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.