Investment in knowledge pays the best interest, or so Benjamin Franklin said. Shareholders in one education publisher are still waiting for their reward.
On Friday, investors approved the salary of Pearson’s incoming Chief Executive Andy Bird—although not without grumbles about its generosity and vague performance targets. The former Disney International executive will take over the global education company just as Covid-19 forces schools and universities to do more teaching online.
Pearson has had a rough few years. Its London-listed stock is close to a 20-year low and the outgoing CEO issued more than half a dozen profit warnings during his tenure as the company grappled with a secular shift away from printed textbooks. Europe’s largest activist investor Cevian Capital disclosed a 5.4% stake in the business in June.
Things will probably remain bumpy for now. The coronavirus pandemic is expected to reduce enrollments in U.S. universities, an important market for Pearson. The number of international students, who make up around 5% of intake every year, will be down. And many locals have deferred with social distancing making for little excitement on campus. Pearson thinks enrollments could be down in “high single digits” this fall, although the American Council of Education expects a sharper 15% decline.
Longer term, the company needs to prove that it has the right strategy. Pearson has spent more than 700 million pounds annually, equivalent to roughly $900 million, as part of its digital transformation during the outgoing boss’s time at the helm. There is little to show for it yet in the group’s overall financial results. However, the pandemic is speeding up the shift to online learning. Of the 3,000 colleges and universities included in Davidson College’s C2i tracker, 44% plan to teach either entirely, or predominantly online this semester.
That is a big opportunity. Pearson helps educators to set up fully digital courses, and colleges and universities are now scrambling to get programs online. Applications to the company’s virtual schools were also up 60% in the first half of the year. Previously, some parents opted to keep their children out of a physical school if, say, the family traveled a lot. Others may now choose a virtual education for health reasons.
In the past, Pearson was slow to react to changes in its industry. Sales of $200 course books in the U.S. were hollowed out when sites like Amazon created a booming market for secondhand copies. “It was a classic example of a market disrupted by the internet” said Ian Whittaker, founder of Liberty Sky Advisors. “Students had no alternative so they were milked.”
The company does look better prepared for the latest round of upheaval and a fresh face at the top is welcome. But with investors paying a handsome salary to the company’s new CEO, the pressure is on for much better results.
Write to Carol Ryan at firstname.lastname@example.org
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