School Choice & Charters

How Much Does K12 Inc. Spend on Lobbying? Some Shareholders Are Asking

By Arianna Prothero — December 15, 2016 3 min read
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Some shareholders in K12 Inc., the largest for-profit operator of online schools in the country, are calling on the company to disclose how much it spends on lobbying and advertising.

Shareholders voted at their annual meeting in Washington, D.C., on Thursday whether to require more transparency from the company. K12 Inc. told the shareholders leading the effort that their proposal failed, but a breakdown of the votes for and against won’t be made available for a couple of days. [UPDATE: According to a form K12 Inc. filed with the Securities and Exchange Commission, nearly 30 percent of shareholders voted for the proposal.]

While virtual schools across the country have struggled with low student achievement and graduation rates, the value of K12 Inc.'s stocks have also been dropping.

K12 Inc. has spent at least $10.5 million to hire lobbyists in 21 states, according to over a decade’s worth of state lobbying disclosure forms examined by Education Week as part of a recent investigation into the lobbying efforts of for-profit virtual charter school operators.

That dollar amount is likely an underestimate—in several states, lobbying expenditures don’t have to be reported, or, if they do, the dollar amounts are reported in broad ranges. For a comparison point, Connections Education, which runs fewer schools than K12 Inc., told Education Week it spent $1.3 million on lobbying in 2016 alone.

A 2012 investigation by USA Today found that K12 Inc. spent about $21.5 million on advertising in just the first eight months of that year.

The K12 Inc. shareholder effort to require more transparency was spearheaded by Bertis Downs, the legal counsel for the rock group R.E.M. as well as a traditional public school parent and advocate in Athens, Ga.

Downs also sits on the board of the Network for Public Education, the group co-founded by education historian and traditional public schools advocate Diane Ravitch. Downs said he bought the stock in K12 Inc. a few years ago precisely to raise issues around how the company, which relies on taxpayer dollars, spends its money.

“To me, it seems like it would be good governance to clue people in on how they’re spending the money—especially since so much of this is public money,” he said.

Two proxy firms, Glass Lewis & Co. and ISS, which are third-party groups that advise corporate shareholders, recommended that K12 Inc. shareholders adopt the proposals put forward by Downs. The idea is far from novel, according to Natasha Lamb of Arjuna Capital, which represents Downs.

“This is a fairly common disclosure, which is why this is getting support from the proxy advisory firms,” she said. “This is an issue for taxpayers, students, and investors, all of whom have seen poor performance.”

K12 Inc.'s board of directors opposed the proposal. In the proxy statement put out ahead of the company’s annual shareholder meeting, the board said the requirements outlined in the proposal are not only unnecessary, they could hurt the company.

“We are committed to complying with our values, our internal policies and all applicable laws when engaging in any type of lobbying or political activity,” the statement reads.

“The expanded disclosure requested by this Proposal could place the Company at a competitive disadvantage by revealing strategies and priorities designed to protect the economic future of the Company, its stockholders and employees,” it continues.

K12 Inc. has faced difficulties in recent years. Revenues are down by $75 million from last year. Investors sued the company in 2014 claiming it had misled them before its stock prices fell in 2013, although a federal judge dismissed the suit last year.

The California attorney general launched an investigation into the company for alleged false advertising and unfair business practices. In July, K12 Inc. agreed to pay $8.5 million dollars in settlement claims. As part of the settlement, K12 Inc. did not admit to any wrongdoing.

Despite those setbacks, the company continues to open new schools in states that haven’t previously allowed for-profit online charter schools, such as Alabama, Maine, and North Carolina.

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A version of this news article first appeared in the Charters & Choice blog.