Educational Management Organizations—or EMOs, an acronym coined by the investment community—are for-profit, private companies that manage schools. These companies operate in the preschool through post-secondary market and provide a school's curriculum and management.
Although many teachers and administrators do not see EMOs as threats to public education, the growth of the industry indicates that the time has come to recognize the emergence of for-profit companies. One expert recently told educators to move from denial to acceptance; recognize three driving market forces—cost, quality, and consumer confidence; learn how to deal with privatization; loosen rules and break from the herd; and forget about processes because the public wants results (DiMarco, 1997).
To become informed EMO consumers, educators must understand how the financial community views public K–12 education and its potential as a profitable investment marketplace, recognize the major EMOs and their market "niches," and be able to evaluate the importance of outside program evaluation and financial accountability.
The Investment Community's Outlook
The move toward for-profit privatization of public education has generated interest among major investment houses. Investors report that public schools are a $300 billion a year industry. Michael T. Moe, a leading financial analyst at Montgomery Securities, called K–12 education the "big enchilada because this is where the most money is spent, where the worst performance is, and where the inefficiencies are greatest" (McLaughlin 1997b, p. 2).
The investment community believes that the K–12 market is ripe for picking. They think the technological and political problems confronting education today are similar to those faced by the health care industry 20 years ago. Venture capitalists have a mind-boggling opportunity to improve the traditional educational model with improved management, technology, and delivery of instruction (Moe & Gay, 1997).
At a recent investors' meeting of Fulcrum Information Services, Inc., promotional materials told registrants who paid a $1,095 fee that Experts liken the education marketplace to that of health care and anticipate significant changes in the creation and delivery of academic services and systems. This environment opens the door for privatization, competition, and new funding sources. You can be a winner by participating in the capital formation for the many educational companies emerging in the marketplace. (Fulcrum Information Services, Inc., 1997, p. 2)
K–12 EMOS: The Major Players
Two major EMOs are operating public schools in the United States. The TesseracT Group, formerly known as Educational Alternatives, Inc. (EAI), originally focused on managing several schools or a school system. It is now turning its attention to charter schools. The Edison Project develops partnership contracts to manage public schools, including charters. Lesser known for-profit privatization companies are emerging: SABIS Network of Schools; Nobel Education Dynamics, Inc.; and Advantage Schools, Inc.
A Minneapolis-based company, the TesseracT Group, while known as EAI, experienced several unsuccessful ventures. Dade County, Florida, became disenchanted with student achievement gains. EAI lost its Baltimore, Maryland, and Hartford, Connecticut, contracts in disputes over lack of student achievement gains and finances (Ascher, Fruchter, & Berne, 1996; Leak & Williams, 1997; Richards, Shore, & Sawicky, 1996). Its new name reflects its child-centered, individualized instructional program that is supported by an integrated learning system and classroom paraprofessional assistance.
In a recent letter to shareholders, chairman John Golle reported that the company has been reformulated into an integrated education management company that provides high-quality educational services to preschool through post-secondary students. The company proposes five strategies to achieve its mission: hire its own employees, use its own curriculum, accept charters for long-term contracts with agreed-on performance standards, fund schools at acceptable levels for quality service and profits, and operate only schools of choice. TesseracT's recent contracts have included 12 charter schools in Arizona and new TesseracT schools in Egan, Minnesota; South Bend, Indiana; and Mays Landing, New Jersey.
An interesting connection exists between charter schools and for-profit companies. TesseracT, through its acquisition of Sunrise Educational Services in Scottsdale, Arizona, has aggressively entered the charter marketplace. For-profits now control about 10 percent of the charter schools in the United States.
The Edison Project has watched and learned from setbacks in the privatization marketplace. Christopher Whittle, Edison president and founder, has whittled back his plans for an extensive network of private schools to a modest level of individual partnerships and charter schools, possibly because of politicians' lack of success in passing school voucher legislation (Mosle, 1993). Edison began operating 4 schools in 1994 after several years of visible research and development and publicity efforts. In 1997–98, Edison operated 25 schools (Edison Project, 1997); a recent infusion of $56 million of venture capital has Edison proclaiming that it will increase the number of its schools to 75.
Edison has created an instructional design that incorporates the best features of many already proven educational programs. The elementary curriculum includes the Success for All reading program, the University of Chicago School Mathematics Project curriculum, Great Books, and character education. Each family who enrolls a student in an Edison school receives a home computer. Edison relies heavily on computer technology for communication among students, parents, and teachers through servers in each school. These servers also link with the New York Edison office and other Edison schools.
Edison enters a school system with a plan to expand schools at each level. For example, it began with an elementary school in Wichita, Kansas, and now has three elementary schools and a middle school. It added a middle school in Mt. Clemens, Michigan, this year and plans to operate a high school there next year. Edison has expanded the number of schools it operates at other sites in Massachusetts and Texas. Edison also is in the charter school marketplace. In fact, one of the first Edison Project schools—Boston Renaissance—is a charter school.
Other EMOs
SABIS Educational Systems, Inc., is an association of 10 international schools in five countries. It promotes its schools as college preparatory schools that teach "children to perform to the best of their abilities, to achieve academic excellence in a global context, and to prepare graduates for success at the college level" (Massachusetts Department of Education, 1997).
The company, headquartered in Minneapolis, is the first foreign competitor in the for-profit privatization of K–12 schools and has also entered the charter school market. Bushweller (1997) reported that SABIS has corporate offices in Europe and the Middle East and has obtained contracts "to run two public schools in Massachusetts and a private school in Minnesota. SABIS runs a total of 14 schools around the world, which educate some 10,000 kids" (p. 20). SABIS has recently been awarded two K–9 charter schools in Arizona that eventually will expand to K–12 schools (McLaughlin, 1997a).
The SABIS curriculum focuses on math, English, and languages. SABIS claims that its curriculum has been refined over 100 years to provide "a well-balanced body of knowledge, skills and experiences in academics, languages, arts, music, physical fitness, health consciousness, and environment responsibility" (Massachusetts Department of Education, 1997 [para. 4]).
Preschool companies that enter the K–12 market are an interesting phenomenon in privatization. Nobel Education Dynamics, Inc., a publicly traded Pennsylvania-based company, is doing just that.
Nobel, which currently operates 123 schools in 14 states, claims to be the largest nonsectarian private school system in the United States. It reports new schools in Oregon, Nevada, Virginia, California, and North Carolina. The chief executive officer, Jack Clegg, reported that the 12 new schools "are part of Nobel's long-term cluster strategy. . . . Our cluster strategy allows students to receive a seamless educational experience from preschool all the way through eighth grade" (Nobel Education Dynamics, 1997 [para. 3]). Clegg reported that he is not interested in entering the public marketplace "until the courts protect companies from teachers unions and bureaucracies" (Walsh, 1996 [para. 10]).
Advantage Schools focuses on charter schools in states that have strong charter laws. The company plans to cluster schools within these states to conserve travel time. It operates K–5 charter programs in Jersey City, New Jersey; Rocky Mount, North Carolina; and Phoenix, Arizona.
Bessemer Venture Partners and Fidelity Venture Investors are Advantage investors. Theodor Rebarber, vice-president and founding partner of Advantage, formerly worked for the Educational Excellence Network, the Edison Project, and the U.S. Department of Education. In a recent interview with the Educational Excellence Network, Rebarber identified Bill Bennett as his dream candidate for U.S. president and included among his list of mentors such notables as Chester E. Finn, Diane Ravitch, and John Chubb. When asked what he would be doing in five years, he replied, "I will be with Advantage Schools . . . which will be managing 100 schools in the U.S. and in developing nations such as China and India" (Educational Excellence Network, 1996 [para. 20]).
The recent arrival of for-profit com-panies raises issues about their degree of success in the marketplace. Does competition eliminate public school bureaucracy, increase student achievement, and attain these results at similar costs?
EMOs: Evaluation Results
It is too early to determine the success or failure of the privatization venture in public education. What do available evaluation reports tell about the success or failure of EMOs? An obvious finding is that EMOs, particularly the most viable companies, do not seek an outside evaluation of their programs.
EAI operated for three years in Baltimore before an independent organization conducted an evaluation. The evaluation reported that the five-year contract was canceled early owing to no gains in CTBS test scores at EAI schools, EAI's financial cost to Baltimore City, and no apparent differences between the cleanliness of EAI schools and comparison schools (Leak & Williams, 1997, p. 1).
The Edison Project evaluates its own programs and reports "strong academic results" on its Web site. The National Education Association (1996), however, reported that student achievement results are mixed. Edison claimed that in Sherman, Texas, where students did not show achievement gains, the comparable group was not appropriately matched. Edison's Boston Renaissance Charter School had no comparison group.
A recent book, Hard Lessons: Public Schools and Privatization (Ascher et al., 1996), paints a dim picture of privatization efforts. The authors attack EAI for its lack of financial disclosure. They report that "the law allows both nonprofit organizations and for-profit companies greater shielding from public scrutiny. Open meeting laws and freedom of information are also foreign to the corporate culture" (p. 109). One Edison independent evaluation reported similar findings. Edison claimed that its status as a limited partnership did not require it to release detailed financial records to the program-evaluation team (Wichita State University, 1996). A crucial question for public education is, Do for-profits operate for less money while increasing student achievement? If so, where are the cost savings?
Indications suggest that savings occur through hiring inexperienced teachers with less training, using uncertified staff, and eliminating high-cost special education programs (Leak & Williams, 1997; U.S. Government Accounting Office, 1996; Wichita State University, 1996). At present, it is impossible to determine whether for-profits can provide a quality education with the same expenditures of public schools and still be fiscally solvent.
Making Informed Decisions
Educators must move from denial to acceptance of for-profit involvement in public education. As McLaughlin (1995) has stated, "Either these investors see the future and are leading others to it or they are tinhorns with little understanding of the harsh realities of public schooling" (p. 10). For-profit companies are appearing on the educational scene, each touting its program as the savior for education and seeking to make a profit from the billion dollar education industry. These privately financed companies bring to public schools external funding, technology, innovative instructional designs, and unique managerial and staffing designs. All these attractive elements must be paid for with public school expenditures.
Educators must gather information and insist on program-evaluation data from, and complete financial disclosure by, for-profit companies. The public demands accountability from public schools and from for-profit schools financed with public funds. Educators have been encouraged to "break from the herd" in their acceptance of for-profit privatization; they should not wear blinders as they do so. For-profit privatization is still a risky business, and early adopters have learned hard lessons.
Each local school system must determine what possibilities and opportunities, if any, for-profits bring to its schools. The focus must be on program cost, quality, and consumer confidence. Rather than take extreme positions amid the controversy, educators must become informed consumers who make decisions on the basis of the best interests of their students, local schools, employees, and community.
