How Educational Management Companies Serve Charter Schools and Their Students

Article excerpt

To most traditional school district administrators, the charter school movement is a slap in the face, because the underlying premise of the charter school movement is that existing public schools are inadequate. Charter schools also hit school districts in the wallet by taking taxpayer money that school district administrators believe is rightfully theirs.1 To make matters worse, about 10% to 12% of charter schools use educational management companies,2 which assert that they can run charter schools more efficiently than school district administrators run traditional public schools and still have enough money left over to turn a profit. Not surprisingly, many school districts have fought charter schools and management companies in state legislatures3 and in the courts.4 If they cannot defeat these threats outright, school districts have sought to impose obstacles that will either block charter schools or burden them with extensive regulatory requirements analogous to those imposed on traditional public schools.5

In the April 2002 issue, Kathleen Conn, an administrator with a Pennsylvania school district, argues that educational management companies, which she calls "for-profit school management corporations," should not be entrusted with the education of children because the directors of such companies have a fiduciary duty to maximize the wealth of shareholders.6 She argues that this fiduciary duty is the problem with allowing educational management companies a role in charter schools and other public schools.7 Conn contends that this fiduciary duty conflicts with the public's interest in education and that this supposed conflict has been ignored.8 She also asserts that the evidence shows that educational management companies have not delivered on their promises of educational reform.9 To remedy this conflict, she argues that legislatures should either pass laws requiring educational management companies to serve the interests of students or recognize new causes of action for educational malpractice against management companies.10

This article demonstrates that Conn is wrong that the for-profit status of management companies inevitably pits them against the interests of students and wrong that the most appropriate way to control companies is to tinker with the fiduciary duties of their directors. Management companies have an inherent interest in serving their students well; if they do not, parents will pull their students from a charter school and the company will lose its contract to manage the school. Far from ignoring the profit motive, states have authorized charter schools and given a role to for-profit companies because they want to harness that motive to improve education. These companies are not left free to squeeze profits out of helpless students, as Conn asserts; they are governed by their contracts and by state laws and regulations. The existing methods of controlling the behavior of companies are adequate and far superior to Conn's proposed solutions. Although the available data are preliminary and largely inconclusive, the preliminary results provide reason to believe that charter schools run by management companies are succeeding.

I. THE PROFIT MOTIVE

Conn spends the first part of her article analyzing at length the fiduciary duty of directors to demonstrate that they have a duty to maximize the wealth of their shareholders, a duty she asserts has been ignored in the debate about the role of management companies." This fiduciary duty is simply the legal duty imposed on directors that corresponds to the concept that for-profit corporations are seeking to make a profit, an idea that is well known to everyone involved in the school reform debate. Indeed, an underlying premise of the charter school movement is to use free market concepts to improve public education.12

Conn's claim that this profit motive inevitably pits management companies against the interests of students is overly simplistic. …