Why Pearson Is Complicit

I should describe my position in more detail

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The former Pearson OPM unit - Pearson Online Learning Services (POLS), soon to be renamed as Boundless Learning - lays off half its staff with no severance and no pay for paid time off while also unilaterally ending non-profitable program partnerships. A case study in how cuts are made can be more important that what cuts are made.

In my post on Friday I implicated Pearson.

The reason that I believe Pearson is complicit in how the changes have been made is that the company still sells to higher education institutions, including the ones that were its OPM partners. And because Pearson agreed to a deal where its payment for the sale is directly based on these cuts: 27.5% of adjusted EBITDA - with little or no offset for the cost of the layoffs.

I feel I owe a deeper explanation, however, to back up these claims. After all, these layoffs occurred after the acquisition was complete, so why blame the previous owner? [Note: in this post I am referring to the top leadership of Pearson and the decision-making apparatus involved in the sale of POLS. I am not referring to the vast majority of people working at the company.]

I realize I am jumping deep into this topic, but the reason is that otherwise some strategic changes in the OPM market and more generally in the EdTech industry will be missed or misunderstood. Without an explanation, marketing will take over and people will hear the sale went through, we had to do some belt-tightening, and here we are with a new name, better than ever. I believe the true nature of company behavior is important to understand in this case.

Dealing With The Obvious

Before getting into Pearson’s role, let’s deal with the obvious situation. As I described on Friday, the primary actors at fault in this debacle are the new owners Regent LP and the top management team of POLS / Boundless.

Based on TheLayoff discussions, it appears that Regent made similar moves at another portfolio company, Zulily. No severance, no payout for paid time off, no insurance coverage, mass meeting notification. These moves are deliberate and, I believe, part of the reason for the acquisition.

I understand the need for controlling costs and layoffs, but how a company handles these moves matters. And doing so with no notice and no severance is the wrong thing to do and reflects poorly on the character of leadership and ownership.

Looking at other Regent LP portfolio companies, it is not obvious that they handle most acquisitions in the same way, but it is clear that this summer they have with two companies - Zulily and POLS / Boundless. And they are responsible for the terms of the layoffs.

Regent LP has no other presence in education, and they (thus far) have kept the entire POLS executive leadership team in place. This is not a situation of new owners bringing in new leadership and discovering what needs to happen. The POLS / Boundless exec team is also responsible for the terms of the layoffs as well as the misleading manner of communicating with staff.

Pearson Complicity

There are three primary reasons behind my argument - Pearson understood that mass layoffs were needed, Pearson knew how the layoffs would happen (or should have known), and Pearson was and still is actively supporting POLS / Boundless.

Pearson Understood

When Pearson announced the end of the ASU contract - one that contributed nearly 40% of POLS revenue, or roughly $118 million out of $307 million - leadership claimed that the:

profit impact of the contract termination will be modest in 2022 and 2023 and will be offset thereafter through eliminating related costs and re-directing investment across our strategic growth opportunities

Read that as mass layoffs as well as other disinvestment. I described in my March post that POLS also lost Ohio University, its third-largest client. In this week’s earnings call (remembering that POLS was still part of Pearson through June 30th), Pearson described the revenue impacts [emphasis added].

Virtual Learning sales decreased 15%, primarily due to an expected 69% decrease in the OPM business given the previously announced ASU contract loss.

Note that the ASU loss is only part of the problem. For its part, Pearson had a layoff in March associated with the announcement of the sale to Regent, but nowhere near the level needed to deal with this loss of revenue. Furthermore, the company initiated a strategic review in Summer 2022 leading up the March 2023 sale announcement, and they had analyzed the numbers. Pearson understood additional massive cuts were required and that such cuts would likely cost tens of millions of dollars in severance costs if done under the Pearson banner.

From the comments of Friday’s post we get further detail of the justifications used [emphasis added].

Back on July 10th, 2023, there was a Townhall meeting hosted by the Boundless Learning (formerly POLS) leadership team, which informed us that there would be changes to our contract with Maryville University who is one of our biggest OPM accounts.

The biggest change was the fact that moving forward, we would only be supporting Maryville Nursing Programs and all other programs including numerous Undergraduate and Certificate programs would no longer be supported by Boundless Learning (POLS). Throughout the meeting they shared data derived from months’ worth of research and analytics which outlined how the undergraduate programs were just not as profitable as the Grad Nursing programs which is why they decided to stop supporting all programs with Maryville outside of Nursing.

This change is what led to the mass layoffs that took place early this week. During the meeting, one of the executive leaders acknowledged that this change was something they had been expecting and embracing for, for months. They even mentioned the fact that this is why there was a hiring freeze in effect and why they stopped back-filling positions that became available months ago.

Pearson Knew

I’ve been involved in and seen private equity acquisitions in the education space, and these deals are not done with the parent company blind to strategy. Bidders work to convince the selling company of their plans, pitching the strategic thesis. Companies like Pearson that are selling parts of their organization understand what is going to happen in general.

Take a distressed organization sale like POLS, however, and consider the terms of the deal that make this an even bigger issue. Regent offered nothing for the group - only a promise to share a portion of the profits and a portion of the re-sell, as I described in March.

There appears to be no upfront payment for the POLS business; instead, Pearson will receive 27.5% of adjusted EBITDA (profit, more or less) for the next six years, and if Regent cleans up and (re)sells the POLS unit, Pearson will get 27.5% of the proceeds.

The only upside to Pearson financially in this deal is:

  • Getting the known layoff liabilities of layoffs and unprofitable contracts off its books;

  • Getting a cut of the profits; and

  • Getting a cut of the re-sell.

Therefore Pearson leadership must have asked for Regent plans in these areas.

And the details were already playing out before the close of the deal. Based on multiple sources, POLS / Boundless held a town hall in mid June notifying staff of new employment contracts that included the no severance clauses and no 401(k) sharing. This should not have been a surprise, as multiple commenters at TheLayoff predicted the no severance situation back in March, after the Pearson cuts.

“When the job massacre comes, we will not be offered a severance!”

“I envy everyone who was let go hoping my name will be called next. I'm sure there will be more layoffs before the final ownership transition and more when clueless Regent takes hold. Notice in the last meeting [POLS execs] wouldn't confirm future benefits or potential severance for employees who are let go.”

Pearson Supported

The third reason comes from information that I’ve discovered since the Friday post. Pearson is actively supporting POLS / Boundless to this day. This is no we sold the company and have nothing to do with it any longer situation.

Pearson was and still is providing the internal IT systems to help with the operations of POLS / Boundless, with the exception of the HR system. MS Teams, Outlook, Salesforce, etc. POLS / Boundless employees still use pearson.com emails. And every POLS / Boundless employee was given the role of “Contingent Employee” as of July 5th on the internal Pearson systems. To make matters worse, the staff let go had their camera and microphone usage cut off before the announcement (presumably through MS Teams) and all system access cut off half an hour after the announcement. Pearson IT systems.

As I pointed our Friday, Pearson still maintains the web presence for the POLS / Boundless unit on the Pearson website.

The ongoing branding and IT system support is not insignificant. Pearson is actively supporting POLS / Boundless to this day.

Primary and Secondary Responsibility

Clearly Regent and POLS / Boundless leadership bear primary responsibility for how they are treating staff and customers. Brutal, heartless, and short-sighted. But Pearson (unlike Regent) knows education and should care about its corporate reputation. Pearson is complicit in this mess.

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