Corporations Considering Creation of For-Profit Schools

By Cindy Currence — April 11, 1984 8 min read

Citing a climate of “educational renaissance,” leaders of some of the nation’s best known corporations are weighing the idea of moving into the field of elementary and secondary education as providers, not just supporters.

The educational arms of the International Telegraph and Telephone Corporation (itt), the Bell and Howell Company, and the Encyclopaedia Britannica Educational Corporation are among those whose officials report they see in the current period of national concern over the

quality of schools a possible “investment opportunity” and are seriously exploring it.

“People are saying, ‘I want my kid to have something better,’ and are are willing to put hard money down,” said Robert Huff, president of the Chicago-based Bell and Howell Company.

Businesses, particularly the high-technology firms that have provided for-profit educational services at the postsecondary level for years, are taking notice of an increase in the “market demand” for alternatives to public elementary and secondary education, several corporate executives said, and are considering an “expansion” of their servicesto the lower grades.

Although Bell and Howell has no concrete plans for setting up a chain of elementary and secondary schools similar to its DeVry program at the postsecondary level, “certainly we’re looking at it as an opportunity,” Mr. Huff said.

There are about 30,000 students enrolled in DeVry schools in the United States. The schools offer undergraduate degrees in computer science and electronics. It is the second largest proprietary education program in the country, Mr. Huff said.

At itt Educational Services Inc.--the subsidiary of the International Telephone and Telegraph Corporation that operates the company’s 25 postsecondary proprietary schools offering courses in everything from computers to secretarial training--development officers “definitely” are looking at expansion of their educational services “beyond” postsecondary education to secondary schools, said Lawrence G. LaBeau, director of corporate relations and advertising.

“I see it as part of the educational renaissance,” he said, adding that providing educational services for secondary schools is only one, among many, options for long-range expansion of the company’s services.

The Encyclopaedia Britannica Educational Corporation is another firm considering proprietary schools as an investment opportunity.

According to one official at the company, the firm is working on a “feasibility study” to determine whether or not operating elementary and secondary schools would be a good investment for the firm.

Phenomenon Not New

Proprietary, for-profit education is not a new phenomenon, according to Charles Lavaroni, president of the National Independent Private Schools Association, a new membership organization founded by Mr. Lavaroni last year to serve proprietary-school administrators.

Mr. Lavaroni, who also is the owner of a small for-profit elementary school in San Francisco called the Kittredge School, estimates that approximately 1 percent of all elementary and secondary schools in the United States are proprietary, for-profit institutions.

Although there are “a lot more of us out there than most people think,” Mr. Lavaroni said, proprietary elementary and secondary schools do not receive a lot of attention because of the “autonomy” of proprietary schools.

“Owners are not joiners, they are doers,” Mr. Lavaroni said. Prior to nipsa, there had never been an organization of proprietary educators, he said. “We love and respect the autonomy and the freedom and the individuality of this.”

And according to Mr. Lavaroni, most proprietary schools are in business, not to make “a lot of money,” but because the owners enjoy the freedom of private ownership.

Proprietary schools are much more independent than nonprofit, private schools, Mr. Lavaroni said, because for-profit status does not require the establishment of the board of directors that is required by federal law for nonprofit schools.

“The headmaster of a nonprofit school is really at the mercy of the board, an employee of the board,” he explained. “It’s really fun to finally be your own person.”

Prior to purchasing the Kittredge School, Mr. Lavaroni was a superintendent of schools in the California public-school system.

Service Versus Profit

Although most people in proprietary education are in the business because they like being their own boss, “I would be lying to you if I said I was just in it to provide a service. There are a lot of us out there who are real excited about making a small business function,” Mr. Lavaroni acknowledged.

“The profit motive is important,” he said, “but the notion of proprietorship is what drives most of us. If you’re really motivated for profit, you’d go into some other business.”

But large companies, such as Bell and Howell, consider their education programs to be a good financial investment.

“We’re in business to make a profit,” Mr. Huff said, adding that the DeVry schools were created in response to a market demand for an alternative that was not being provided by other colleges.

“Young people were saying ‘I want an educational system that will get me a job,”’ Mr. Huff said, “and the demand for the kind of students we turn out has exploded.” Since 1978, enrollment in DeVry schools has increased 500 percent, he said.

The types of educational programs offered at DeVry schools change every year, Mr. Huff explained. “Our curriculum is based on what employers tell us they want. It is market driven, not designed with esoteric theory.”

Consumer Demand

“The issue is why there is proprietary education at all,” Mr. Huff said, and his answer to the question is that consumers want it.

“And I think the same thing is true for for-profit elementary and high schools,” he said.

Because people have become more aware of education and its shortcomings since the National Commission on Excellence in Education published its report last year, “There’s no question you’re going to see proprietary education emerging [at the elementary and secondary levels] to meet the demand for better schools,” Mr. Huff said.

Another business in the Chicago area that is developing a number of for-profit elementary and secondary schools is the Keller and Taylor Corporation which owns the Keller Graduate School of Management.

“We feel that there is a considerable need and interest in high-quality schools,” said Dennis Keller, chairman and chief executive officer of the corporation. “We’ve done a professional market survey in the Chicago area which indicates that there is substantial interest among parents.”

Aside from the professional surveying the company has done, Mr. Keller said his “guts as a marketer” tell him the time is right for business to get into education at the elementary and secondary levels.

“Business is designed to find and fill needs,” said Mr. Keller who is also the chairman of the Keller Graduate School of Management, which he says is the only for-profit school in the United States offering a master’s degree in business administration. “The reason businesses exist is to profitably employ capital and labor by finding and filling needs, and I think the growing national realization that we need to do a better job in education has stimulated the thinking of people in business. They are saying, ‘How can we fill those needs in a way that is good for consumers, but if done right, is good for [us] too?

“That is the way the system is supposed to work,” he said. “If there is a clear market need in evidence, people in business are supposed to be alert to it.”

The Profit Incentive

According to some economists, business participation in education may be exactly what the education system in America needs.

“This is really one of the most exciting areas of public finance,” said Steve H. Hanke, a professor of applied economics at The Johns Hopkins University and a senior adviser to the Joint Economic Committee of the Congress.

“I think it would be extremely positive to have healthy competition among privately supplied systems and publicly supplied systems and let the best system win,” he said.

According to Mr. Hanke, if the free market ruled education, for-profit schools would come out on top.

“We’ve done a lot of sophisticated economic work in this area to compare private supply and public supply and we come up with what is called the bureaucratic rule of two--if you want to calculate the public cost of doing anything, you just multiply the private cost by two and you’ve got it,” Mr. Hanke said.

“The facts of life are that if you had fair competition between a private system and a public system, the private one would be able to provide better service, or the same service, at half the cost,” he added.

For that reason, if every parent were given an education voucher and told they could spend it at a school of their choice, parents would opt for a for-profit school, he said.

“If you just let the freely operating voucher system run, the private schools would out-compete the public schools and drive them out of business,” said Mr. Hanke, explaining that the profit incentive and competition of the private-enterprise system forces businesses to keep costs down to minimum levels.

Schools operating as for-profit businesses, Mr. Hanke said, would be more efficient. “What you would find is the educators spending much more of their time educating and less on bureaucratic politics and unproductive activity. And they would have the incentive to do that because the pay structure would be such that they would be rewarded on the basis of their productivity.”

Mixed Feelings

Leaders of the two major membership organizations for private and independent schools say they are somewhat ambivalent about for-profit education.

“In general, we feel that education is an enterprise that as much as possible should not be associated with the profit motive, that commerce and education don’t mix,” said Robert L. Smith, executive director of the Council for American Private Education. “But having said that, I know of several very good for-profit schools and if this is going to mean an infusion of new ideas and money, we should all say blessings on it.”

John C. Esty Jr., president of the National Association of Independent Schools, added that the “fundamental belief” of independent-school proponents is in parental choice.

“We think that parents know what is best for their kid. If there is a proprietary for-profit school, and parents think it would be the best kind of education, then we would be in favor of that.

“The ambivalence comes more as a practical matter,” he said. “Those of us who have run not-for-profit schools don’t see how it is possible to make money from a school. And if it does turn out to be profitable, then we would wonder if the kids are getting the short shrift.”

A version of this article appeared in the April 11, 1984 edition of Education Week as Corporations Considering Creation of For-Profit Schools