AFT Rejected in Attempt to Force Pearson ‘Business Strategy Review’

Associate Editor

Pearson PLC today reported lower revenues in its first quarter, and escaped a proposed mandate to conduct a review of its business strategy, after a shareholders’ resolution led by the American Federation of Teachers and a coalition of pension funds was rejected decisively at its annual shareholders meeting.

The global education company, which in January announced plans to lay off 10 percent of its workforce, reported a 4 percent decline in its first-quarter underlying revenue in the United Kingdom and the United States. The loss of assessment contracts with Texas and New York state last year contributed to the results.

The release of the company’s financial report comes as Pearson has been fending off a challenge from a coalition of pension funds connected with affiliates of the American Federation for Teachers, a major teachers’ union in the U.S., as well as educator retirement funds in the U.K. and elsewhere. The coalition had questioned Pearson’s business strategy and profitability (despite the oddity of a teachers’ union urging an education corporation to make more money).

Specifically, Resolution 19, brought by the Chicago Teachers’ Pension Fund, petitioned Pearson’s board to “immediately conduct a thorough business strategy review … including education commercialization and its support of high-stakes testing and low-fee private schools.” It was rejected by a majority of shareholders. The fund is connected to the Chicago Teachers Union, an AFT affiliate.

The resolution lost in the proxy vote, with those favoring it representing 14 million shares and those against holding 578.5 million, which included Pearson’s own discretionary votes. Shareholders representing 33 million shares abstained or withheld votes on the issue.

John Fallon, Pearson’s CEO, addressed the AFT and unions’ objections in a call with EdWeek Market Brief, and addressed the company’s results in a call with stock analysts today.

“You see by the shareholder vote that 97.6 percent of our shareholders voted against the resolution, and I think that’s because they recognize that the board has carried out a fundamental review of business” and is implementing its plan, Fallon told me.

For instance, about half of the 4,000 employees who will be laid off have been notified, shareholders learned.

“What became clear to me in the meeting,” Fallon said, is that the organizations supporting the resolution and Pearson “agree on virtually everything,” from the belief that a high-quality education “is a basic human right” to seeing “the role of the teacher is essential.”

After the meeting, the AFT released a statement saying that, “When you raise questions that go right to the heart of a company’s business model…you expect to lose the first time.” The organization indicated that having so many shareholders vote with them was “unexpected.”

But a Pearson executive disputed the scenario, saying the company was disappointed in the AFT’s ongoing pursuit of the resolution.

“Today’s results reinforce the effectiveness of this plan for all shareholders, including those in the AFT coalition of funds, which holds more than $2 million of Pearson shares,” wrote Shilpi Niyogi, senior vice president of North American corporate affairs and global government relations for Pearson, in an email.

High-Stakes Testing, and Assessment Prospects

Randi Weingarten, president of the 1.6-million member AFT—which has spent years fighting Pearson over high-stakes testing—spoke at the board meeting. She said the Every Student Succeeds Act, or ESSA, is a “reset on education policy … and an acknowledgement that high-stakes testing is not the way to go.”

“What has happened to Pearson is because it is associated with that policy” of high-stakes testing, she said. The company’s brand has been damaged by this, and “it has hugely hurt business and profits,” she continued. “That is why we came to you because you are the biggest education company in the world…and you have a potential to do so many good things in working with us.”

She called for the company to change its trajectory, and to align its business plan with “what kids need to know and be able to do in a global economy.”

In the call with EdWeek Market Brief, Fallon said he believes that assessment needs to be seen in a “holistic view,” and that moving to a new form of curriculum and changing assessment requires time for the new system to be vetted. He pointed out that the assessment business in North America represents less than 10 percent of the company’s total revenues.

The bipartisan support that ESSA received, and the way it will be applied by states across the country, “gives everybody involved in the debate a chance to move on and work on what we all agree to—that there will be some form of annual assessment in grades 3 through 8 and once in high school, and that states will get more autonomy over how that assessment is done,” Fallon said.

“We want to make sure assessment is shorter, smarter, and provides more timely and actionable data that can be used by students, teachers and parents to improve learning outcomes,” he said. “It should never be a single yardstick. It should be part of a richer, more holistic view of how progress can be made.”

Stock analysts on the earnings report call asked about Pearson’s recent trouble administering the PARCC test in New Jersey, and about issues that have arisen in states with other test providers.

Fallon acknowledged that the one-day delay had been caused by an error made by a Pearson employee.

“We do everything we can to possibly minimize it, but in even the very best of organizations, human error occasionally does happen,” he said. “What is important is that you own up immediately, get the issue sorted, and move on quickly, which we did. That’s not to minimize the inconvenience to parents, teachers and students in the process. We’re now back on track in New Jersey,” he said.

Recent news about testing breakdowns in Tennessee, Texas, and other states are registering at Pearson, which is trying to make inroads where other vendors made mistakes. “Our view in all these things is, if we can help current or former customers, or hopefully future customers again, we’ll do so,” he said. Last year, Pearson lost a hotly contested bid in California to provide a suite of K-12 assessments. Tennessee announced this week that it is terminating its contract with Measurement, Inc., its provider, over issues in the administration of its tests.

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