Whether a school distributes its surplus to owners or keeps it inside a charity tells you very little about whether it is a good school. GSE has worked with both kinds, and has seen excellent and poor examples of each. The argument about profit in education is usually conducted as a matter of principle, and the principle obscures the questions that decide quality.
The worry parents have about for-profit schools is reasonable and should be stated fairly. They fear that decisions will be made for the owner’s return and against their child’s interest, and some owners have earned that suspicion by running a school as a commercial operation without engaging anybody who understands education. The opposite failure is just as common and attracts far less comment. A school that attends only to educational quality and is careless with money ends up in financial difficulty, and a school in financial difficulty cannot keep its teachers or maintain its buildings.
What differs between the two models in practice
The legal difference is narrow, in that a for-profit school can distribute its surplus to its owners and a non-profit has to keep its surplus and apply it to its purpose. Several practical consequences follow from that difference, and they matter more than the label.
The governing body answers to different people under each model, since owners and directors of a for-profit school answer to shareholders, whereas trustees of a non-profit answer to a charitable purpose and usually to a regulator. Parents appear in neither chain of accountability, so the legal form gives them no assurance either way.
The two models also differ in how the school raises capital to grow. A for-profit school can bring in equity, and most of the rapid growth in international schooling over the last twenty years has come from that side, while a non-profit has to grow out of fees, donations, borrowing and whatever endowment it has built. None of that makes a non-profit a small or unworldly business. Eton College is a charity with more than 1,300 pupils, and its 2022 accounts valued its investments at well over half a billion pounds, part of that funded by bonds the school issued on 45-year terms.
Time horizon differs as well, and it does not follow the label. A charity founded centuries ago can plan in decades, and so can a family that owns a school and intends to pass it on. The clock is different for a fund that expects to sell within a few years, and a parent is entitled to ask which kind of owner they are dealing with.
Every school needs a surplus
A surplus does the same work under both models. It carries the school through a poor enrolment year and pays for buildings and equipment to be renewed before they fail, and in a for-profit school it also pays a return to the people who funded the campus. GSE has a line for this that applies to both.
Without money there is no mission. Without mission there is no money.
Greg Parry, Co-Founder and CEO, GSE
A non-profit that fails to generate a surplus cannot renew its buildings or pay competitive salaries, and it will not survive a bad enrolment year. Some respond by fundraising so persistently that parents come to resent it, and some charity schools pay teachers poorly and justify it by pointing to the mission. Neither is more virtuous than an owner taking a dividend from a school that is well run and well staffed.
The fair question to put to a for-profit owner is what comes first. An owner who takes a return after teachers are paid properly and the buildings are maintained is doing what any investor in a sound business does. Taking it ahead of those things is the start of running the school down, and the effect shows within a couple of years in staff turnover and then in enrolment.
The tension is a translation problem
In GSE’s experience the tension between the academic side and the commercial side of a school appears where nobody has helped each side understand the other. It shows up in for-profit and non-profit schools alike, because where the surplus goes has no bearing on it.
Academic goals need to be framed as commercial ones. A head who asks for a learning support teacher is more likely to get one by showing what it does for retention and re-enrolment than by appealing to principle. Keeping good teachers is an academic priority and also the largest line in the budget, and examination results are what fill the following year’s entry classes.
Commercial goals, in turn, need to be explained as the direct consequence of academic ones. Enrolment grows because a school’s reputation grows, and reputation is built in classrooms. A fee increase holds only where parents can see what they are paying for. An owner who asks for a higher margin should be able to say what it will fund, and a head who understands that the margin pays for the next building has a reason to care about it.
Class size is the clearest example, because to a teacher it is a question of how much attention each child gets, and to an owner it is the difference between a school that covers its costs and one that does not. Both views are correct, and a decision made from only one of them usually goes wrong.
Somebody has to do the translating, and it is rarely the head or the owner, because each is usually fluent in one of the two languages. The schools that manage it tend to have a person or a partner involved who has run a school and also understands its finances.
Once that translation has been done, a board and a head argue about priorities, which is healthy. Without it they argue about each other’s motives, and the school suffers under either model.
The hundred dollar test
One question reveals more about a school than its legal status does, and it is who is in charge. In a for-profit school that can be unclear, because both the owner and the head have a claim to be.
GSE’s test is to ask what a head has to do in order to spend a hundred dollars, or a thousand, on something the school needs. Where there is a budget and a clear process, and the head can decide within it, education is driving the school’s operations. If every purchase has to go to the owner for approval, the head holds a title without the authority that should go with it, and staff soon take their requests elsewhere.
Nobody expects a head to have complete autonomy over money. Process and systems should matter more than positional power, so that decisions are taken by the people best placed to take them, whoever they are.
What can be checked from outside
A parent or an investor cannot see a school’s accounts, and they can still learn a good deal. How much of the school’s income goes on teaching staff says more about priorities than any prospectus. Teacher turnover shows whether good people stay, and the length of time the head has been in post, along with how the last one left, says something about how owner and head work together. Visible reinvestment in buildings and resources shows where the surplus has gone.
The same questions apply to a charity and to a company, because the model is only a legal and financial structure. Quality comes from leadership and from money managed well, and it lasts where each side of the school understands what the other is for.
Read next
- Governance Structures That Attract Education Investors. Who decides what, and where a board’s oversight should stop.
- How School Projects Are Financed. Where the money comes from, and the losses most raises leave out.
- International Education by the Numbers, Part Three. Staff cost, retention and margin, with the basis of each figure stated.
- Give Teachers Back Their Schools. Why the people doing the work should own the quality of it.
Part of GSE’s What We Believe collection.
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