No profit left behindThe British publishing giant Pearson had made few inroads in the United States — aside from distributing the TV game show "Family Feud" — when it announced plans in the summer of 2000 to spend $2.5 billion on an American testing company.
It turned out to be an exceptionally savvy move.
The next year, Congress passed the No Child Left Behind Act, which mandated millions of new standardized tests for millions of kids in public schools. Pearson was in a prime position to capitalize.
From that perch, the company expanded rapidly, seizing on many subsequent reform trends, from online learning to the Common Core standards adopted in more than 40 states. The company has reaped the benefits: Half its $8 billion in annual global sales comes from its North American education division.
But Pearson's dominance does not always serve U.S. students or taxpayers well.
A POLITICO investigation has found that Pearson stands to make tens of millions in taxpayer dollars and cuts in student tuition from deals arranged without competitive bids in states from Florida to Texas. The review also found Pearson's contracts set forth specific performance targets — but don't penalize the company when it fails to meet those standards. And in the higher ed realm, the contracts give Pearson extensive access to personal student data, with few constraints on how it is used.
POLITICO examined hundreds of pages of contracts, business plans and email exchanges, as well as tax filings, lobbying reports and marketing materials, in the first comprehensive look at Pearson's business practices in the United States.
The investigation found that public officials often commit to buying from Pearson because it's familiar, even when there's little proof its products and services are effective.
The North Carolina Department of Public Instruction, for instance, declined to seek competitive bids for a new student data system on the grounds that it would be "in the best interest of the public" to simply hire Pearson, which had done similar work for the state in the past. The data system was such a disaster, the department had to pay Pearson millions extra to fix it.
Administrators at the University of Florida also skipped competitive bids on a huge project to build an online college from scratch. They were in a hurry. And they knew Pearson's team from a previous collaboration. That project hadn't been terribly successful, but no matter: UF dug up the old contract and rewrote it to give Pearson the new job — a job projected to be worth $186 million over the next decade.
And two public colleges in Texas not only gave Pearson a no-bid contract to build online classes, they agreed to pay the company to support 40,000 enrollments, no matter how many students actually signed up.
Pearson has aggressive lobbyists, top-notch marketing and a highly skilled sales team. Until the New York attorney general cracked down in late 2013, Pearson's charitable foundation made a practice of treating school officials from across the nation to trips abroad, to conferences where the only education company represented was Pearson.
The story of Pearson's rise is very much a story about America's obsession with education reform over the past few decades.
Ever since a federal commission published "A Nation at Risk" in 1983 — warning that public education was being eroded by "a rising tide of mediocrity that threatens our very future as a nation and a people" — American schools have been enveloped in a sense of crisis. Politicians have raced to tout one fix after the next: new tests, new standards, new classroom technology, new partnerships with the private sector.
K-12 superintendents and college administrators alike struggle to boost enrollment, raise graduation rates, improve academic outcomes — and to do it all while cutting costs.
In this atmosphere of crisis, Pearson promises solutions. It sells the latest and greatest, and it's no fly-by-night startup; it calls itself the world's leading learning company. Public officials have seized it as a lifeline.
"Pearson has been the most creative and the most aggressive at [taking over] all those things we used to take as part of the public sector's responsibility," said Michael Apple, a professor of education policy at the University of Wisconsin-Madison.
Pearson declined to answer specific questions about many of its contracts and business practices.
But several top executives said they always work toward deals that benefit not just the company but its public-sector partners — and above all, the millions of students who use Pearson products daily.
"The public trust," Senior Vice President Shilpi Niyogi said, "is vital to everything we do."
TESTS, TEXTS AND ATTENTION DEFICIT
Pearson wields enormous influence over American education.
It writes the textbooks and tests that drive instruction in public schools across the nation.
Its software grades student essays, tracks student behavior and diagnoses — and treats — attention deficit disorder. The company administers teacher licensing exams and coaches teachers once they're in the classroom. It advises principals. It operates a network of three dozen online public schools. It co-owns the for-profit company that now administers the GED.
A top executive boasted in 2012 that Pearson is the largest custodian of student data anywhere.
And that's just its K-12 business.
Pearson's interactive tutorials on subjects from algebra to philosophy form the foundation of scores of college courses. It builds online degree programs for a long list of higher education clients, including George Washington University, Arizona State and Texas A&M. The universities retain authority over academics, but Pearson will design entire courses, complete with lecture PowerPoints, discussion questions, exams and grading rubrics.
The company is even marketing a product that lets college professors track how long their students spend reading Pearson textbooks each night.
Pearson works with for-profit career colleges, too: Its marketing materials boast that its consultants can help them "stay one step ahead" of federal regulations.
Indeed, Pearson has its hand in so many education services that corporate executive Donald Kilburn confidently predicted on an earnings call last summer that the North American division would flourish even if states and school districts had to cut their budgets.
As long as sales reps can show that Pearson products get results, Kilburn said, "the money will find a way to come to us."
But the POLITICO review found that public contracts and public subsidies — including at least $98.5 million in tax credits from six states — have flowed to Pearson even when the company can't show its products and services are producing academic gains.
The state of Virginia recertified Pearson as an approved "school turnaround" consultant in 2013 even though the company had, at best, mixed results with that line of work: Just one of the five Virginia schools that Pearson cited as references improved both its math and reading proficiency rates against the state averages. Two schools lost ground in both math and reading and the other two had mixed results. State officials said Pearson met all the criteria they required of consultants.
Across the country, Pearson sold the Los Angeles Unified School District an online curriculum that it described as revolutionary — but that had not yet been completed, much less tested across a large district, before the LAUSD agreed to spend an estimated $135 million on it. Teachers dislike the Pearson lessons and rarely use them, an independent evaluation found.
And universities continue to hire Pearson to manage online programs even though the company has routinely failed to hit its contractual targets for student enrollment. The higher those targets are, the more lucrative the deal appears to the university — and the more willing administrators may be to promise Pearson a cut of up to 60 percent of student tuition.
If Pearson fails to bring in the promised number of students — and David Daniels, a managing director, acknowledged the targets are often "very ambitious" — it rarely gets sanctioned.
At Rutgers University in New Jersey, for instance, Pearson is in charge of recruiting students to online degree programs and counseling them so they stay engaged and enrolled. Yet if Pearson falls short of its recruitment or retention goals, its share of student tuition isn't reduced. On the contrary, the contract allows Pearson's cut of tuition to be increased in the face of disappointing numbers, keeping the revenue flowing. Last year, enrollment was about 200 students short of the minimum stipulated in the contract and nearly 1,000 students below the goal.
Contractual language also ensures Pearson collects its full cut if a student drops out mid-semester or fails to pay the tuition bill.
Faculty members have raised a number of complaints about the contract and moved to block Pearson from expanding its role on campus. Among their objections: About half of student tuition in the online programs goes directly to Pearson. Rutgers set out to "create an online campus as a cash cow," said David Hughes, an anthropology professor, "but then flubbed that up entirely by giving the revenue away to Pearson."
But Richard Novak, a Rutgers vice president, said it "would have been very nearly impossible for the university to enter the online degree space without the help of a powerful partner." Novak said it would be "myopic and lopsided" to punish the company when students drop out, because many factors contribute to such decisions.
"This is a deep partnership," Novak said, "and we work together on such issues."
FAMILY FIRM TO GLOBAL GIANT
The company that would play such an outsize role in American classrooms was founded in Yorkshire, England, in 1844 as family-owned construction firm. By the 1890s, it was one of the largest building contractors in the world.
Over the decades, Pearson PLC — now based in London — bought stakes in all manner of industries, including newspapers, amusement parks and even the Madame Tussauds wax museum. It wouldn't be until 1988 that the company took its first big step into the education world when it bought textbook publisher Addison-Wesley. Other acquisitions soon followed.
Though it still owns the Financial Times and Penguin Random House publishing, Pearson now focuses on education. It employs nearly 40,000 worldwide.
"When the federal government starts doing things like requiring all states to test all kids, there's going to be gold in those hills. The people we've elected have created a landscape that's allowed Pearson to prosper."Pearson's stature is reflected in its access to top policymakers. Pearson is the only company with a seat on the board of directors of the Global Partnership for Education, which works with the World Bank and the United Nations to encourage developing countries to invest in education. (Pearson has substantial business interests in Asia, the Middle East and South America.)
- Jonathan Zimmerman, education historian at New York University.
And Pearson was one of only three for-profit education companies — the other two were startups — invited to hobnob with the Obamas and Education Secretary Arne Duncan last year at a White House summit on college access.
Pearson's size has made it a lightning rod for criticism. Activists from both left and right spit out the brand name almost as a curse, using it as shorthand for all the educational trends they dislike, from the focus on high-stakes tests to the shift to Common Core to the push to turn more teaching over to high-tech algorithms.
The comedian Louis C.K. has tweeted his disdain for confusing homework questions "written by pearson or whoever the hell." Glenn Beck has publicly held up Pearson as a symbol of corporate greed. A speaker at a teachers' union conference last summer drew cheers with his fervid vow, "We will not be Pearsonized!" And when Ohio students recently produced an anti-Common Core video, they targeted Pearson in particular, flashing the corporate logo as they sang lyrics they'd adapted from a Pink Floyd song: "Hey! Pearson! Leave them kids alone!"
Conspiracy theorists sometimes suggest that Pearson has a sinister hold on federal and state education policy. In peak years, it has spent about $1 million lobbying Congress and perhaps $1 million more on the state level, with a particular focus on Texas, according to state and federal records.
But that's not an outsize number for such a large company. By comparison, the National Education Association, the biggest teachers union in the U.S., spent $2.5 million lobbying Congress in 2013, according to the Center for Responsive Politics.
"The policies that Pearson is benefiting from may be wrongheaded in a million ways, but it strikes me as deeply unfair to blame Pearson for them," said Jonathan Zimmerman, an education historian at New York University. "When the federal government starts doing things like requiring all states to test all kids, there's going to be gold in those hills. The people we've elected have created a landscape that's allowed Pearson to prosper."