People, planet, profit: Enter the edupreneur

| August 18, 2014 | 0 Comments

By Lebogang Montjane

Drawing from its European antecedents, independent education in southern Africa was founded on altruism, by men and women primarily motivated to serve by their faith.

Since the 19th century and for much of the 20th century, independent education has been the preserve of notfor- profit entities, whose sole purpose was to provide a high-quality education that charged fees that would meet the running costs of their schools. Towards the end of the 20th century, the notion that market principles had no direct application in the provision of education began to be challenged. The question was, why were commercial instruments not being utilised to achieve greater efficiencies in education? The reasoning goes that the advantage of commercial companies is that they are accountable to shareholders and are required to produce a profit. They achieve this primarily by containing costs and shedding any unnecessary expenditure. Similarly, in schools, business disciplines are excellent at identifying wastefulness that detracts from institutions being able to deliver a quality education cost-effectively. This logic further leads to the conclusion that once waste has been removed from an educational institution, what precludes for-profit companies from being educational providers and distributing to shareholders, some of the cost savings from reduced waste?

Commercial enterprise informing modern education

More recently, thinking is evolving to displace the dichotomy between philanthropic ventures and profit-maximising enterprises. In keeping with existing company practices of investing part of their profits towards social causes, schools that have been established with a profit motive are also seeking ways of contributing some of their profits to educational causes. The reality for the independent schooling sector is that the logic that underlies commercial undertakings is increasingly informing how education is delivered. More importantly, new entrants into independent educational provision are turning to the more recent trends in how schools ought to be structured, with a for-profit model, rather than the benevolent motivations of founders of schools established in earlier times.

Enter the ‘edupreneur’

This commercialisation trend in education is best characterised by a new word that categorises those who found education companies for commercial gain. In 2000, the Cato Institute published an article entitled, ‘Edupreneurs – a survey for forprofit education’, by Carrie Lips.1 The beginning of the title of this article brought to a broader audience a new word: ‘edupreneur’. Although this word has yet to be accepted into a standard dictionary, as can be gauged from it, edupreneurs are entrepreneurs who found companies that provide educational goods or services. Edupreneurial companies can range from founders of schools, management companies that run public schools (charter schools), educational consulting services or those that offer educational materials to schools.

These types of entrepreneurs are beginning to be viewed as having such unique characteristics that venture capital funds are beginning to establish tailored funds for these types of businesses. Later this year, Village Capital, a venture capital company that has funded approximately 300 mission-driven ventures on six continents, in partnership with Pearson, a forprofit educational company that is educating 150 million people in 70 countries, having achieved great success in India, will be investing in two start-up educational companies in southern Africa, through the Pearson Affordable Learning Fund. For Pearson, this initiative is in addition to its recent investment in a newly established ISASA member school.

Governments get in on the act

Funding for educational entrepreneurs is not only coming from the private sector, but is also being offered by government sponsored donor agencies. Controversially in the UK, over the last three years, the Department for International Development (DfID) has been investing some of its development funds with low-cost independent schools in Nigeria, Ghana and Pakistan.

This has led The Guardian newspaper to ask, “So is it good use of UK taxpayers’ money to invest speculatively in for-profit private schools in poor countries?”2 DfID, in its Guidance Note, ‘Engaging the low cost private schools in basic education: issues, challenges and opportunities’,3 takes the view that low-cost independent schools can play a role in addressing access to education in countries where governments fail to achieve universal access to primary education as stipulated by the Millennium Development Goals.

In those countries in which universal primary schooling has been, or is close to, being realised, DfID has found that many public systems fall short in the quality of education they deliver. Public schools in many nations struggle to produce fully literate and numerate citizens out of their educational systems. To address the shortage of schools for the poor and the quality deficits that poor children receive if they are in school, DfID proposes that pragmatism should guide those who want to increase access to education for indigent children and improve the quality of schooling that these children receive. Its Guidance Note states: “Donors and governments need to diversify their approach in which the government funds, provides, owns and regulates the basic education sector to an approach that includes private schools managed by nongovernmental organisations or for-profit edupreneurs.”4 In the struggle to reverse the intractable problems of access and quality of education for the poor, there is now a shift, even from donors, towards for-profit educational entrepreneurs to assist in improving these chronic shortcomings.

Economies of scale in a global market

Yet another trend that commercialisation has brought into the staid practices of independent schooling is the concept of economies of scale. In order to spread the fixed costs over more pupils, for-profit schools are either provisioning education in schools larger than their not-for-profit counterparts or are adopting a chain school model. In a study compiled by Gray Matters Capital, ‘Affordable private schools (APS) sector analysis report – 2012’,5 the business model of Indian low-cost independent schools was examined. Of the 200 low-fee independent schools covered in this study, it was found that 31% of these schools had at least two campuses. Although this study attributed franchising to the need to meet the huge demand for low-cost quality education, what cannot be overlooked is that expansion seems profitable for these entrepreneurs. Of the study sample size, only a few of these schools compiled audited financial statements. Based on the available financial statements, 80% of the schools were making an operational surplus. The table below illustrates the financial ratios found among this crop of schools:

table

The new triple bottom line

In southern Africa, of the independent schools founded in the last three years that have either joined ISASA or indicated their intention to join ISASA, most of them plan to have their schools in multiple locations. As with their Indian counterparts, they argue that they are endeavouring to meet the demand for low-cost, quality education.

Despite the financial motive, forprofit educational providers have to grapple with education being perceived as a social good. Skip Kotkins, in an article entitled ‘Lessons from for-profit boards: what independent school boards should, and should not, learn from their for-profit counterparts’,6 highlighted the limitations of the profit motive within the educational sphere: [W]hile the bottom line is crucial in terms of the sustainability of the school, it is only one of many measures of success for a school. Schools have long been focused on the ‘triple bottom line’ – often described as People, Planet, Profit, though, in [not for profit] schools, it translates into a strong focus on an excellent programme and well supported faculty and staff, social responsibility and community relations, and overall financial health.

GEMS Education, which educates 142 000 children worldwide, established a foundation in 2010 whose aim is to benefit 100 children for every child enrolled in a GEMS Education school. Thus, as corporations came to understand that they could not solely be concerned with maximising profits and that they needed to shift from a single to a triple bottom line, so too are the largest of the international for-profit education providers understanding societal expectations that they contribute philanthropically beyond their for-profit enterprises.

Making a profit and building a benefit

Conceptually, the thinking regarding distinct corporate forms for not-for-profit and for-profit entities is beginning to change. In 2010, the state of Maryland in the US introduced a new jurist person – a benefit corporation. Last year’s Noble Laureate for Economics, Robert Shiller, while extolling the virtues of this kind of corporation, outlined its characteristics:

[A] benefit corporation is halfway between a for-profit and a non-profit. It has two purposes: to provide profits to shareholders and to achieve an announced social or environmental goal. The law obligates the corporation to achieve both, and ensures it doesn’t exist only to make money.7

It would not be surprising to see benefit corporations proliferating within the sphere of education provision. Benefit corporations are a step further than corporate social investment as presently practised. This form of company elevates the objectives of corporate social investment to the same status as making a profit.

Woodard ways waning

Thinking on how to achieve social good has evolved since the 19th century founding of independent schooling in southern Africa. In the 21st century, we are unlikely to see the emergence of institutions like Nathaniel Woodard’s founding schools. From 1848 until 1890, Woodard, a priest in the Church of England, founded 11 not-for-profit church schools in the UK. His sole objective was educating children in “sound principle and sound knowledge, firmly grounded in the Christian faith”.8

For-profit principles permeate all aspects

Today’s school founders are more likely to wrestle with how they can create a schooling model that results in as many children as possible accessing a quality education at an affordable price, whilst they also make a profit for their shareholders. So, while in the past, commercial principles were contained to accounting practices to safeguard institutional financial health, for-profit corporate principles are now permeating all aspects of the ways in which many new independent schools operate.

References:
1. See: http://www.cato.org/pubs/pas/pa-386es.html.
2. See, for example: http://www.theguardian.com/global-development/povertymatters/2013/oct/04/uk-aid-private-schools-developing-world.
3. See: http://r4d.dfid.gov.uk/pdf/outputs/ORIE/Guidance_Note_Low_Fee_Private_Schools_June_2013.pdf.
4. Ibid.
5. See: http://www.scribd.com/doc/103479175/APS-Sector-Analysis-Report-Aug-2012.
6. See: http://www.nais.org/Magazines-Newsletters/ISMagazine/Pages/Lessonsfrom-For-Profit-Boards.aspx.
7. See: http://www.nytimes.com/2014/07/06/upshot/donors-give-more-whenthey-have-a-sense-of-belonging.html?_r=0.
8. See, for example: http://www.kingshalltaunton.co.uk/woodard/.

Category: Spring 2014

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