Pearson has emerged as the chief perpetrator of putrescence, with bags of cash and lavish trips for small town pols who now find themselves at the ed-heads of their state feeding troughs. Aren't all the junkets to exotic locales costing the company millions? Not to worry, holders of this smelly stock. Pearson uses a tax-protected foundation to funnel its cash to the state commissioners, so we as taxpayers are paying for Pearson to follow in the steps of Enron, AIG, and the banksters of Wall Street.
Michael Winerip has the story (bolds are mine).
Since 2008, the Pearson Foundation, the nonprofit arm of one of the nation’s largest educational publishers, has financed free international trips — some have called them junkets — for education commissioners whose states do business with the company. When the state commissioners are asked about these trips — to Rio de Janeiro; London; Singapore; and Helsinki, Finland — they emphasize the time they spend with educators from around the world to get ideas for improving American public schools.
Rarely do they mention that they also meet with top executives of the Pearson company.
The foundation’s officials say the free trips are solely educational and have no business purpose. On the foundation’s tax forms for the last two years, the line for listing “payments of travel or entertainment expenses for any federal, state or local public officials” has been left blank.
That may be a problem. Experts in tax law say that Pearson appears to be using its foundation to push its business interests, which would be a violation of the federal tax code.
“The Pearson conferences fit the same fact pattern as the influence-buying junkets that the convicted lobbyist Jack Abramoff arranged for members of Congress,” said Marcus S. Owens, a lawyer who was director of the Exempt Organizations Division of the Internal Revenue Service for 10 years and is a former board member of the Better Business Bureau’s Wise Giving Alliance. “Those junkets were paid for by private charities.”
The education commissioners may also be violating state ethics laws. After I wrote about the conferences last month, the Iowa Ethics and Campaign Disclosure Board opened an inquiry to determine whether the recent trip to Brazil by its commissioner, Jason E. Glass, violated state law.
Iowa has $3 million in contracts with Pearson. A spokeswoman for Dr. Glass said that he was “confident he abided by all legal and ethical rules” and that he was fully cooperating with the board.
At a time when state budgets are being cut, a free trip can look tempting. The first three years that Pearson financed the trips, no more than six commissioners attended any of them; last month, in Brazil, 12 were at the meeting.
In an e-mail, Mark Nieker, president of the Pearson Foundation, wrote, “We once again categorically refute any suggestion that the events are in any way unethical or designed to enable Pearson to win contracts.”
Kate Dando, a spokeswoman for the Council of Chief State School Officers, the nonprofit group that represents education commissioners, said by e-mail, “We do believe that understanding the range of successful education work around the world can make our members more thoughtful and effective.” She did not respond to questions about the ethics of accepting gifts from Pearson.
Officials from Pearson and the council would not say how much the trips cost. Mr. Nieker said the foundation provides an annual grant to the council, which then plans the agenda for the trips and invites the commissioners.
The Pearson Foundation’s most recent federal tax form, filed a year ago, lists a $100,000 contribution to the school officers’ council.
Whatever the costs, the commissioners travel in style: during the Finland conference in 2009 they stayed at the Hotel Kamp in Helsinki, whose Web site lists room rates beginning at $340.
Last month, when asked for the list of commissioners attending the conferences, neither the council nor Pearson responded. Last week, when asked again, Ms. Dando provided 20 names.
Pearson is eager to sell practically any product a state or local school district would want to buy, including prepackaged curriculums, textbooks and programs to turn around low-performing schools.
Illinois is paying Pearson $138 million to administer the state’s standardized testing program; Virginia is paying $110 million and Kentucky $57 million. All three of their commissioners have attended the conferences.
“Any attempt to draw a connection between states that attend and customers of Pearson is based on a false premise,” Mr. Nieker said, because the company’s business operations and its foundation are separate.
But there appears to be considerable intermingling. For example, a woman named Kathy Hurley is vice president of strategic partnerships at both the company and the foundation.
Pearson officials would not identify the company executives who had attended the foundation’s conferences. But I was able to track down the names of 12 who were at the Finland conference and 9 who went to Singapore.
A report after the Finland conference listed the 10 corporate divisions that were involved, noting that their executives were “also part of this dynamic delegation.”
At least one state commissioner, Michael P. Flanagan of Michigan, said he stopped attending conferences because of ethics concerns. The awarding of contracts to Pearson in Kentucky and Virginia illustrate the problem.
In April, CTB/McGraw Hill submitted the lowest bid to run Kentucky’s testing program, but Pearson, whose bid was $2 million higher, was selected. In May, the state’s commissioner, Terry Holliday, wrote on his blog that he recently “had the honor” of taking a trip to China sponsored by the council, the Asia Society and the Pearson Foundation, and in September he went to Brazil, too.
A spokeswoman for Dr. Holliday said the state’s decision “was based on best value and not simply a low bid.” She said a committee of local and state officials ran the selection process, and Dr. Holliday had no role in it.
In September 2009, Patricia I. Wright, the Virginia commissioner, attended the Finland conference. Among the Pearson executives there was Scott Drossos, president of Pearson’s K-12 Solutions.
On Dec. 11, 2009, Mr. Drossos responded to a request from Virginia for “a lead turnaround partner” that would serve low-achieving public schools. Four months later, Pearson was announced as one of the four winners, and a Pearson news release quoted Dr. Wright as praising “qualified providers like Pearson” and Mr. Drossos as admiring Virginia’s “commitment to reform.” In June 2010, the state named Pearson as one of 13 companies approved to provide online learning services. In another Pearson news release, Dr. Wright again singled out the company for building “on a partnership that has made the Commonwealth of Virginia a national leader.”
In both of the releases, Dr. Wright mentioned only Pearson.
Responding by e-mail, a spokesman for Dr. Wright wrote that she “was not involved in either procurement process other than to approve the selections that resulted from each process.” [LOL!!]
The spokesman continued, “The procurement processes were carried out in accordance with state law, and Dr. Wright’s participation in the C.C.S.S.O. conference had no bearing on the outcomes.”
Mr. Nieker said that the foundation’s external auditors were “fully confident” that its tax forms complied with regulations covering nonprofit organizations. But Mr. Owens, the former I.R.S. official, said the likelihood was “fairly high” that the foundation was in violation of the federal tax code. He said Pearson could face fines or lose its tax-exempt status.
Janne Gallagher, senior vice president of the Council on Foundations, pointed out that in Pearson’s case, the company controls the foundation’s board of directors. “That makes it very important,” she said, “to be sure they’re not using the foundation to benefit the company improperly.”