. How good are those kinds of numbers?
It's a lot. It may not be enough ... [but] it's a lot. It's very difficult to jump five percentile points on national standardized tests, like the Stanford-9 and the Iowa test. It may not be enough. That being said, because for something this controversial to be sustained, what may prove to be necessary is 10-, 15-, 20-percentile point gains. That is almost impossible to see at any kind of scale. You may see it in one school, or a couple of grades. But to see it over a network of schools would be absolutely astonishing, and it's unreasonable to expect it.
Why is it so hard?
First of all, our existing public schools are not nearly as bad as they're made out to be. To work with children who come from disadvantaged families, economically, who have all kinds of hardships in their home lives, who arrive at school with little academic preparation, and to be able to remedy that, to transform lives in the course of a few months of instruction, is simply unreasonable. It takes a long time. If you're moving up by a couple of percentile points a year or five, you're on the right track. That is a very solid achievement.
But to the public?
If the public understood the meaning of a five-percentile point gain on a nationally normed test, if it were explained to them, for example, that even in our best districts with the most powerful new superintendents, it's very rare to see an across the board increase -- all subjects, all grades -- over the course of the year, of one percentile point. ... You need to create a point of comparison for people to understand it. This is my point. ...
But because the gains have been only 5 percent or so, how much is that worth then?
First of all, it's not 5 percent in the sense of a score going up by 1.05. It's five percentile points on a normed ranking. So if a child was coming in at the twenty-fifth percentile, and the national average is 50, and if that child were to make five percentile point gains each year, then in the space of a few years of his education, he would suddenly be performing at the national average. So that is a rather dramatic improvement over the course of one year. ...
So you're saying the public misunderstands the accomplishment here?
I suspect so. I think that we need to provide a context for this. We need to provide the most important context -- what does improvement look like in other settings? The best comparison is other districts, because after all, Edison and its competitors are now running a collection of schools that resembles a medium-sized school district. If you look at other large districts, it will be very hard to find a district that moved up by one percentile point across all subjects, all grades on average, let alone five percentile points. So it's a solid achievement.
We've been in Baltimore, where we saw what we thought were really terrific [Edison] schools. We've been in Wichita, where we saw some schools that clearly, we heard from teachers there, had some trouble. Put the question of quality in perspective. Looking across the board at Edison schools, what can we say about the quality of the schools they run?
I don't know that we can say a lot. I think that the honest answer is that it's too early. To measure quality, to know whether Edison or others are operating a school system that is better than other public systems, is difficult. It's a simple question, but it's a complicated answer. To really have an answer, we need to have randomized control studies over years that compare the progress of the cohort of students in Edison schools with students that are demographically similar in other schools. That is a very expensive, and it turns out very impractical study to organize. But until that, we won't have a certain answer.
But I think what we can say about quality is that Edison is offering a full service education, generally in a stable, disciplined, clean setting, with a lot of courses and curricula that had often been cut out -- music, art, computer instruction, foreign language from earliest grades -- and they are showing, meaningful gains year to year.
Now, skeptics would ask questions about that. ... So it's not certain. But there is ample evidence that, in some locations, they have made gains that at least pose the question of whether they're not doing something which is pretty fine and pretty worth watching.
Whenever they have struggled, it seems to be because of principals. Talk to me a little bit about the role of principals. How important are principals in this whole endeavor? More important than their function in the public schools? If so, why?
If we've learned one thing from this experiment in private management, it is the singular importance of the school leader. If you don't have a vibrant, charismatic, communicative leader, and also a strong manager, someone who can tell other people what to do, and inspire them to do it, and by the way, someone who is absolutely driven by qualitative information, who is an education analyst, and education engineer, constantly adjusting what happens in the school, in and out of classrooms -- if you don't have that person, you haven't even begun to run a good school. That lesson is clear.
It turns out those people are extremely difficult to find. So most of these companies, like Edison, have some schools that are benefiting from powerful leaders who happen to have all those characteristics, and many are not. And there's a very distinct correlation. If you don't have an A leader, you don't have an A school. If you have a B-minus school, you're never going to have a strong school. So that has been a painful lesson learned.
That's why many of these organizations are now focusing much, much more heavily on "How do we recruit those people? Where in the world do we find them? How do we train them up, if we don't already have the types of people that we need?" That's a very worthwhile inquiry ... not just for privately managed schools, but also for public schools.
Why are [schools leaders] more important in this sector?
For two reasons. One, because the expectations are much higher. These schools can't be just as good as the next ghetto school. They have to be a whole lot better. Secondly, because the role is distinct. In a privately managed school, the leader has two responsibilities: academic management, but also operational responsibilities. He or she is running a business unit, with financial responsibilities, with operational responsibilities. Those things are at least as demanding -- making sure that all the buses run on time; that the contractor is taking the children home on time, that the building air conditioning is working. All those other things, and if financially the site is going to meet its targets.
So to find someone who both has educational expertise but can at least navigate her way through the business and operational side -- that's a tall order, but it's essential. Finding these people has been very difficult, and yet, the job description is more demanding than running a public school. ...
What you were saying about how Americans view childhood and business was fascinating to me. It never occurred to me until you said it that perhaps more so than skepticism about the role of profits, more so than politics, is this notion that Whittle is taking on an American notion of innocence -- childhood -- that we want to preserve in some way.
The image of the public school, an image of innocence, the school building on the corner that everyone of every race goes to, where children learn and embark on successful lives, and become truth seekers, readers, develop an intellectual capacity. That's a powerful myth in American life. Now, as private involvement in schools is vigorously opposed, it's one that is perpetuated and promoted by some of the most powerful political interests in American life. The unions are spending staggering sums to promote that image.
There's only one problem. For many children, it's simply not true. The urban school on the corner is very often a dangerous place, where there's drug dealing on the corner, where there's gunshots ringing out, where children are not being educated, where children are being consigned to special education with dubious labels that are really more about the failing of their education or their instruction, and not their own failings.
This is anything but an innocent place. If you go to that school and you see children that you know dying around you, and you aren't taught to read, and you have to fake it for the rest of your education, pretending you do when you don't know how to read, what's innocent about that? Nothing.
So I think we need to examine the idea of innocence. Perhaps a system that is more accountable, which is run for the interests of the clients -- the parents and the students that are being educated -- could in one way be a far more innocent enterprise, if students are instead in that school reading for the first time, coming home to their parents asking for more books, looking out the window, reading a street sign for the first time in their lives, experiencing the joy of literature, their minds waking up. That's innocence.
That's the chance for a future, instead of being consigned to economic failure, to poverty, perhaps to imprisonment, instead to be on a path towards success, because they're equipped with the intellectual fundamentals. I call that innocence. ...
So let us discard at least what is naive and false about that image [of innocence]. Let us instead ask whether if we made schools more accountable -- which, believe me, the market would -- whether we might not be helping to sustain innocence, rather than eroding it.