Edison flunks out in Sherman, TX
- Subject: Edison flunks out in Sherman, TX
- From: "Allen Flanigan." <Allen.Flanigan@USPTO.GOV>
- Date: Tue, 2 Jan 2001 11:27:41 -0500
- Reply-to: Assessment Reform Network Mailing List <ARN-L@LISTS.CUA.EDU>
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Here is an article which I may well have posted previously on ARN about
nonrenewal of an Edison Contract in Sherman, Texas.
Originally published by Dallas Observer January 27, 2000
©2001 New Times, Inc. All rights reserved.
New York-based Edison Schools flunked out with trying to privatize Sherman's
public schools. Why should things be any different in Dallas?
By Jonathan Fox
Washington Elementary is housed in an old beige brick building in a
neighborhood near downtown Sherman, a blue-collar town of about 35,000 near
Oklahoma border. It's in a part of the city where nearly every house needs a
paint job, roofs sag, and the occasional worn sofa rests on a porch. But one
cannot enter Washington without concluding it's a decent and caring place
for its students, who have become more and more diverse in recent years.
the school is 28 percent Hispanic and 24 percent black.
Like most other places of young learning, drawings hang on the walls and a
general sense of happiness abounds. So it's difficult to believe the school
is a prime
exhibit in the battle being fought locally and nationally over the future of
public education -- a conflict spilling down Interstate 75 and pouring into
Five years ago, Washington became the nation's first school to be managed by
the for-profit management firm Edison Schools Inc., which brought in its
curriculum and design. School officials hired Edison as a way to build
enthusiasm for a districtwide reform effort. Since 1996, Edison has also run
Sherman's Dillingham Intermediate school, which has experienced fewer
problems than Washington Elementary -- though test-score data for the
Edison section has never been compiled.
Now Edison is being chased out by school officials and townsfolk who say the
company has botched the job of educating Washington's little ones, even as
some of the school's parents and teachers insist Edison is doing a good job
and demand the company stay.
On a recent morning, Chuck Holliday, the school's new principal, takes a
visitor to a reading class where children are reading stories from picture
together. On a wall hangs a sign featuring the "Edison Excellence Pledge,"
the company's in-house recitation. "We are friendly and kind to others,
honest and fair," it reads. "We make every day count by working and
continuing to learn." The children, Holliday says, recite this covenant
during an assembly
each morning after the Pledge of Allegiance.
Upstairs, Lila Honts teaches fourth-graders how to play xylophones. A
veteran educator of 32 years, Honts came to Edison for its emphasis on arts
She used to shuttle between schools in Sherman to teach weekly arts classes
to students, but Edison allows her to stay in one school and teach students
three days a week.
"The time I've been teaching over the years, arts had been devalued," she
says. "I'm a staunch supporter of Edison."
A few doors down, Ginger Box, a third-grade world languages instructor,
teaches children Mexican folk songs. The children are also learning names of
items and articles of clothing in Spanish. "They learn it quickly," Box
says. "They are energetic, and they like learning Spanish."
In the computer lab, computers Edison loans to parents of Washington's
students fill a wall. They are older-model Apples with slow modems that are
shabbier than those at other Sherman schools -- a disparity district
officials have been quick to point out. John Traux, the school's computer
guru, explains that
Washington is on the company's "Cycle One" schedule. Had Edison's contract
at Washington been renewed, it would have received new iMacs.
Last year, Chuck Holliday moved from Hickman, Kentucky, where he also served
as a principal, to Sherman after being impressed by the company. "A lot of
the parents of students here do want the school to stay with Edison," he
insists. One of them is Cathy Wrenshaw, whose son attended Washington and
daughter is in kindergarten there. She's upset Edison is leaving and thinks
the company got a bad rap. "[District officials] used everything under the
sun to say
this isn't working, but it [is]," she says. "People just don't want to admit
that somebody came in and changed things around."
But district officials enumerate a plethora of reasons why Edison must get
out of Dodge by the end of the school year. They insist there has been
little growth in
test scores in Edison's schools, even though districtwide scores have
soared. There have also been charges that Edison mismanaged the school by
such tasks as ensuring that math materials arrived by the first day of
school. District officials also estimate that contracting with Edison cost
the district $1 million
in added expenses a year; it's one of myriad disputes over financing. On top
of that, the company sparked a local furor when Edison officials arrived
DFW Airport in chauffeured Lincoln Town Cars.
"There's an enormous gap between what the company says it will do and what
they really do," says Philip Garrett, Sherman Independent School District's
assistant superintendent for administration and instruction.
Edison took the hint. As it heralded its new Dallas deal and contract
renewals in four other cities, the company recently announced it wouldn't
renew its Sherman "partnership." Sherman officials agreed last week to let
the contract expire in June.
The company didn't even wait a few months to defend its tenure at a school
board meeting on whether to renew the contract, citing a lack of cooperation
Sherman officials. "A good marriage is like a good partnership," says Manny
Rivera, Edison's co-head of development. "Partners can work things out no
how far apart they seem. Without that, it doesn't make sense to go forward."
Good riddance, say district honchos. Dealing with Edison officials, Garrett
says, was "probably the most unpleasant and difficult thing I've had to deal
with as a
As Edison retreats from Sherman, it prepares to take command of six
elementary schools in Dallas, the new jewel in its nationwide empire of
schools, following a hotly debated mid-November vote by school trustees to
hire the firm. Local opinion-makers insist that Edison's failure in Sherman
irrelevant, beside the point. Dallas school trustee Roxan Staff argues that
Dallas schools' size and higher spending per student make comparisons a moot
"Sherman's problem is Sherman's problem," she told The Dallas Morning News.
Not for long.
Dallas is putting some of its children in the hands of a company that has
its headquarters on New York City's Fifth Avenue and that is listed on the
stock exchange. This fall, Edison Schools, which counts 38,000 students in
79 mostly urban schools nationwide in its growing network, will take
-- and $50 million a year of the Dallas Independent School District's money
-- for educating at least 6,500 Dallas elementary schoolchildren in six or
yet-to-be-named schools. Assuming "satisfactory performance," Edison will
reap 3,500 more of Dallas' students in at least four schools by the 2001
year, and 2,250 more students each year thereafter for three years.
The deal sends a strong message on social class in public education, says
"The willingness to contract with Edison is a public admission of the
failure to invest equitably in [low-income] schools," says Linda McNeil, a
education professor who helped quash an Edison bid in Houston. Others worry
that in five years, Dallas will realize it was snookered into accepting
dubious educational fad.
"In their best cases, they [Edison] do about the same as public schools, and
in their worst cases, much worse," says Roy Kemble, president of Classroom
Teachers of Dallas, which is affiliated with the National Education
But DISD's leader tells us not to fear.
"Whoa, it's privatization," says new superintendent and chief Edison patron
Waldemar Rojas, mocking critics who worry about the implications of
schooling. He believes DISD will benefit by learning from Edison's
research-based design and touts Edison's commitment to put $30 million into
"Edison is a way of extending service that we haven't been able to extend
under the desegregation [decree affecting DISD]," he claims.
Meanwhile, free-market hawks tout Edison as a way to cut government bloat
and deliver better education. But one Dallas official is heeding Sherman's
of the expensive hidden costs of an added layer of management. Hollis
Brashear, a Dallas school trustee who opposed the contract, wants to preempt
possible shakedown by reducing Edison's $5,715 per-pupil stipend in Dallas
(which adds up to about $50 million a year). DISD, he points out, must still
for transportation, food services, security, and other costs at future
"Edison claims they can do it for the same money, but they're not getting
the same money," he says. "They're getting more."
Rojas isn't particularly worried. "I know it's going to cost more money," he
admits during an interview with the Dallas Observer. "I see a district that
from that research and development focus."
Indeed, optimism reigns as Dallas prepares to privatize. The decision by the
Dallas school district's board of trustees to hire Edison is Rojas' first
achievement at DISD's helm, but shenanigans in sealing the deal left him
under a cloud. After trustees nixed his first attempt to deliver 11 schools
to Edison by a
vote of 5-3, he succeeded on November 18 in winning a smaller plan to
Edisonize six schools. But victory came only after a bizarre interlude
Rojas outdid the homegrown enfants terribles of Dallas politics.
After trustees shot down the first Edison plan, Rojas fought back by
leveling apparently baseless allegations against Brashear and Lois Parrott,
who voted against the plan ("Da thug," November 18). He alleged they had
committed criminal and ethical violations in their votes, accusing Brashear
micromanaging his efforts to improve the district and Parrott of attempting
to sell her vote in exchange for a friend's promotion. He vowed to press for
investigations of both, but pressed only his allegation against Parrott with
the U.S. Attorney's Office.
They were very serious and damaging charges, and they didn't hold up. Once
the smoke cleared and no cause for investigation was found, it turned out
Brashear merely sought to get the board to examine the company's lackluster
record in nearby Sherman -- hardly a crime by any stretch. Rojas' second
accusation was perhaps his bigger embarrassment. Parrott had earlier asked
Rojas to promote a friend to a public relations post, but there's no
ever tried to broker a quid pro quo for her vote.
Then there was the now infamous press conference at the beginning of
November, when an incensed Rojas belittled Brashear and Parrott by holding
tin cups with the trustees' names on them. He said since they scuttled his
Edison plan in a 5-3 vote, they should panhandle to make up for Edison's
$30 million in up-front investment. Rojas later apologized to Brashear and
Parrott. His mea culpa allowed Edison supporters to regroup and find two
votes. Three weeks later, a divided board voted 5-4 to pass the slightly
smaller outsourcing plan. Trustee Ron Price, who abstained from voting the
voted for Edison, while Kathleen Leos, citing the deal's smaller size and an
agreement to conduct quarterly reports on Edison's progress, changed her
In winning passage of his initiative, Rojas made history for privatizing six
schools, a first for both Edison and an American school district. Kansas
Missouri, held the previous record of five Edison schools.
Why is Rojas sold on Edison? For starters, he likes Edison's extended school
day and year, which he says fit nine years of regular school time into seven
(research is inconclusive on whether logistical tinkering improves
achievement). Children in Dallas schools, where budget cuts have hurt arts
programs, he says, will get cultural enrichment every day with Edison.
Moreover, he predicts children will benefit from Edison's strong technology
unique curricular design, including its research-based math and reading
"The concepts they have are major areas of weakness that you find in urban
areas," he insists.
Edison relies on the popular Success For All reading program, which
emphasizes phonics and comprehension. It also uses the well-regarded (at
least by the
U.S. Department of Education) Chicago Math program, which eschews math
drills for problem-solving skills. Still, DISD doesn't need Edison to bring
"It's basically off-the-shelf stuff that any school could do," says Henry
Levin, an economist who directs the National Center for the Study of
Education at Columbia University's Teachers College in New York City. "I
don't see a revolution here."
Another motive for Rojas: The contract allows him to lock in reforms for
five years, a rare feat for transient school chiefs. "In a normal public
school, you may
only have a reform effort for two years," says F. Howard Nelson, an American
Federation of Teachers researcher.
Meanwhile, the AFT-aligned Alliance of Dallas Educators has "put its faith"
in Rojas to manage the Edison contract, but vows to keep a close eye on the
company, said longtime president Harley Hiscox. A recent letter from the
group's second-in-command extolled Edison's unusual focus on music, art,
and physical education, as well as the reading and math programs. In a
November 18 letter to The Dallas Morning News, ADE vice president Aimee
Bolender said Edison should serve as a "pilot" to kick off community
conversation on education reform. "This dialogue is much needed, but we must
the talking stage and into the action stage if we hope to affect the lives
of kids," she wrote.
DISD, Hiscox adds, should learn enlughfrom the company to eventually create
its own "Edisons." But this well-meaning argument raises a crucial point: Is
necessary to privatize schools to "send a message" to the community?
Talk of fabulous programs aside, it's implementation that counts -- a point
glossed over in Dallas' often mean-spirited debate over Edison's merits.
principals and teachers are needed to staff Edison schools, and teachers
need sufficient training, especially in skill-intensive programs such as
Success For All.
According to the AFT report, Edison has botched the job of staffing Success
For All in many schools. In fact, AFT says, a well-staffed Success For All
performs better than the average Edison School. (Edison officials call AFT's
finding "outrageous" and deem the data flawed.)
In addition, the company is renowned for hiring young teachers and teachers
without professional degrees as a cost-cutting strategy. High turnover
Edison's disconnect between design and implementation: In 1998, about 23
percent of teachers at Edison schools departed, according to company
rate twice as high as the national average.
"What is it about the Edison management that makes teachers unable to do
their jobs?" wonders Jennifer Morales, a researcher with the Milwaukee-based
Center for the Analysis of Commercialism in Education.
Edison is no stranger to bad press, although its for-profit status makes it
an easy mark. In Miami, a media frenzy ensued last year when one teacher was
accused of repeatedly beating students with a stick. In Boston, researchers
charged that two Edison charter schools "counseled out" large numbers of
special-education students, who are generally more expensive to educate.
Edison's Minneapolis school reportedly lost 75 percent of its original
fall, while some administrators in Duluth, Minnesota, claimed Edison's three
local charter schools have drained funds from other schools (Duluth recently
renewed its contracts with the company).
In San Francisco, Rojas' roost for seven years before arriving in Dallas,
the outsourcing of one school was enough to galvanize voters in 1998 to
several incumbents in electing an anti-Edison school board. The people's
mandate: rein in Rojas, seen as an autocrat in his decision-making. By June
year, the new board, which also questioned Rojas' handling of the district's
finances, forced him to resign his post. The shake-up embodied fears that
one school was the first step in dismantling public education, a process
activists fear will heighten inequality in society.
The Edison decision could cause a similar backlash in Dallas. Denigration of
critics, obfuscation of issues, and the well-honed Edison tactic of quickly
the deal through the process were the tools used to subvert public debate.
Will Dallas voters, less prone to leftist social critique than liberal San
dwellers, rise up to expel pro-Edison trustees?
Sherman ISD's Philip Garrett does allow one word of praise for Edison. In
his opinion, the company's arrival speeded the district's reform effort by
signal to the whole community that things were going to be different." He
recited a list of recent improvements to the town's schools, including new
standards, high-speed Internet access, e-mail accounts for every student and
employee down to bus drivers and custodians, and renovations at all
"I do not believe we would have that had Edison not come into our schools,"
he says. "We'd still be writing on chalkboards and showing old filmstrips."
A lifelong Texan and public-school educator, Garrett judges Edison through a
personal lens. He says he didn't particularly like the company's executives,
he believed were more focused on business affairs than on learning. He
considers them "corporate types," not educators -- "and that would be fine
but not for schools," he says. "If they were a supplier of tires for the
school district, we would have long since found another supplier."
It's difficult to reconcile the opposite perceptions held by those in
Sherman who love Edison and those who think the company has fouled things
up. After all,
how can those fighting on the same side see things so differently? Perhaps
Lorie Shanklin, Sherman's director of elementary education, has that answer.
claims many teachers who chafed under Edison simply don't talk about their
"It's a very closed organization," she says. "If you work for Edison,
teachers tell us, you just don't say anything."
But some teachers have spoken out. Kim Miller, a former first-grade teacher
at Edison who left after the company's first year, complained to Sherman's
Herald-Democrat that Edison didn't train her after she arrived two weeks
into the 1995 school year. She signed her contract at 7 a.m. and began
7:30 a.m., later receiving informal help from other teachers (Edison's
supporters say such problems were ironed out in later years). Miller said
Edison's special programs, but thought the company was "more interested in
the business side of the school than in the education side." She declined an
interview when contacted by the Observer.
A few blocks from Washington sits the Sherman school district's
administration building, a converted high school. Manning the fort here are
Garrett and David
McConkey, Sherman's assistant superintendent for business, finance, and
operations. (District superintendent Bob Denton recently retired and has not
Talk to Garrett, a tall and affable man, about the same school praised by
teachers and parents, and he tells a completely different story, unloading
five years of
criticism against Edison built up during his close dealings with the firm.
"We have six elementary schools," Garrett says. "All five of the other
schools have made more dramatic improvements in performance than
says Texas Assessment of Academic Skills (TAAS) scores for Washington
students classified as economically disadvantaged at Washington have shown
improvement in five years. The school -- which once, under Edison, barely
escaped state classification as "low performing" -- ranks near the bottom of
state-compiled index of 40 schools with comparable economic and ethnic
Their beefs aren't limited to test scores. Garrett says Edison seemed unable
to manage day-to-day school operations, neglecting to properly staff and
teachers, cutting corners in academic and business affairs, and giving local
administrators grief or delay whenever they called them on it. The problems
commenced from day one, he says. In the chaotic first few weeks of Edison's
occupation, he says, the company botched class schedules and sought to
sidestep the Texas law that caps class size to 22 students per teacher.
"They says, 'No, no, we can get around that,'" Garrett recalls. "They really
couldn't believe it was a law. I had to show it to them."
He insists the company's blunders hindered learning at Washington
Elementary. He cites the fact that at the beginning of this school year, the
neglected to deliver crucial math materials until October. In addition, he
says, Edison wasn't aggressive in recruiting bilingual teachers, despite the
population of students with limited English skills, and its
special-education services were poor. Edison also offered no gifted and
David McConkey, a quiet man who takes pains to praise Washington
Elementary's teachers, also expresses disenchantment with the company. He
routinely balked when he billed it for its share of transportation,
cleaning, and other costs (in some cases, the firm failed to find cheaper
contractors than the
district). "They tried to play hardball with every single one of them," he
McConkey recalls that when the company cut corners on maintenance, he
directed staff to work at Edison despite the company's contractual
"This building belongs to SISD taxpayers," he says. "We can't afford for it
to go downhill."
Edison, insisting its record in Sherman is one of success, declines to
comment on the two leaders' specific charges. "I'm not going to get into a
tit for tat with the
administrators," says Edison's Rivera, who claims Garrett and McConkey are
exaggerating some incidents -- without offering specifics to refute their
Garrett estimates that the town lost $4.2 million -- or about $1 million a
year -- under the contract because of "hidden costs" associated with Edison,
because of management duplication and other indirect expenses. The increased
costs traced to Edison, Garrett says, have forced him to cut other schools'
instructional-supply budgets by 10 percent. He estimates the district spends
$1,300 more on each student at Washington Elementary and $1,000 more per
student at Dillingham Intermediate's Edison section.
"Is that fair?" Garrett asks. "It has been extremely divisive for our
The fleecing, he explains, occurred since the school district surrendered
the Edison schools' share of administrative funding -- but didn't cut
central office staff
accordingly. That means SISD essentially paid to retain duplicate managers
for each Edison school. Dallas taxpayers, he warns, will also take a serious
"I have looked at the Dallas contract," Garrett says, "and our financial
arrangements are a lot more advantageous."
In contrast, Edison defends its record and points to modestly higher scores
on the TAAS at Washington.
"We saw gains in reading and math," Rivera says. "The children are happy,
they are doing well, and there is a tremendously high level of parent
Rivera says Edison reimbursed the district for administration costs. And he
insists Edison was forced to eat other expenses: Computers and other
depreciated substantially, and the town spends so little on its students (it
is, after all, a small town) that Edison had to pump a great amount of cash
system just to keep it operational.
If you listen to Rivera, Edison was the true loser in Sherman -- to the tune
of $6 million.
A possible silver lining for Edison's local critics and an outcome not
discussed by Dallas' school leaders is that a debt-swollen Edison may go
bust in the
not-too-distant future, leaving DISD in the lurch. On Wall Street,
rank-and-file investors don't share the enthusiasm of Rojas and white-shoe
firms for Edison
Schools Inc. The company, saddled with $110 million in debt and a falling
share price, is seen as a turkey by many analysts and armchair stock
"Dead money" and "the biggest joke ever" are two recent assessments of
Edison stock by traders on a Yahoo! Finance message board. Even Rojas admits
company will suffer financially until it achieves an economy of scale, which
is estimated at anywhere from 200 to 300 schools.
"I'm sticking with Janus Technology Funds," he jokes when asked whether he
would invest in Edison.
In a recent U.S. News and World Report article, one analyst says, "If
Edison's pace in signing new contracts slows, the whole thing will be dead
in the water."
Edison claims it has made headway toward profits by reducing its
debt-per-student ratio from $3,927 in 1996 to $603 last year, and says it
could earn profits
now if it stopped expanding.
Nevertheless, the failure of hype to match reality is a familiar theme for
Edison and its founder. Media entrepreneur Chris Whittle, creator of the
Channel One in-school news service, founded the company in 1991. He
initially sought to build 1,000 for-profit private schools to target the
announcing plans to open 200 schools within five years at an estimated cost
of $2.5 billion. But the numbers didn't add up, so he redirected Edison
the Edison Project) toward managing public schools, scaling back his
ambitions to open a mere four schools in 1995.
A former part-owner of Esquire magazine, Whittle is best known for his
high-profile, glitzy attempts to launch new businesses with novel concepts,
publishing books with ads in them and beaming medical news into doctors'
offices. He's renowned for securing large sums of money from venture
his schemes, but less so for returning profits on (or, for that matter,
returning) their investments.
Whittle first appeared on schools' radar when his namesake company unveiled
Channel One, a business that provides schools with free satellite TV
in exchange for a direct link to students' tender minds. That is, schools
keep the free goodies so long as students are parked in front of the TVs
each morning to
watch a 12-minute news program featuring two minutes of commercials.
In 1994, shaky finances forced Whittle to sell his company and Channel One,
which is now owned by Primedia Inc. Both Time Inc. and Philips Electronics
which together put $360 million into the venture -- reportedly wrote off
their entire investments (although Philips cashed in by selling TVs to
Edison). Seen by
more than 8 million demographically desirable students in nearly 12,000
schools, Channel One continues to generate ire from educators, media
religious groups who don't like captive students watching ads for candy bars
and risqué teenybopper TV shows.
To win credibility for his Edison venture, Whittle recruited former Yale
University president Benno C. Schmidt to lead an all-star group of
and business executives in formulating Edison's curriculum and design.
As with Channel One, investors lined up to pour money into the venture
despite Whittle's past flameouts. Indeed, Whittle's raw promotional talent
the most potent reason for Edison's appeal to financiers. According to a
recent Education Week article, he believes public education is an industry
soon be "branded" like Coke or Pepsi and envisions schools as an area where
Edison and other providers will develop the name-recognition cachet of
companies such as the Gap and Wal-Mart.
"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," he said.
Actually, the K-12 management market still is a big risk.
"There's no history of an enterprise that's made money on [for-profit
management]," says Henry Levin, the Teachers College economist. Like
Gremlins under a
sprinkler hose, however, Edison and its imitators continue to multiply.
Edison is simply the largest and most visible of about 15 Education
Organizations (EMOs), a term coined by investors eager to carve up education
the same way they chopped up health care in the 1990s. Other for-profits
include Advantage Schools (which has four charter schools in Texas,
including Dallas' Advantage Charter School) and Beacon Educational
Wall Street's titans have accepted as gospel the notion that public
education is a complete failure and cannot be told otherwise. Leading the
charge to break up
the public school "monopoly" is the global financial services firm Merrill
Lynch. "Bringing market forces to schools such as competition, choice and
are at the center of the inevitable change in how education is delivered in
America," declares The Book of Knowledge, an influential report the firm
Merrill Lynch predicts EMOs will account for 10 percent of the $360 million
K-12 school market in 10 years, a market share of $30 million. But where
Wall Street -- and Edison -- extract its needed profits? About 7 percent is
needed to pacify investors, and while discounted computers, lower food
online learning technology are all seen as profit centers, action to cut
large, wasteful school bureaucracies is seen as the surest way to get
"Approximately 50 percent of school budgets are spent on regular classroom
instruction," says the report, which lists no source for the factoid. "No
business in the world could exist where 50 percent of every dollar is spent
outside where the service is being rendered."
Edison officials are more generous to public schools than their benefactor
Merrill Lynch. In a 1998 interview with Across the Board, a business
executive John Chubb estimated that 66 percent of school funding was spent
in actual schools. "We spend roughly 80 percent of every dollar at the
instead of 66 cents," says Chubb, whose 1990 book Politics, Markets and
America's Schools energized privatization advocates.
But what if school districts are not as bureaucratic as their critics
insist? Some Edison critics say that's simply the truth.
"The public is misguided about the nature of public school administration,"
says CSCE's Morales. "School districts are not sitting back on layers and
fat." (DISD's bulging bureaucracy may be an exception: In August, Bill Rojas
added six DISD administrators at record salaries of up to $175,000.)
Richard Rothstein, an education analyst with the Washington-based Economic
Policy Institute, argues that Chubb's figures are wrong because they count
employee-benefit costs as an off-site expense, when they are really a
school-site expense. Move the benefit costs over a column, Rothstein says,
and the share
of spending at the school site jumps from 66 percent to 90 percent.
He doubts Edison will ever achieve profits because of education's
labor-intensive nature, and thinks the company's young teaching staffs will
contribute to part
of its undoing. "When those teachers age," Rothstein asks, "are they going
to be content with low salaries?"
Edison has also drawn heckles for taking donations from right-wing
nonprofits. The company refused to manage schools in California because of
the state's low
per-pupil spending until the family foundation of Don Fisher, founder of the
Gap clothing chain, pledged $25 million -- or $1.3 million for each school
make California worth Edison's time.
Meanwhile, Edison's stock tumbles. For its Initial Public Offering on
November 8, Edison hoped to net as much as $172.5 million by valuing its
stock at $21 to
$23 a share. The market had other plans. Edison settled with a disappointing
$122 million and an $18 share price, which has since fallen in value more
percent to around $14 (most IPOs go up in this bull market, not down).
Before the IPO, the business press sounded an alert. "Take in $215 million
and lose $326 million -- and there's not even a dot-com in the name to blame
on," quipped financial journalist Christopher Byron in an article on
TheStreet.com Web site last August. "The deal's a dog, and the only
investors who stand to
come out ahead in it will be wily Whittle and his boola-boola buddy, Benno
Likewise, a September article by BusinessWeek's Diane Brady cited as
liabilities the lavish salaries of Whittle and Schmidt and millions in
sweetheart loans and
stock-option deals extended by the company to its two leaders. Both Whittle
and Schmidt make $296,636 a year -- far more than any public-school educator
-- while Schmidt's contract allows him to pocket two years of salary and a
bonus $2.5 million if he gets canned. Schmidt also took a $1.8 million
loan from Edison, while Whittle will receive a $5.6 million loan to buy
Thus, Brady says, it's likely both Schmidt and Whittle will walk off with
millions, even if investors are left holding the bag. "The deal deserves to
Despite the ominous signs, Wall Street continues to embrace Edison. A
prestigious line of investment firms, including Merrill Lynch, J.P. Morgan
Inc., and CS First Boston Corp., underwrote the offering and issued "buy"
recommendations, bringing conflicts of interest to new levels. The firms
gains when Edison unveils new contracts this spring.
"This is a company that the market sees in an early stage," says Gregory
Cappelli, director of equity research for CS First Boston. "They're blazing
The unwashed stock-trading rabble doesn't buy it. On the Internet, traders
vent anger and fume over what they charge are misleading claims by the
and big investment firms. "There were lots of accusations and arm twisting
before EDSN got approved [in Dallas]," says one anonymous poster. "Unlike
the company's press release says...it was by no means a wide acceptance of
Edison schools. Some poor old [DISD trustees] were busy fighting on the
against this school."
Would-be investors may also be perturbed by the company's own prospectus,
which listed potential liabilities of its stock in accordance with
Exchange Commission disclosure mandates. Under the heading "WE HAVE A
HISTORY OF LOSSES AND EXPECT LOSSES IN THE FUTURE," the
prospectus read, "We have not yet demonstrated that public schools can be
profitably managed by private companies and we are not certain when we will
become profitable, if at all."
Whatever its financial shape, Edison will likely stay afloat longer than
balance sheets might indicate through aid from foundations and support from
investment firms. But at some point, the big firms will cut their losses,
and Dallas' students may find themselves back in the same old public
schools. "I think
institutions sucked up this stock," warns one Internet poster. "Once they
dump, look out below."
It's an admonition Dallas should consider. Putting too much stock in Edison
may prove a bad investment for DISD.
> -----Original Message-----
> From: ab6926@WAYNE.EDU [SMTP:ab6926@WAYNE.EDU]
> Sent: Saturday, December 23, 2000 12:23 AM
> To: ARN-L@listsrva.cua.edu
> Subject: Re: Edison again
> At 11:48 AM 12/22/00 -0800, you wrote:
> >I am sure the parents would understand the idea of a for profit school
> >a very BAD idea for their kids. I don't think it would take much
> >to get them to act. Can you find some allies among parents and community
> >groups if the union won't help? They must be stopped!
> I'm not having any success getting info to parents. This year I teach
> children whose parents don't speak English. They are very supportive of
> their children's education but not willing to rock any boats.
> The local newspapers have just ended a 5 and a half year strike (though I,
> for one, don't intend to resubscribe any time soon). They are very much in
> support of the Board of Education which was appointed by the mayor and the
> governor after the State eliminated the locally elected Board. They do not
> publish anything that might serve to provoke or encourage sentiment
> the appointed Board or its new CEO.
> There is a small group of people working on court appeals to allow the
> citizens of Detroit to vote for their Board of Education. But such appeals
> take energy and money from those few and appears to leave them with little
> to nothing left to work on other aspects of the same problem. Their
> are not known to the majority of our citizens.
> I haven't given up. Just looking for more ideas and allies.
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