Pearson Transcript Allows Me to Quote 400 Board-meeting Words

At the American Enterprise Institute in March 2014, billionaire Bill Gates explained why the Common Core State Standards (CCSS) are necessary above and beyond individual state standards that might be better:

You get more free market competition. Scale is good for free market competition. Individual state regulatory capture is not good for competition. [Emphasis added.]

In economics, “scale” involves decreasing costs as a result of the ability to mass produce.

Gates sees “scale potential” in the national standardization of public education– i.e., CCSS.

He believes such is “good for free market competition.”

Not true.

The national standardization of public education does not promote economic health for small (local) businesses. Instead, it feeds monopolies– like bloated, incompetent Pearson.

I have read and written much about Pearson. My conclusion: Pearson is very bad for American public education.

Pearson has an established history of finding itself on the defendant end of lawsuits, including those related to copyright infringement, misuse of a nonprofit, and faulty reporting of results.

Nevertheless, Pearson is involved in all aspects of American public education. It is tied to curriculum, assessment (including assessment of teachers in training), professional development, and data collection (and here).

Pearson is huge (“consisting of three worldwide businesses”), and becomes even larger by acquiring smaller companies– companies that one might be surprised to learn that Pearson owns. For example, Pearson owns attention deficit hyperactivity disorder (ADHD)-diagnosing companies (see here and here and here).

Pearson is also in a position to gather sensitive data on students without a parent even knowing it. This is possible via reports a teacher is required to complete (as in the linked example) and also via direct student input. (It is not unusual for test developers to ask students their opinions about how well a test works. However, given Pearson’s willing use of its tests as an opportunity to promote certain brand-name items as a means of sneaky advertising, it is not much of a stretch to conclude that Pearson is able to exploit the exam-examinee connection by asking students to provide sensitive information without parent or teacher knowledge.

Furthermore, it should come as no surprise that Gates is directly partnering with Pearson (both are involved in producing those costly iPads, including paying Pearson recurring, tri-annual software licensing fees).

Yes, indeed, the likes of a national curriculum is definitely good for mega-corporation Pearson.

However, in April 2014, Pearson has faced pressure regarding the secrecy of its exams in New York State:

American Federation of Teachers (AFT) President Randi Weingarten is sending a letter… to the executives of Pearson, the world’s largest education company, asking them to stop a  ”gag order” that is part of their $32 million contract with New York state to design new standardized tests aligned to the Common Core. The “gag order” bars teachers and principals from talking publicly about what’s on the exams, including any mistakes that educators find. [Emphasis added.]

As already noted regarding Pearson litigation, Pearson has an established history in making profound “mistakes” when it comes to its assessments.

Pearson CEO John Fallon responded to Weingarten directly in a brief note in which he states his willingness to “meet with [her] and [her] members to better understand… concerns and to work together….”

Pearson press has resulted in a reader’s search sent my way for this February 2014 transcript of a Pearson board meeting in which Fallon and Chief Financial Officer and Executive Director Robin Freestone discuss Pearson’s “2013 Results.”

The transcript, produced and released by investment platform SeekingAlpha, was accompanied by the following stipulations:

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In its entirety, the February 2014 meeting transcript is 13,784 words. I am allowed to directly quote only 400 words– quite the challenge.

I’m in.

The beautiful piece is that I am also required to link to the original transcript (the briar patch to this Brer Rabbit). Thus, any of my readers might see the entire transcript at will– and other writers might, as well.

Interestingly, in all of those almost 14,000 words, there is zero discussion of the millions Pearson has paid in numerous fines over the years– fines related to its test-item and scoring blunders. Surely such ineptitude affects profits.

Not addressed.

This much is true: Pearson is in education for the money. Of course they are. They exist to make a profit– a long-term, sustainable profit.

American CCSS feeds this beast quite well.

Let’s have a go at it, shall we?

In this meeting, Fallon and Freestone are addressing several market analysts:

Sami Kassab (Exane BNP Paribas, Research Division); Mark Braley (Deutsche Bank AG, Research Division); Rakesh Patel (Goldman Sachs Group Inc., Research Division); Matthew Walker (Nomura Securities Co. Ltd., Research Division); Ian Whittaker (Liberum Capital Limited, Research Division); Claudio Aspesi (Sanford C. Bernstein & Co., LLC., Research Division); Patrick Wellington (Morgan Stanley, Research Division), and Nick Michael Edward Dempsey (Barclays Capital, Research Division).

(Why, so many representatives of financial institutions in one meeting makes me think of the board of directors of Eva Moskowitz’s Success Academy charters. If one isn’t a classroom teacher, there sure is a lot of money to be made in education. But I digress.)

Fallon opens the meeting by explaining why profits were not as fine as they might have been for Pearson in 2013. He assures his analysts not to worry, that “we are determined to return Pearson to sustained earnings growth as quickly as [possible].”

Of course, Pearson expects CCSS to deliver:

…the [schools business] sector is awaiting a major curriculum change brought about by Common Core. As we expected, it has been implemented slowly as budgets and policy align state by state….

Fallon also notes that the “curriculum change” is also affecting their profits in the United Kingdom (UK), where there is also a version of CCSS:

…As with Common Core in the U.S., we are investing now in … this [UK] curriculum change that starts in 2015.

Fallon assures his analysts that all will be well by 2015:

These [cyclical and policy-related] factors will be a drag on us again in 2014, but after that, these headwinds start to ease. And in time, as the curriculum change comes through, as the enrollments recover, they start to blow at our backs again rather than in our faces.

Fallon sees 2014 as an opportunity to prepare Pearson to become infused in America’s inevitable, CCSS-determined education market:

…We are choosing exactly this moment to push ahead with the largest restructuring in the history of Pearson… if we can [and as we]successfully embed ourselves with our customers. …what that work does is shift us much more quickly and much more irreversibly to where the biggest sources of future demand are. …we’re… stepping-up our investment in North America, with an extra GBP 60 million ($102 million) in 2013 alone. … We’re doing so to get ahead of the forces reshaping our industry… and to reduce our exposure to the corresponding risks.  [Emphasis added.]

Pearson is banking on definite CCSS implementation in these United States.

It is Freestone who refers to “invest[ing] to build scale” in higher education. She adds,

The important point is that once we get through that period of investment… incremental revenue per student then becomes very profitable. And these are long-term contracts with high renewal rates. …As we transition from print to digital, we move from a license to a subscription selling, with revenues spread over multiple years. This reduces revenue and margin short term, but it gives us a more visible business and greater market opportunity in the long term. And as we reach scale, the benefits again are very significant indeed.[Emphasis added.]

Though her reference in this case is to Pearson’s higher education market, Freestone’s statement puts me in mind of LA’s iPad software license renewal fees.

Indeed, Freestone refers to “scale” again when discussing Pearson’s role in the K-12 education market:

As in higher ed, no silver bullets to help …prepare …pupils…. So we contribute by offering… curriculum; data-driven adaptive learning; enhanced teaching development; assessments which test higher-order skills. But actually, our most important role is actually helping to implement and scale the significant changes that are required to adopt digital, or actually, blended learning. …Again, same model as in higher education, these new business models create much bigger revenue opportunities as we get into bigger addressable markets…. [Emphasis added.]

Freestone continues with Pearson’s plan “to capitalize”on  “that mega-trend” of online learning. She discusses “building new partnerships” with Apple and Microsoft.

One of the analysts (Whittaker) raises the question of Pearson’s dependence upon 2015 CCSS implementation for future profits. Fallon uses editorials on CCSS as evidence that CCSS will move forward (such sophisticated research, eh?) and comments that before CCSS, “local, stand-alone operating companies” were an impediment to not being able to “scale at anything.”

My 400 words are used up. I must resort to paraphrasing.

Whittaker has asked once about an alternate plan of action if CCSS doesn’t work as anticipated. Fallon responded initially that all of CCSS need not work in 2015, just some of CCSS. Whittaker insists upon hearing of Fallon’s alternate plan of action; Fallon offers no substantive alternate plan.

Mega-corporation Pearson is dependent upon long-term CCSS implementation. Allow the implications of that realization to sink in.

(A reminder that the American Institutes of Research {AIR} is suing over Pearson’s being awarded the Partnership for Assessment of Readiness for College and Careers (PARCC) contract for CCSS test development. Supposedly, Pearson was the only company to apply. AIR challenges this assertion.)

Another analyst, Walker, asks about guarding profits against open access. Fallon is unfazed; he notes that dependence upon Pearson products will be so embedded into American education that free outside downloads offer no threat.

Pearson wants to either shut down competition or subsume it.

For those insisting upon CCSS implementation, I ask you:

Are you willling to hand to Pearson that which it apparently depends upon for its own future monopolistic, gluttonous growth:

American education “scale”?

If so, let me state yet again:

Bad idea. Really bad idea.