Faltering Pearson CEO Faces Stockholder Protests

What do you do with your CEO when your company loses record amounts of money and the value of its stock drops precipitously? Well if you are Pearson Education and your CEO is John Fallon, you give him a bonus and a raise.

Fallon acknowledged 2015 was bad,  but now 2016 was worse.
Fallon acknowledged 2015 was bad, but now 2016 was worse.

Fallon faces-off with hostile shareholders and global critics on Friday, May 5, at Pearson’s annual shareholders meeting and he is in trouble. According to the Telegraph, “two influential investor advisers opposed his pay rise in the wake of a disastrous profit warning . . . Institutional Shareholder Services, the world’s largest adviser on AGM voting, and its biggest rival, Glass Lewis, have urged clients to reject Pearson’s remuneration report at the meeting.”

Pearson awarded Fallon a 20% even though revenues from the company’s United States higher education business are down by 18% and it is slashing dividends it pays to investors. The news of the bonus, the dividend cut, and the investor rebellion drove Pearson’s stock share price down on the London exchange to £6.39, about $8.25, on April 28. Pearson stock was valued at £15 ($20) two years ago, so mismanagement has wiped billions of dollars off the value of the company.

In Great Britain, “Public limited companies are required to hold an Annual General Meeting, or AGM of shareholders at which decisions are taken on the company's business . . . The ‘ordinary’ business of the AGM is repeated every year and includes accepting the company's accounts for the year and fixing the proportion of a company's profits that will be paid back to shareholders as a dividend.”

But this no “ordinary” business year. On April 21, analysts at Liberum Capital advised market players to sell Pearson shares immediately and predicted Pearson would drop by another 42.6%. Over the month the company share price had already decreased 18.5 points. Other analysts share Liberum Capital’s pessimistic view of Pearson’s prospects. Numis Securities, Barclays, Deutsche Bank, and Beaufort Securities all advised investors to sell. The only thing preventing a total price collapse may have been a recent large “insider” purchase of Pearson stock by one of its Board members.

Pearson’s stock value is crashing.
Pearson’s stock value is crashing.

Pearson’s largest shareholders with approximately 35% of its holdings on the London exchange, are investment companies representing a range of interests including pension plans like the Vanguard Group. They supported Fallon at the 2016 shareholders meeting when he was challenged by teacher unions from around the world and opponents of Pearson’s marketing of cheap, sub-standard, online miseducation in Third World countries. This year, with profits, stock prices, and dividends plummeting, stockholders are very unlikely to be happy with what is taking place.

Representatives from leading teachers unions and non-governmental organizations are planning major protests at the shareholders meeting including the release of helium balloons with an image of Fallon's face to symbolically “let him go.” The National Union of Teachers (UK), the American Federation of Teachers (US), the South African Democratic Teachers Union, the Kenya National Union of Teachers, the Danish Union of Teachers, New Zealand Educational Institute and Uganda National Teachers’ Union, and Global Justice Now, collectively demand that Pearson appoint new leadership to end its push for privatized schools in Africa and Asia, and build a sustainable business model that views public education as a fundamental human right, not a leverage point for profits.

Global protests against Pearson
Global protests against Pearson

Pearson is in trouble in many localities and on many levels. Its private school partner, Bridge International Academies, was thrown out of Uganda and is under siege in Kenya and Liberia. Bridge is also under investigation by a British Parliament committee curious to know why a private, for-profit, U.S. business receives funds from the British Department for International Development (DFID). One possible explanation is that before coming to Pearson, Sir Michael Barber, its international marketing expert, was a DFID Special Representative on Education. In the midst of financial missteps and the disclosure of questionable ties, Barber recently resigned from Pearson.

Pearson is also facing new legal challenges in the United States. A class action pending in United States District Court for the Southern District of New York charges Pearson violated security regulations and mislead investors who purchased the Pearson’s American Depositary Receipts between January 21, 2016 and January 17, 2017 with overly optimistic profit projections.

Pearson [Mis]Education so is despicable that a lecturer at Hackney College in London refused to accept an award from Pearson intended to “recognise and celebrate the outstanding work of exceptional teachers across the UK.” Rose Veitch wrote that, while grateful for the recognition, she is “opposed to the involvement of the private sector in the provision of education at every level.” According to Veitch, “the involvement of for-profit organisations can only damage education.”

Follow Alan Singer on Twitter: https://twitter.com/ReecesPieces8

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