Can Business Save New York City Schools?

Mayor Bloomberg has recruited an A-team from Corporate America to help pull off a radical turnaround

Like every mayor in recent memory, Michael R. Bloomberg talks a lot about how much he wants to improve New York City schools. Unlike his predecessors, however, he has a bold vision for fixing them. Raising his voice over the buzz from the warren of cubicles he has incongruously installed in the 200-year-old City Hall, the mayor is almost giddy as he describes how he has terrorized New York's educational establishment.

Among his first moves were to close the Dept. of Education's medievally dingy headquarters in Brooklyn, fire more than 1,000 administrators, and install his hand-picked team in a luxuriously restored courthouse in lower Manhattan -- a bright, airy symbol of the system's rebirth. "Bureaucracies always have the attitude 'Yeah, we've seen reformers before, Mac. We'll outlive you,"' says Bloomberg. "So what did I do to break up this bureaucracy? I went over to headquarters, took the key people out without their staffs, brought them to a new building with an open floor plan, and then sold off the old building and transferred all the people elsewhere."

In choosing someone to run the schools, Bloomberg ignored obvious candidates and turned to another businessman, Bertelsmann Inc. Chief Executive Joel I. Klein, best known as the former federal trustbuster who took on Microsoft Corp. Using their vast social connections, the duo persuaded more than a dozen accomplished executives to abandon big salaries and private offices and take full-time jobs in city government, including former Covad (COVD ) CEO Robert E. Knowling Jr., ex-Goldman Sachs (GS ) partner Ron Beller, and Wolfensohn & Co. investment banker Maureen A. Hayes.

Backing this team up with money and advice was an even more distinguished group: business legend Jack Welch, consulting guru Noel M. Tichy, California billionaire Eli Broad, and IBM CEO Samuel J. Palmisano. This coalition of the best and brightest is attempting a bold and nationally significant social experiment: applying business principles to the vexing problems of public education. "I'd like to think that someday, somebody will write a management book about this," says Bloomberg.

Former media titan that he is, the Mayor is defining success by the numbers. He has courageously promised to drive up student test scores in core skills such as reading and math. At a time of steep budget cuts, the only way Bloomberg can possibly achieve that is by squeezing more performance out of fewer people. So he and Klein have crafted an ambitious plan to change the culture of the Dept. of Education. First, they're centralizing authority in City Hall, giving the Mayor more power to hire, fire, trim fat, and set the curriculum. Then they're reinventing training. A privately funded $75 million Leadership Academy for principals in Ossining, N.Y., modeled after General Electric (GE ) Co.'s legendary Crotonville training facility, will give the Chancellor a new platform for spreading creative techniques throughout the system.

Of course, Bloomberg and Klein can't fix all of the intractable social and economic problems afflicting New York's schools. The city's 1.1 million students speak more than 40 languages, including Polish, Bangladeshi, and Haitian Creole. Many come from broken homes. Some carry guns to class. Only 16% of the students who entered high school in 1998 went on to pass the tests necessary to win a Regents diploma -- the degree representing basic competency in core subjects such as math, reading, and history. If the mayor can boost this number by a modest percentage by eliminating big inefficiencies and strengthening accountability, he'll improve the lives of thousands of kids. If Bloomberg's plan fails, though, his administration could very well go down, leaving behind a legacy of defeat that would discourage future New York mayors from trying to confront the powerful interest groups with a stake in this issue.

This is not just a local story. The New York education experiment has implications far beyond the city. Across the country, many public schools are failing just as states and cities are facing worsening budget squeezes. The Bloomberg-Klein team is attempting to solve these two linked problems by making the most systematic effort ever to force capitalist thinking into the insular kingdom of public education. Their innovations will affect everything from recruiting to training to the quality of cafeteria pizza. "This is really something quite new in American education and potentially very important," says Michael B. Katz, a professor at the University of Pennsylvania who has written about the history of American education. "Professional educators have been incredibly successful in fending off outside influences. This could be the beginning of the breakup of that empire."

Right now, that empire is striking back with a vengeance. When Bloomberg and Klein barged into the world of education, they positioned themselves as white-knight outsiders and largely ignored the constituencies they blamed for creating the educational mess, including local politicians, unions, and bureaucrats. Now, many of these groups are out to thwart key pieces of the plan. The teachers' union has withdrawn its support for the mayor. And some state legislators, who gave him more power last year, now want to strip part of that control away.

This opposition has become a serious threat as the city's fiscal crisis has deepened and Bloomberg's approval ratings have dived. Critics can smell blood -- and are trying to turn the business community's participation in school reform into a liability. "All these lawyers and bond brokers decided they were on a mission from God," says State Senator Carl Kruger, whose lawsuit challenging the reform plan is scheduled to go to trial on June 3. "They're treating the Education Dept. as though it were a division of Bloomberg LP."

The controversy is so acrimonious that school reform has become front-page tabloid fodder. But although the mayor and the chancellor have mud on their suits, they're sticking to their vision. As the man who took on Microsoft, Klein is hardly frightened of the education monopoly. A native of Queens who grew up in a housing project, he says he joined up with Bloomberg for personal reasons. "My father quit school in the 10th grade," he recalls. "He told me, 'If you don't want to live in public housing, go to school."'

The rest of the team is a lot like him: successful, public-spirited execs who were attracted by the opportunity to apply their analytical skills to an urgent social problem. Former investment banker Maureen Hayes signed up with Klein because she thought it was a once-in-a-lifetime chance to bring about systemic change. "Prior to this, the whole system seemed so huge and impenetrable that I felt as if the only way for me to make a difference was to work with individual schools," she says.

In terms of pure star power, this is Corporate America's marquee pro bono project. Sam Palmisano has offered IBM facilities for principal-training sessions. Jack Welch has lectured top school managers at GE's Crotonville center. Noel Tichy has an e-mail correspondence going with Regional Superintendent Carmen Fariña, who oversees 130 schools in Brooklyn and Queens, offering team-building exercises and advice. Walking around the soaring atrium of the Tweed Courthouse, the new education headquarters, it's easy to feel the electricity. "This is like working for a startup," says former Covad chief Knowling.

But he and others are discovering that running a $12 billion, 1.1 million-student school system is nothing at all like running a fledgling DSL company. Start with the union contracts. Klein has almost no power to reward or punish teachers, principals, or administrators. Byzantine work rules in the city's 215-page contract with the United Federation of Teachers govern everything from the number of classes taught to the ability of principals to review daily lesson plans. State laws, meanwhile, force about $2.5 billion, or 20% of the school budget, to be spent on special education, limiting flexibility. Add it all up, and you have massive inefficiency. Although there are 80,000 teachers in New York City -- about one for every 14 pupils -- the classroom student-teacher ratio runs closer to 30 to 1.

One easy way to heal the system would be by throwing money at it -- raising teacher pay, buying books, building new schools, and replacing 20-year-old computer systems. But this is impossible. The city's fiscal crisis is forcing Bloomberg to take $175 million, and possibly much more, out of the school budget. In response, Klein is consolidating purchasing and instituting a variety of fat-trimming steps. But such moves only promise to save a maximum of a few hundred million dollars over the long term. That's enough to restore services to 2002 levels, but not enough to improve meaningfully the average student's classroom experience.

So Klein is focusing on the one thing he can do: try to change the culture. That's what Welch hammered home with Klein's 40 top managers in Crotonville in February. In a rare performance, the former GE CEO described his frustrations trying to turn around the company's bureaucracy in the early '80s. One pitfall was the not-invented-here syndrome: the refusal of managers in, say, Plastics to adopt innovations developed by Power Systems. The comparison is apt for New York, where "education has always been about closed doors," Superintendent Fariña says. "If somebody has a good idea, God forbid somebody else uses it."

To address the problem, Welch rewarded managers who used other people's innovations to the same extent he did the innovators. "That's something I hadn't thought of before," says Fariña. She liked Welch's idea so much that she used it at a principals' conference on Feb. 26. Attendees were encouraged to share and adopt one another's "best practices."

For instance, Beverly Stern, principal of P.S. 38 in Brooklyn's leafy Boerum Hill, told how she had rejiggered the daily schedule to create longer continuous periods devoted to one topic. Now students have 90-minute blocks of time in the morning devoted to reading and writing. "The teachers also have more time to really delve into instruction," she says. "That's how you move kids forward." This year, reading scores for fourth graders at P.S. 38 rose 25%, to the 56th percentile statewide.

So far, the most visible piece of Klein's reform plan has been his decision to centralize control over the schools. Under the current system, authority is split among 32 districts -- each with the authority to hire, fire, and choose textbooks. That has led to epic balkanization. New York schools currently use 30 different programs in reading and 50 in math. No two district organizational charts are exactly alike.

With the help of former McKinsey & Co. consultant James H. Shelton III, Klein redrew the old districts into 10 new divisions. As part of this restructuring, the schools will teach a standardized curriculum. For the first time, one set of job titles and descriptions will be employed throughout the system. This will make it easier for the chancellor to impose systemwide initiatives, such as joint purchasing or training efforts. It will also let Klein make apples-to-apples comparisons among teachers, principals, and schools. Ultimately, the goal is to establish more accountability and improve teaching.

A less widely publicized reform, but one equally important in Klein's mind, are his plans for principal training. His Leadership Academy will be the place where the chancellor spreads the gospel to the flock -- just as Welch did. Heading up the Academy will be Knowling, who created a similar center at Ameritech when the telecom was trying to shake off its lazy monopoly culture in the early 1990s.

Knowling will be working side by side with Sandra J. Stein, a former professor of education at Baruch College who abandoned an accepted job offer at the University of California at Berkeley to work at Tweed. The siren song of New York school reform has been just as seductive to educators as it has to executives. As he did at the Justice Dept., where he attracted stars such as David Boies and A. Douglas Melamed, the chancellor has proven to be a great recruiter. "He told me, 'You'll never get a change opportunity like this,"' says Anthony Shorris, deputy chancellor for operations and planning, who gave up a tenured professorship at Princeton University's Woodrow Wilson School of Public & International Affairs to join Klein's team.

Klein is pinning high hopes on the academy because he considers principals his main lever for changing the system. They are the ones who see kids every day, who will implement the new core curriculum, and who have the most power to adopt innovations. Over the next five years, half of New York's 1,200 principals will leave the system, giving the Klein team a unique opportunity to leave its imprint.

In keeping with the chancellor's agenda, the Academy is rejecting the traditional approach to training. Currently, candidates for certification take stand-alone classes in law, budgeting, and other topics. Stein wants to replace that with case studies, mixing these issues together in a way that more closely approximates real life. Over the long term, Knowling would like to turn the Leadership Academy into a think tank for the entire Dept. of Education. Borrowing an idea from the business world, he envisions luring quality principals by brandishing signing bonuses, mortgage assistance, and slick brochures that sell the city and its revitalized schools. "The education sector does not do many of the things that we take for granted in the private sector," he observes.

That's clear. Despite the controversy surrounding Bloomberg's plan, most independent observers agree that bringing a business perspective to New York schools is a good idea. The disagreement is over the issue of whether -- at a time when per-pupil spending is sinking -- innovations such as best-practices seminars, teamwork exercises, and a new management flowchart will be enough to improve test scores. Says a retired district superintendent: "Unless you build new schools and reduce class size, the most reading and scores will improve by is 5% or so."

For the moment, skepticism about the Mayor's bold plan abounds. But it hasn't taken hold everywhere. Fariña, a 40-year veteran of the system, considers this a unique opportunity for reform. "Jack Welch said one thing that really struck me," she recalls. "You can't allow an organization to grow complacent. When you find those kinds of organizations, you have to tear them apart and create chaos. That chaos creates a sense of urgency, and that sense of urgency will ultimately bring [about] improvement."

Whatever else Bloomberg may have accomplished, he has created that sense of crisis. Old assumptions are being questioned, sacred cows slaughtered, new ideas floated. That's the only way to reform an institution as dysfunctional as the New York City school system. He can't rescue every kid, and many of his ideas may not work. But he's the first mayor in a long time who's doing more than talking about the problem.

By Mike France

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