Saturday, September 07, 2002

Why Edison Struggles

Daniel Gross at Slate attributes Edison's troubles to the expense of being a publicly held company and other questionable financial strategies.

Then there's executive compensation. Thomas Tocco, the superintendent of the Fort Worth, Texas, Independent School District, which has approximately the same number of students and schools as Edison, is paid $285,000. In 2001, each of Edison's top five executives—Schmidt, Whittle, President Christopher Cerf, Chief Education Officer John Chubb, and Executive Vice President Tonya Hinch—earned at least $295,000 in salaries and bonuses.

Publicly held companies also offer extra kinds of compensation, such as sweetheart loans, that would be unimaginable in a public-school system. In the 1990s, Schmidt borrowed $1.8 million from the company. As of late last year, Schmidt had made no payments on those loans, and his indebtedness had swelled to $3 million. Whittle owes even more. In 1999 and 2000 he borrowed $7.8 million to exercise options and pay income taxes. As of last September he owed Edison $9.2 million.

The real lesson of Edison should be that when you make unsound financial decisions that detract from the core mission of educating children; you risk business failure and bankruptcy. Unfortunately, the public schools are allowed to continue wasting more money than Chris Whittle and Edison's other executives ever dreamed of--with zero consequences or repercussions for those bad financial decisions.

School systems continue to get $6,000 to $11,000 per student. This money is not spent on capital expenses for buildings. Teachers are not making three-figure salaries. It’s not spent on classroom supplies—the books are old and teachers supposedly need special tax breaks for the money they spend on supplies. So, if each class of 20 students represents $200,000 or so. Where’s the money go every year? I just don’t get it.

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