Pearson Charitable Foundation, the nonprofit arm of educational publishing giant Pearson Inc., has agreed to pay a $7.7 million settlement to New York Attorney General Eric T. Schneiderman after he determined that the foundation had created Common Core products to generate “tens of millions of dollars” for its corporate sister.
“The law on this is clear: non-profit foundations cannot misuse charitable assets to benefit their affiliated for-profit corporations,” Schneiderman said in a statement Thursday.
The investigation by the attorney general examined Pearson’s efforts since 2010 to develop a line of classroom materials and tests built around the Common Core, new K-12 academic standards in reading and math that have been fully adopted by 45 states and the District of Columbia.
Pearson, the largest educational publisher in the world, sells instructional content, tests, systems and technology for profit to states, school districts and individual schools in the United States and across the globe.
The adoption of the Common Core has created a lucrative opportunity for educational publishers, as states and schools rush to buy products “aligned” to the new standards.
According to the settlement, Pearson used its nonprofit foundation to develop Common Core products in order to win an endorsement from a “prominent foundation.”
The latter entity is the Bill and Melinda Gates Foundation, which helped fund the creation of the Common Core standards and announced in 2011 that it would work with the Pearson Foundation to create reading and math courses aligned with the new standards. Four of those courses would be offered to the public free of charge, it said.
Pearson Inc. executives “believed that developing the courses within the Foundation would enhance innovation, that the other foundation’s support would potentially enhance Pearson’s reputation with policymakers, the education community and potential customers and that the other foundation would be more comfortable working with the Foundation rather than one of Pearson’s for-profit entities,” the settlement said.
According to Schneiderman, Pearson executives believed the Common Core work performed by their nonprofit arm could later be sold by the for-profit organization and generate “tens of millions of dollars” for the company.
Once the attorney general began investigating, the Pearson Foundation sold the courses to its corporate sister for $15.1 million.
The attorney general also investigated international educational conferences sponsored by the Pearson Foundation, which flew U.S. state school officials from jurisdictions where Pearson Inc. did business, or sought to do business, to destinations such as Singapore. Executives from Pearson Inc. attended these conferences, and would report to the for-profit company about the purchasing needs of some of the attendees, according to the settlement.
In a statement, the Pearson Foundation denied any legal wrongdoing.
“We have always acted with the best intentions and complied with the law,” the foundation said. “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 foundation said it has added “independent directors” to its board who will review any foundation transactions that could benefit Pearson Inc. It said it has also adopted “stronger operational systems.”
In addition, it agreed to pay $7.5 million into a fund managed by the New York attorney general to support the work of 100Kin10, an organization committed to placing 100,000 science and math teachers in U.S. schools in the next ten years. Pearson will also pay $200,000 to cover the costs of the investigation.
Pearson’s commercial products may no longer be featured or sold at any events funded by the foundation, and Pearson’s corporate employees may no longer attend foundation-funded events, according to the settlement.