What the Charter School Industry Can Learn from Enron – Before It’s Too Late
The CEO of a large energy corporation takes advantage of lax accountability mechanisms and deregulation to funnel company assets into other business interests. These transactions are teeming with conflict of interest and hidden from stakeholders, and, thanks to deceptive accounting practices, massive losses incurred from these partnerships are also covered up. Eventually, it all catches up, and the company collapses. Thousands of employees are sent packing, investors lose billions, and the company’s leaders are arrested and indicted.
This is the story of Enron, the Texas-based company that went bankrupt in spectacular fashion back in 2001, becoming the poster child (the first of many) of the overzealous, reckless brand of capitalism that in many ways came to characterize the decade.
But if you adjusted a couple of the details – strike “energy” and swap out “billions” for “millions” – this scenario could also describe the business practices of more than few players in the charter school industry.
A stretch? Not at all, says Preston C. Green, professor of educational leadership at the University of Connecticut. Green believes the same fraudulent accounting and business schemes that brought down Enron are being duplicated by for-profit entities that own and operate many charter schools. Green, Bruce Baker of Rutgers University Graduate School of Education, and Joseph O. Oluwole of Montclair University connect the dots in a new paper that will be published in the Indiana Law Journal.
Enron’s undoing can be traced to how it used “related-party” transactions to divert funds from the company to other business interests. The company concealed losses from these transactions from its investors, using deceitful accounting practices that somehow helped line the pockets of its top executives. A similar web of related-party entities, intricate maneuverings, and shady transactions can be found in the charter school sector.
Green says the gatekeepers of the industry – governing boards, authorizers, state education agencies, and the U.S. Department of Education – have failed to “appreciate the fact that certain actors may need even greater surveillance than others” – a defect that led to the abuses at Enron.
“In the case of Enron, the gatekeepers failed to consider the risks that Fortune 500 companies posed to the financial markets,” Green explains. “They wrongly assumed that these entities would play by the rules. As a result, Enron was allowed to engage in its illegal activities for several years without detection. ”
The charter school industry is run by “educational entrepreneurs,” says Green. “These actors may also run businesses whose interests conflict with the charter schools that they are operating.”
Green and his co-authors cite a number of cases of Enron-like activity in the charter sector, including Imagine Schools, which operates 63 schools in 11 states. Rents for What the Charter School Industry Can Learn from Enron - Before It's Too Late:
