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Why would Leon Panetta, Marc Morial join for-profit Corinthian?

Corinthian Colleges operates in an industry criticized for deceptive marketing and low graduation and job placement rates. Why would two respected public figures join its board?

May 31, 2013|Michael Hiltzik
  • Students run diagnostic tests on a car at WyoTech, operated by Corinthian Colleges, in Long Beach.
Students run diagnostic tests on a car at WyoTech, operated by Corinthian… (Brian van der Brug, Los Angeles…)

What do Leon Panetta, Marc Morial and Corinthian Colleges have in common? Good question.

Panetta and Morial are among our most distinguished public servants. Panetta earlier this year concluded a stint as secretary of Defense, one of a string of high-level government posts under Presidents Obama and Clinton, preceded by 16 years as a California congressman. Morial served two terms as mayor of New Orleans and is now chief executive of the National Urban League, a leading civil rights organization.

Corinthian is a troubled company in a troubled industry — the for-profit higher education business. The Santa Ana firm, which operates 113 colleges in the U.S. and Canada under such brand names as Everest and WyoTech, played a starring role in a congressional report last year that panned the entire industry for deceptive marketing and low graduation and job placement rates. The report also cited students' high default rates on federal education loans, from which Corinthian and its cousins obtain almost all their revenues.

Federal education officials have questioned Corinthian's financial accounting. (The company says its numbers are legitimate.) According to Corinthian's latest quarterly report for the period that ended March 31, its enrollment and financial aid practices were then under investigation by six states, including California. The company has lost money in each of its last two reported fiscal years. Enrollment was down by more than 6% in March compared with a year earlier.

You'd think that this record would make strange bedfellows out of Corinthian, Panetta and Morial. Yet a few weeks ago, Panetta and Morial agreed to join Corinthian's board of directors.

What's behind this curious alliance? Morial "shares our commitment to quality career education," Chairman and Chief Executive Jack D. Massimino said on announcing the appointments. He added that the company will "benefit tremendously from his counsel." A company spokesman says Panetta's "knowledge of public policy and education will help make us better."

I planned to ask Morial and Panetta what was in it for them to affiliate with a company facing so much official scrutiny over how well it serves students who are mostly disadvantaged. But neither agreed to talk. Morial's staff at the Urban League suggested I refer my question to Corinthian, which suggests they rather missed the point.

Both of the new directors have previous relationships with Corinthian. The company last year contributed $1 million to an Urban League program to help 200 students in Orlando and Pittsburgh pass the GED high school equivalency test; the donation was jointly announced last year by Massimino and Morial. Panetta served a previous one-year stint as a Corinthian director, resigning in 2009 when he was named CIA director.

As Corinthian directors they'll earn at least $60,000 cash plus deferred stock with a target value of $90,000.

That nice bit of bunce would be well earned if the directors were expected to do anything for their money other than meet a few times a year, say if they were serious about riding herd on a management that seems constantly to be embroiled in regulatory battles. But the sorry truth about too many corporate boards is that directors serve as fronts — rubber stamps for management, pretty faces symbolizing a firm's devotion to social diversity or civic or moral purity, or political ballast.

That's why it's not unusual for a board to be stocked with a CEO's cronies, current or former university presidents or deans, heads of respectable philanthropic organizations, or ex-government officials or political leaders. So it's a fair question whether Panetta and Morial, both of them mainstream Democratic figures, are being appointed to the board to contribute their public policy smarts to Corinthian or to provide political window dressing at a time when the firm faces questions from a Democratic administration's regulators and regulatory initiatives from a Democratic Senate. "It could be seen as potentially an attempt to curry favor with the government," observes Paul Hodgson, a veteran expert in corporate governance.

There's no question that for-profit higher education companies like Corinthian can serve a worthwhile purpose. They can serve a demand for vocational and technical training that public institutions can't meet, with flexibility that not even community colleges always offer. Corinthian schools offer courses for would-be paralegals, dental assistants, automotive technicians and accountants, among others.

But the fees of for-profit schools tend to be much higher than at public colleges, their regulation spotty, and marketing extremely aggressive. The result, critics say, is that the companies' financial prospects can far surpass their students' career prospects.

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