The Pearson Foundation, the charitable arm of one of the nation’s largest educational publishers, will pay $7.7 million to settle accusations that it repeatedly broke New York State law by assisting in for-profit ventures.
An inquiry by Eric T. Schneiderman, the New York State attorney general, found that the foundation had helped develop products for its corporate parent, including course materials and software. The investigation also showed that the foundation had helped woo clients to Pearson’s business side by paying their way to education conferences that were attended by its employees.Under the terms of the agreement to be announced on Friday, the money, aside from $200,000 in legal expenses, will be directed to 100Kin10, a national effort led by a foundation, the Carnegie Corporation, to train more teachers in high-demand areas, including science, technology, engineering and math.
“The fact is that Pearson is a for-profit corporation, and they are prohibited by law from using charitable funds to promote and develop for-profit products,” Mr. Schneiderman said in a statement. “I’m pleased that this settlement will direct millions of dollars back to where they belong.”
Officials at Pearson and the foundation defended their work.“We have always acted with the best intentions and complied with the law,” they said, in a joint statement. “However, we recognize there were times when the governance of the foundation and its relationship with Pearson could have been clearer and more transparent.”The case shed a light on the competitive world of educational testing and technology, which Pearson has come to dominate. As federal and state leaders work to overhaul struggling schools by raising academic standards, educational companies are rushing to secure lucrative contracts in testing, textbooks and software.The inquiry by the attorney general focused on Pearson’s attempts to develop a suite of products around the Common Core, a new and more rigorous set of academic standards that has been adopted by 45 states and the District of Columbia.Around 2010, Pearson began financing an effort through its foundation to develop courses based on the Common Core. The attorney general’s report said Pearson had hoped to use its charity to win endorsements and donations from a “prominent foundation.” That group appears to be the Bill and Melinda Gates Foundation.“Pearson Inc. executives believed that branding their courses by association with the prominent foundation would enhance Pearson’s reputation with policy makers and the education community,” a release accompanying the attorney general’s report said.Indeed, in April 2011, the Pearson Foundation and the Gates Foundation announced they would work together to create 24 new online reading and math courses aligned with the Common Core.Pearson executives believed the courses could later be sold commercially, the report said, and predicted potential profits of tens of millions of dollars. After Mr. Schneiderman’s office began its investigation, the Pearson Foundation sold the courses to Pearson for $15.1 million.The attorney general’s office also examined a series of education conferences sponsored by the Pearson Foundation, which paid for school officials to meet their foreign counterparts in places like Helsinki and Singapore.The trips were made public after a series of columns in The New York Times, which detailed the expensive hotels and meetings with corporate executives that were staples of the experience.Several school officials who went on the trips represented education departments that had contracts with Pearson. The investigation did not determine whether those officials had awarded any new contracts based on any improper influence. But the report found that executives from other companies were not invited to attend, giving Pearson’s corporate side a clear advantage.The attorney general portrayed a culture at Pearson in which the lines between business and charity were often blurred. Pearson remains the largest donor to the Pearson Foundation, and the staff of the foundation included several Pearson employees. The board was made up entirely of Pearson executives until 2012.As part of the agreement, the foundation said it would alter its governing structure by appointing three board members to review any financial transactions that might benefit the business side. The foundation also pledged to bar Pearson executives, in most instances, from attending its education conferences, and said it would not feature Pearson products at such meetings.