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Published in Print: November 24, 1999, as All Eyes on Edison Schools As Company Goes Public

All Eyes on Edison Schools As Company Goes Public

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Christopher Whittle often uses this analogy in speeches to business people and educators:

Seventy-five years ago, he says, most American towns had locally owned banks, groceries, clothiers, hardware stores, and restaurants. Today, those fields are increasingly dominated by national brands, such as Bank of America, Safeway, the Gap, Home Depot, and McDonald's.

"The only things that haven't changed are churches and schools," Mr. Whittle, the president and chief executive officer of Edison Schools Inc., said recently. "That's good for churches, but I'm not so sure that is good for schools."

Mr. Whittle has visions of his public-school-management company becoming the Wal-Mart of education: ubiquitous, profitable, and delivering more and better services than the old mom-and-pop store.

"Ten years from now, when you think about who does the best schools, we want there to be only one word that comes to mind—Edison," Mr. Whittle says frequently.

A combination of the company's ambitious plans, its high-profile leaders, and its close ties to the public education system have given Edison a unique place in the new education industry.

When Edison had its initial public offering of stock this month, some observers trumpeted the move as a milestone— even though the value of the stock barely budged from its $18-per-share offering price.

"This is a very large event for the education industry," said John M. McLaughlin, the editor of The Education Industry Report, a newsletter. "Edison has had kind of a star quality. Now anyone with $18 in their pocket can own a share of their idea."

But Edison's high profile has also made the company a lightning rod for critics of for-profit education.

"These folks are not setting the educational world on fire," said Alex Molnar, a professor of education at the University of Wisconsin at Milwaukee.

Still in the Red

A longtime media entrepreneur who was once a co-owner of Esquire magazine, Mr. Whittle first attracted controversy in education with Channel One, his advertising-supported television news show broadcast to classrooms around the country. He sold Channel One to what is now Primedia Inc. as his media empire was going down in flames in the early 1990s.

Mr. Whittle launched what was then known as the Edison Project in 1991, when his original vision was to open a chain of hundreds of private schools targeted at the middle class. Today, the company contracts with states, school districts, and charter organizers to run traditional public schools or publicly funded but largely independent charter schools.With 79 schools and 38,000 pupils, it is the leader in a growing market of for-profit charter-school-management companies. And it is the only K-12 management company today that contracts directly with districts and teachers' unions to run traditional public schools. Edison runs 53 schools under contract with districts, while 26 are independent charter schools.

Despite steady and controlled growth in its number of schools and student enrollment, the company lost $50 million last year on revenues of $132 million. It has racked up hundreds of millions of dollars in total losses.

But the IPO did raise some $122 million that will sustain Edison as it continues to grow. Edison executives, who could not discuss their finances because of federal securities regulations requiring a "quiet period" around an IPO, have long said the company won't be profitable until it has contracts to run hundreds of schools. At that point, company officials say, it can begin to realize economies of scale.

Some observers remain skeptical about Edison's business plan and its educational program, which is centered on a longer school day and year, heavy use of technology, and the provision of a computer in every pupil's home.

Edison claims significant achievement gains in most of its schools, though some experts believe it is far too early to judge the academic results.

"There's no magic in its program," said Martin Carnoy, a professor of economics and education at Stanford University. "Education is a labor-intensive industry, and the only way you're going to make money is to wring some savings out of your labor force. For Edison, that means they keep hiring young teachers."

Unions Skeptical

Edison's business plan includes "clustering," or opening multiple schools in the same district.

Edison currently has four schools or campuses in three cities: Flint and Mount Clemens, Mich., and Wichita, Kan. In Dallas, schools Superintendent Waldemar "Bill" Rojas recently proposed turning over as many as 11 of that city's schools to Edison, but had to settle for six late last week after the proposal got bogged down in school board politics—a reminder that contracting with districts can still be a political minefield.

Most other school management companies, in fact, now focus exclusively on charter schools, where governing boards are typically outside the traditional system. But Edison appears committed to both models.

Mr. Whittle says Edison will work with public school groups to lobby for more funding for education. Edison typically gets the basic per-pupil amount when it manages a public school, so it is in its interest for funding to increase. In fact, there are whole regions of the country where the company declines to seek business because per-pupil funding is so low that management contracts wouldn't be profitable.

Merri Mann, the director of educational and professional issues for the United Teachers of Dade, an affiliate of the American Federation of Teachers in Florida's Miami-Dade County district, is heartened by that policy.

"It sends the message that it costs money to educate in the way we should be educating," she said.

Edison's relationship with the teachers' unions is a complicated one. On one level, the unions are generally critical of for-profit management companies. The AFT in particular has been sharply critical of Edison's reports on student achievement.

But Edison has mollified some of the unions' concerns by employing union teachers in its district-partnership schools.

"We reject the view, adopted in conservative corners, that unions are anti-progress," said Christopher D. Cerf, Edison's chief operating officer and a former White House counsel under President Clinton.

Nancy Van Meter, an associate director of the AFT's department of organization and field services, said the union wants to keep up its watchdog role.

"We respect the fact that Edison Schools has made a significant effort to work with the unions in districts where it is seeking contracts," she said. "That doesn't mean we endorse them."

Cathie McDonald, a contract negotiator for the Illinois Education Association, an affiliate of the National Education Association, said some local union presidents remain adamant against Edison.

"From the [local] presidents' perspective, they are riding herd to keep the wolves out," she said. "They don't know yet if Edison is a wolf."

'District Partnerships'

Now that Edison has become a publicly traded company, its groundbreaking stock- option plan holds potential payoffs for its teachers and other employees. For the company, it helps deflect concerns about making profits off public education by sharing the wealth with those on the front line.

United Teachers of Dade was the first to embrace the concept for its members at the Edison-managed school in Miami.

"It's time there was a payoff for people who work their hearts off," Ms. Mann said.

Besides stock options, which will become valuable only if the company's stock rises, Edison is working on a number of other innovations. It has an agreement with APEX Online Learning Inc., a Bellevue, Wash.-based provider of Advanced Placement courses over the Internet. Both APEX and Edison have significant investments from Paul G. Allen, the co-founder of Microsoft Corp.

APEX will provide Edison's high schools with a "virtual Advanced Placement department," said Sally Narodick, the company's chief executive officer.

In other areas, Edison plans to work with colleges of education to put together its own teacher-preparation programs. The company employs 2,200 teachers this year, and its needs will grow as the number of schools expands.

One idea that has been pushed to the back burner is the opening of any Edison schools outside the United States. Officials in at least 10 countries, including Britain, Japan, and Saudi Arabia, have expressed interest, Mr. Whittle said. But the company needs to focus on its U.S. operations for at least five years before expanding abroad, he said.

In the meantime, Mr. Whittle said, the company may pursue "whole-district partnerships" in which Edison would run all the schools in smaller districts. That would be a shift back toward the stormy beginnings of the education-management industry, when Education Alternatives Inc. was hired to run the entire Hartford, Conn., district. That contract ended amid a dispute over finances, and EAI became Tesseract Group Inc., which now operates charter schools and preschools.

Twenty years from now, Mr. Whittle predicts, 100 competitors will be vying in the K- 12 management arena.

It's probably safe to assume that Wal-Mart will be around then. Mr. Whittle is betting that Edison will be, too.

Vol. 19, Issue 13, Page 17

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