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Markets Opinion

Public Education’s Business Ethics Catching Up to Publicly-Held Firms

November 17, 2007 4 min read

After a slew of scandals last year involving kickbacks to administrators in several school districts, Texas adopted procedures designed to identify potential conflict of interests in the contracting process. After the Reading First scandal, the Department of Education began to preface its reports on k-12 programs with a statement of the authors’ actual and potential conflicts of interests.

On November 8, Colorado’s state board of education released ethics rules for its members.

The Colorado Board of Education today approved a new policy that
calls for the board to “carry out its mission in accordance with the
strictest ethical guidelines to ensure that its members conduct
themselves in a manner that fosters public confidence in the integrity of
the state board of education, its processes and accomplishments.”

The policy covers outside employment and compensation, gifts and
honoraria, use of state property, confidential information, conflicts of
interest, open meetings and other topics.

“What we have before us is an excellent synthesis of the way we need
to conduct ourselves. Even though it took awhile to get to this point, I
think we have an excellent product,” said board member Elaine

The policy was approved on a 6-0 vote; Board Chairwoman Pamela Jo
Suckla was absent due to illness.

Board vice-chair Bob Schaffer asked that a copy of the new policy be
sent to the Legislative Audit Committee, which recommended its
development about a year ago.

(See here.)

This is a good thing. But it’s worth thinking about why it’s taken public education so long, and why it’s so far behind the much-maligned private sector - and particularly publicly-traded firms.

I think there are two reasons.

First, there wasn’t all that much opportunity for abuse on the teaching and learning side of the system, and the amounts in play were petty. Until a few years ago, we were talking about highly visible textbook sales distributed among a handful of competitors keeping close tabs on each other. The potential personal advantage of buying one book or another was informal - a couple of trips to pleasant locations to discuss education issues, sometimes consulting gigs on focus groups reacting to new offerings, and maybe a chance to walk through the revolving door from buyer to seller. On the consulting side, it was putting friends and allies into place. My guess is that the payoff here was more about politics than money (a la D.C’.s Brenda Belton).

Second, for the last century we’ve expected superintendents and other administrators to use their professional judgment in the purchase of educational products and services. We didn’t really ask “what works?” of products and services because until recently, we didn’t begin to know how to tell. Personal experience was the best available guide.

No Child Left Behind accelerated changes to both of these conditions begun when the states passed their standards and accountability legislation

First, there’s a lot more money at stake today. We’ve gone way beyond textbooks. In principle, there’s market share in the total instructional materials dollar to be taken from, and defended by, the publishers. E-rate created huge local business opportunities in areas where public education leaders have no deep expertise. The temptation to move towards and step over the ethical line has proved too strong. Too many public education officials have abused their discretionary authority.

As for the second factor, increasingly, if crudely, “what works” is knowable, if not entirely known. The room for leadership discretion has narrowed; considerable and diverse expertise can and should be brought to bear. We’ve come to point where we can’t leave purchasing decisions to the sole discretion of any education official - it’s far beyond their individual capacity.

The ethics rules we see being put into place are symptomatic of the new era. But they are ad hoc, post hoc reactions. K-12 policymakers should be ahead of the challenge. It’s long past time for a complete overhaul of procurement in public education - from state-wide textbook adoption to the central office director’s authority to approve no-bid consulting contracts.

The vast bulk of k-12 budgets are essentially fixed. Most of the discretionary resources available to improve schools relate to the purchase of products, services and programs. If we can’t spend them strategically, as the result of decisions based on analysis rather than acquaintance, how do we expect to raise student performance?

The managers of publicly-held firms owe a fiduciary duty to their shareholders. We’ve now had enough TYCO-like trials to demonstrate that firms are not the private reserve of their CEOs. K-12 administrators owe a fiduciary duty to the taxpayers, and it’s time they started creating procurement systems that reflect that fact.

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