My worst share market investment in the past few years highlights why the private sector and education often make uneasy bedfellows.  It has been a desultory lesson in the inane hollowness of corporate speak,  especially when it comes to ” valuing our people”. When corporate types preach this altruism, actions speak louder than words.

The investment was in a listed early childhood centre operator. I won’t name names but the value of my holding has declined by 70 per cent in the past 18 months.  It was touted as a hot stock several years ago. It was expanding and gobbling up childcare centres around the country. Synergies and economies of scale would drive business success. All the usual corporate buzzwords.

The business has continued to tank. This is despite constant reassurances from the directors that they are ” turning a corner” and have a ” recovery plan” in action. But mostly I blame myself for failing to recognise the unique aspects of this particular industry.

Even using the word ” industry” when talking about the care and education of toddlers sounds harsh. It raises the question of whether such a precious task should be undertaken by profit-driven businesses like the one I invested in. “Industry” suggests soulless factories with chimney stacks  belching smoke. It doesn’t conjure images of cute toddlers being nurtured and educated by trained caring professionals. This is likely why my investment has failed so dismally. The corporatisation of childcare is fraught with contradictions.

I have closely read the shareholder reports on the company I invested in. The main reason for their shocking performance has been a significant fall in occupancy rates in their centres. Reading further, a key factor behind this seems to have been high staff turnover. Parents have reacted by removing their children from the centres. Parents want qualified competent caring staff to nature their children. High staff turnover has reduced the stability of care they want for their children. They have voted with their feet. I don’t blame them.

The company has had to write off significant goodwill causing its asset base to slump. But the reality is that the “goodwill” of a childcare centre is based on its reputation which is  created by the employment and retention of quality staff. Mess with that and the goodwill asset quickly disappears. This is what has happened.

Herein lies the problem in this industry. A corporate ethos seeking to maximise profits for shareholders seeks to maximise revenue and minimise costs. The main cost of childcare provision is staffing. But if educated and qualified childcare staff feel they are being treated as units of labour in order to maximise shareholder returns they will eventually walk. The effect on shareholder returns can be catastrophic. Corporate bullshit aside, attracting and retaining quality staff in education actually does matter. Even markets show this.

Peter Lyons teaches at Saint Peter’s College in Epsom and has written several Economics texts.

Advertisement

3 COMMENTS

  1. Peter Lyon’s opinion piece “Business and Early Childhood Education make uneasy bedfellows” made interesting reading this morning. Were it not for that interest, the predictable anti-private bias would be sad. Many early childhood centre operators will tell you there’s nothing worse than an ERO review headed up by a semi-retired school principal. The lack of understanding of the ECE sector is what drives this concern, and that lack is never more apparent than in Mr Lyon’s opinion piece.
    The whole early childhood education sector is private. Not bits of it. The whole thing. For the last 50 or so years. In fact, the early childhood education sector is the most successful example of a chartered school model in the country. And the sky is still up there, it hasn’t fallen yet!
    Mr Lyons veiled attempts to keep the name of the provider the subject of his references anonymous are pitifully inadequate. One can only hope he respects the privacy of his students more diligently.
    My Lyons appears critical of the few corporate providers of licensed childcare in New Zealand, but ignores some of the more salient facts that undermine his position. Specifically:
    • There are 4,500 licensed childcare services
    • Of this, there are over 40 so-called corporate providers. For the sake of argument, let us define “corporate” as five or more services in the one ownership stable – not for any particular reason, but just to ensure we are clear about the term.
    • The vast majority of “corporate” early childhood providers are community-owned, not privately-owned. This includes the largest single provider of childcare in the country.
    • There is only one corporate provider of early childhood education in New Zealand that currently trades on the stock exchange and is therefore publically-listed. And anyone with a Kiwisaver account is likely to be a shareholder.
    Is the fact that the publically-listed provider is struggling a reflection of the corporate nature of the business. I doubt that.
    I doubt it because that would suggest there is no relationship with the many other childcare services in New Zealand that have struggled over the last few years and continue to do so today. We calculated that the average childcare centre has lost over $103,000 in government funding since January 2011 – per year.
    Over the last ten years, government investment in the per-child rate of funding for childcare has been slashed. Inequity of funding policies have crept into the system so that some services are now paid a premium while others struggle. Licensing practices have run amok such that competition between early childhood services has risen to significantly unhealthy levels. 1970’s style collective employment agreements pay teachers on the basis of their year’s of service, not on how well they teach our youngest learners. And each individual service has over 400 specific compliance requirements to keep abreast of at all times, and the list grows.
    Where in this picture is the abhorrent “corporate ethos” Mr Lyons speaks of?
    It’s easy to poke a finger at the ‘nasty corporates’. Were it not for the facts of the matter that paint a quite different picture.
    Finally, Mr Lyons might be surprised to learn that his view of the nasty corporates, along with many other struggling early childhood education services across our sector, continue to do their very best for our children and learners; continue to work hard every day to provide the very best early learning experience they can – spend some time reading the published ERO reports Mr Lyons. These dedicated “units of labour” need support, not brickbats Mr Lyons!

  2. Unfortunately the ‘Early Childhood Council’ does not represent ECE teachers – only it owners so it comes as no surprise that it’s interpretation of ‘quality’ and ‘success’ contrasts strongly with the profession as a whole. ‘Quality’ is minimum regulated standards that maximise profits. Most independent centres and the Kindergarten sector as a whole work above this standard for the good of the children and their own work environment. Yes that costs money. Teachers are leaving corporate centres for better working conditions because because both the pay and working conditions are poor. Established by one corporate organisation and now in close partnership with all the major players, the ECC has tried to strip qualified teachers of their minimum pay rate by lobby to remove the attestation rate – businesses should be charge of setting pay scales they argued. The corporatisation of ECE has seen the the inevitable ‘race to the bottom’ to counter funding losses and rising costs and as Peter Lyons points out its a vicious circle with parents walking the end result. This public-private partnership experiment is a complete disaster and needs to end.

  3. A very telling reply from peter Reynolds of the ECC there – let’s read between the lines shall we?
    “predictable anti-private bias” – I didn’t see that – Peter Lyon is an economist, and clearly also invests in stocks – suggesting he has an anti-private bias is rather odd.

    “There are 4,500 licensed childcare services” – that is irrelevant – he is very specifically talking about his own corporate investment.

    “there are over 40 so-called corporate providers” – just above Mr Reynolds says there are “few” – since when is 40 few? Also, since when has the definition of “corporate” included “community-owned” – Mr Lyon is talking about his shareholdings and investment – hardly relevant to “community-owned” is it?

    Mr Reynolds seems to be deliberately conflating “for-profits” and “non-profits” in his definition of corporate” in order to obscure My Lyons point that his investment in a corporate for profit ECE provider was a poor return…

    Mr Reynolds is being rather disingenous in noting that “the largest single provider of childcare in the country” is “community-owned” when he is probably talking about Best-Start (formerly known as Kidicorp (a name that in itself tells you an awful lot) which was a privately owned company that has transformed itself into a ‘trust” that is still tightly controlled by the original owning family who take quite large salaries from their ‘trust” thank you very much – and as such, if the profits in the sector are declining as much as Mr Reynolds suggests, then becoming a non-profit trust that pays no taxes was probably a very smart move…

    My Reynolds further says “Over the last ten years, government investment in the per-child rate of funding for childcare has been slashed.” – now, here we come to the crux of the matter – WHY should the government be subsidising “for-profit” corporates – (I wonder what “profit” Mr Lyons invested company would have made without that direct reliance on government money?) – one can imagine what our primary and secondary school sectors would look like if they were required to provide a profit to private business people such as Mr Reynolds and investors such as Mr Lyons.

    “Licensing practices have run amok such that competition between early childhood services has risen to significantly unhealthy levels.” – so a failure in the market then too? I thought competition was supposed to healthy in a market economy – it seems Mr Reynolds wants to have his profit cake and eat it too – “corporate” providers, but not too much “competition”. It doesn’t say a lot for Mr Reynolds and his Council’s effectiveness at representing (and also in supporting new entrants to the sector) if there truly is “unhealthy”competition. Had Mr Lyon know that competition in the sector was so unhealthy, then perhaps he would not have invested in the company that he did hmm?

    ” We calculated that the average childcare centre has lost over $103,000 in government funding since January 2011 – per year.” – so basically Mr Reynolds is supporting Mr Lyons argument that investment in corporate ECE is fraught with risk – they are relying heavily on a single source of income that has continuously declined for 10 years!

    “1970’s style collective employment agreements pay teachers on the basis of their years of service, not on how well they teach our youngest learners” – utterly utterly disingenous – you should be ashamed Mr Reynolds – you know full well that the overwhelming majority of private ECE providers have no such collective agreement with their staff and most staff are on individual contracts (including the staff at Mr Lyons invested company) – and the conditions are poor enough that as Mr Lyons points out, they’re leaving, and there is is a now a teacher shortage. I know many many EC teachers that have not had a pay-rise in years, and it has nothing to do with their “performance” either, but has everything to do with corporate owners trying to maintain their level of profit.

    Very poor substance here from Mr Reynolds – no wonder the ECE sector has troubles if this is the best “analysis” available to the members of his “Council”

LEAVE A REPLY

Please enter your comment!
Please enter your name here