Rasmussen College recently converted to a Delaware public benefit corporation. For those who don’t follow the blog regularly, a Delaware public benefit corporation is a for-profit entity “intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner.” “‘Public benefit’ means a positive effect (or reduction of negative effects) on one or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.”
What raises red flags for this corporate conversion is the fact that the U.S. Senate Health, Education, Labor and Pensions Committee (HELP) issued a damning report in July 2012 on for-profit colleges including, specifically Rasmussen College. The report, titled For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success, can be found here. The report is the result of a 2-year government study on for-profit colleges.
The report notes that the revenues of for-profit colleges come almost entirely from federal taxpayers (to the tune of $32 billion a year) but that the retention rate of students is low, the colleges are not held accountable for ensuring student success, the colleges have seen large increases shareholder returns in recent years, the colleges spend more money on recruiting than education, and that the quality of education provided is abysmal.
I cannot repeat the findings of the 250-page HELP report in total on this blog, but here are some figures from the part of the report that discusses Rasmussen College (full report on Rasmussen here).
• Approximately 80% of Rasmussen’s revenue comes from federal funds (approximately $185 million in 2010).
• Compared to public colleges offering the same programs, the price of tuition is higher at Rasmussen. A Bachelor’s degree in Business Management from Rasmussen College costs $68,668. The University of Minnesota costs $56,240 for a Bachelor’s in Business.
• Rasmussen spent $4,801 per student on instruction in 2009, compared to $6,261 on marketing and $9,017 on profit.
• Rasmussen’s student retention rates were among the lowest of the for-profit colleges surveyed.
• In 2010, with 17,090 students, Rasmussen employed 448 recruiters, 30 career services employees, and 303 student services employees. That means each career counselor was responsible for 570 students and each student services staffer was responsible for 56 students. Meanwhile, the company employed one recruiter for every 38 students. (Recruiting high volumes of students is part of the profit model).
The HELP report on Rasmussen College report concludes:
“Like many others in the sector, Rasmussen’s enrollment increased rapidly over the past decade.
Much of this growth came after the company’s 2003 acquisition by the private equity company
Frontenac. Additionally, Rasmussen has received increasing amounts of Federal financial aid dollars, at least $185 million in 2010, and realized significant increases in profit. However, the company’s programs are costly and students attending Rasmussen have some of the worst retention rates of any company examined by the committee, with more than 63 percent of students leaving with no degree. While Rasmussen has made some minor improvements, including an orientation program, and makes a greater investment in spending on instruction and student services than many for-profit colleges examined, it is unclear whether taxpayers or students are obtaining value from their investment in the company.”
And now, Rasmussen College is a public benefit corporation. This is exactly the type of “whitewashing” or “greenwashing” that lawyers and scholars predicted would occur as the benefit corporation legislation has been passed into law in 19 states and the District of Columbia. Any company can become a public benefit corporation; and the public benefit produced is only enforceable by shareholders. Quite unfortunately, I predict that we’ll see a lot of this in the years ahead.
This is a prime example of how the corporate form—whether a traditional corporation, benefit corporation, or even a nonprofit corporation—does not tell us much about the actual shared value (or lack thereof) that a firm creates. Socially- and environmentally-beneficial firms create shared value because they have investors and managers that pursue shared value and eschew opportunistic, greedy behavior, not because of a state statute governing corporate form. I still think that there are societal benefits to the benefit corporation and hybrid forms like it, but one should not mistake corporate form for actual corporate performance. Even a nonprofit corporation can engage in vice. To assess corporate performance, you need accounting and outcome measurements, and someone or something to hold companies accountable. Rasmussen would presumably fail miserably on GIIRS ratings or SASB standards.