As Enron, the giant energy company, plummeted toward bankruptcy from its one-time market value of $80 billion, business and finance experts bestirred themselves to try to explain what had gone wrong and what lessons could be drawn from this corporate calamity.
One such account appeared in the December 4 Wall Street Journal in the form of a perceptive op ed by Joe Berardino, managing partner and CEO of Andersen, which was Enron's auditing firm and understandably sheepish about this turn of events. Berardino's column was no doubt meant partly to exonerate Andersen from the mounting evidence of malfeasance by Enron's leaders. But that's not what struck me. What struck me was the extent to which the education-reform community in general, and the charter-school movement in particular, should heed the four big lessons that Berardino drew from the Enron debacle.
First, "Rethinking some of our accounting standards. Like the tax code, our accounting rules and literature have grown in volume and complexity as we have attempted to turn an art into a science. In the process, we have fostered a technical, legalistic mindset that is sometimes more concerned with the form rather than the substance of what is reported."
Think of yourself as a school accountability monitor in a district or state education agency. Or as a charter authorizer. Ask whether the information you're getting from schools is meant to satisfy formulaic (and possibly antiquated) reporting requirements or is evocative of what is actually happening in those schools. Berardino says the accounting field's standard procedures are archaic; they allow companies to keep certain liabilities and assets off their financial statements, thus presenting investors and securities regulators with a misleading picture of their true condition. Now think about test scores; dropout statistics; data on where school dollars go (and how many of them there are). Think how easy it is for a clever (or careless) administrator to report his version of the facts while withholding or masking key information. Education's reporting rules typically focus on providing the exact information that some higher authority has opted to require rather than information that gives a full picture of how schools are doing. As a friend recently remarked after reviewing the operations of a major urban school system, "They're awash in data but they have no information." When, for example, schools report their average test scores from one year to the next, nobody has any way of knowing whether they're adding academic value to their pupils.
Second, "Modernizing our broken financial-reporting model." Berardino argues that today's corporate financial reports are based on a 1930's industrial model and focus "on historical information and a single earnings-per-share number" rather than revealing what multiple markets and constituencies most need to know about firms operating in a complex modern economy. Enron pumped out reams of information but in such a way that "sophisticated analysts...were confused. ... We need to move quickly but carefully to a more dynamic and richer reporting model. Disclosures need to be continuous, not periodic....We need to provide several streams of relevant information....We need to expand the number of key performance indicators...."
The parallel is clear: our schools are grudging and opaque with the information they put out - or else they drown you in data that makes no obvious sense. Most school overseers and clients find themselves dependent on occasional, after-the-fact reports, easily contoured and spun by those inside the school. These are more apt to focus on what goes into the school and what services are provided there than on the school's performance. Results are likely to consist mainly of test scores - which are easily manipulated depending on which kids took the test, how they were doing before they enrolled, and how the scores are reported. Schools' financial reporting must also be rethought: Does the budget account for building depreciation and, thus, future capital needs? Are teacher benefits reported as part of the cost (and value) of their salaries? When a charter school hires a for-profit manager, do its dollars pass behind an opaque screen where the public cannot see what they're actually being spent on?
The overall solution, I believe, is to be found in the principle of transparency, by which practically everything a school does is put out - at least onto the website - for public inspection. (For one version of what how this could work, have a look at chapter 6 of Charter Schools in Action by Bruno Manno, Gregg Vanourek and yours truly.)
Third, "reforming our patchwork regulatory environment." Berardino is not urging MORE regulation. He is pointing out that the current arrangements are a confused mess - "an alphabet soup of institutions" - that "is not keeping up with the issues raised by today's complex financial issues. Standard-setting is too slow. Responsibility for administering discipline is too diffuse and punishment is not sufficiently certain to promote confidence in the profession." Those criticisms, it seems to me, are precisely true of the education profession, too, and it's a problem that grows graver as pressure mounts for performance accountability. Look at how different are the accountability mechanisms - and expectations - to be found from one school system to the next, even from one charter-school authorizer to the next. The new federal E.S.E.A. requirements seek to impose greater uniformity across states, but it's far from clear just how well this is going to work. Already a lot of states are balking.
Fourth and finally, "improving accountability across our capital system." It isn't just the accounting field that needs to clean up its act, Berardino contends. Misinformation, hype, slackness, concealment and bad judgment are widespread, from investment bankers to stock analysts, from fund managers to credit agencies, leading to unhappy investment experiences for millions of people. Those people, he reminds us, "depend in large measure on the integrity and stability of our capital markets for personal wealth and security....For our system to work in today's complex economy, these checks and balances must function properly."
How much more true that is of primary-secondary education! Schools aren't the only actors on that vast stage. State education agencies, local districts, teacher training programs, accreditation bodies, external school-rating and parent-informing systems, certification agencies for teachers, textbook adoption boards - the list goes on. Far from meaningful "checks and balances," it's a field close to paralysis as a result of the proliferation of, and lack of synchronization across, these many entities. If we are to view K-12 education in any terms other than a rigid government bureaucracy where neither employees nor customers have any choices or freedoms, we must view it as a complex, regulated marketplace whose "integrity and stability" need to be able to counted upon by its customers, who number in the tens of millions. For them, the key to a properly functioning market is getting all the information they need, when they need it, in modes they can understand and compare, from sources that they can trust. I look forward to the day when we can say that about American education. I wonder whether Mr. Berardino and his accounting colleagues will get there first.
"Enron: A Wake-Up Call," by Joe Berardino, The Wall Street Journal, December 4, 2001 (available only to subscribers)
Charter Schools in Action, by Chester E. Finn, Jr., Bruno V. Manno and Gregg Vanourek, 2001
