News and analysis
November 18, 2014

After a Scandal, Pearson Dissolves Foundation

Pearson, the education-publishing company, is closing its scandal-plagued foundation and will begin asking its corporate-responsibility arm to make grants that more closely link giving with its global network and expertise.

One example of the new approach is Project Literacy, which Pearson announced in September. John Fallon, Pearson’s chief executive, describes Project Literacy as a social movement "that will make headway on giving every person access to the tools they need to become literate."

Pearson had been supporting the foundation through its commitment to give 1 percent of operating profits to the communities in which it works. In 2012, the latest year for which data are available, the foundation made grants worth $14.7-million. The funds that the company had been contributing to the foundation will now support Project Literacy and other nonprofit efforts.

In more tightly linking giving to its business interests, Pearson is joining a national trend in which corporations are making big commitments to causes that are close to their expertise.

"Given our role as the world’s largest education company, we have social purpose at the heart of our business model," says Kate James, a former top spokesman for the Bill & Melinda Gates Foundation, who joined Pearson as chief corporate-affairs officer in January. "It’s important that we think about how to maximize social impact. It doesn’t make sense to look through a foundation lens—an arm's length lens."

$7.7-Million Settlement

But the new strategy may raise some eyebrows after an investigation by New York Attorney General Eric Schneiderman determined that the foundation had engaged in activities to aid its for-profit business.

The attorney general found in a December 2013 settlement that the foundation worked closely with a "prominent foundation"— Gates—to develop classroom materials and tests for the Common Core, new elementary and secondary academic standards that have been adopted by most states. Pearson executives believed that working with Gates would enhance Pearson’s reputation and enable the for-profit company to sell products for "tens of millions of dollars" in profit, the attorney general found.

The Pearson Foundation denied any legal wrongdoing but agreed to pay $7.7-million to settle the investigation.

Helping Grantees

The dissolution of the foundation, slated for the end of this year, won’t result in a transfer of assets out of the foundation. The grant maker has been in a position of negative equity since at least December 31, 2009. As of year-end 2012, it had net debt of $8.65-million, but a spokesman said that amount has narrowed since then and that the company has budgeted funds for eliminating the debt when the foundation closes.

Ms. James says the foundation has worked hard to help some of its grantees win support from other grant makers and in other cases will provide "bridge funding" to support organizations through 2015.

The foundation’s grants during 2012 included $500,000 to First Book, which provides books to children in need, $460,918 to the Smithsonian Institution, and $200,000 to the Quaglia Institute for Student Aspirations, a nonprofit that offers a framework for lifting student goals.