Shareholders call for Pearson strategy review after 'crisis of confidence'

Shareholders call for Pearson strategy review after 'crisis of confidence'

A coalition of shareholders, representing 40,000 of Pearson's voting shares across the UK and US, has called for Pearson to urgently review its business strategy due to a "crisis of confidence".

Teachers' union pension funds that invest in Pearson - including the Great Britain’s National Union of Teachers - and 130 shareholders represented by the Unison Staff Pension Fund, have petitioned Pearson to "immediately conduct a thorough business strategy review of Pearson PLC", within the next six months. 

The Pearson Shareholders' Resolution, which was originally sent to the company on 31st December, cited Pearson's plunging stock prices - "a drop in price of over 40% in only seven months" - as reason to believe the current strategic business plan has "failed" investors.

The shareholders also attacked the board's efforts to address "lack of confidence" in the company, and accused it of "gambling" with shareholders' pensions, in particular calling into question an overreliance on the "high-stakes testing market" and the company's establishment of low-fee private schools.

Pearson announced plans to reduce its workforce by 10% in January, accounting for 4,000 jobs, of which approximately 400 are based in the UK. However, the cost-cutting approach has been described by Unison general secretary Dave Prentis as "flawed", while Liberum analyst Ian Whittaker said the cost-cutting strategy showed "this company is both facing severe structural headwinds and […] showing an unwillingness to face up to its issues”.

On behalf of the 33,000 Pearson shares Unison represents, Prentis said Unison would be raising "serious concerns" about how Pearson is run at its annual meeting this April, arguing the company was "failing to respond to changes in the education market in the United States, where it makes 60% of its profits" with testing budgets are at risk from a change in the law as movements against compulsory testing grow.

He said: “Pearson has put too many of its eggs in the US testing basket, and unions are right to be concerned that the company risks gambling away the current and future pensions of hardworking public sector employees. The company is shedding thousands of jobs in an attempt to turn the business around, but this flawed approach won’t address the deeper problems in its main U.S. market.

“Rather than continue to focus the business on politically poisonous high-stakes testing, and axing the jobs of thousands of employees, c.e.o. John Fallon should be conducting a wholesale reassessment of Pearson’s strategic vision.”

Kevin Courtney of the National Union of Teachers, part of Trade Union Fund Managers, added: “It’s clear that Pearson’s business model is failing shareholders, and it’s also clear that the high-stakes testing regime promoted by the company is damaging children and the teaching profession‎ leading to an ‘exam factory’ culture in schools. We want Pearson to base its business model on helping teachers deliver the best for children across the globe.”

A spokesperson for Pearson - which has 821m shares in total - said that testing accounted for less than 10% of its revenues, and pointed to a 20% rise in its share price since January following the announcement of Pearson's cost-cutting "recovery" plan.

"We welcome engaged shareholder discussion and will be sharing the resolution with our shareholders, alongside a response from Pearson," the Pearson spokesperson said. "We will ensure that the Pearson board gives this resolution due consideration.

"The recent review of Pearson’s business published in January has laid out clear plans to simplify and integrate Pearson’s business, and position the company for sustained growth."

Analysts at Citi Research have backed Pearson's strategy, saying that while the shareholders' "angst" was  "understandable", the resolution was "somewhat misguided and at worst misleading", because it overestimated the impact of new law and because US testing was not the primary driver of the challenges experienced by Pearson last year. The research company added it was not "overly concerned" by the resolution, suggesting it was a "public relations exercise" since teachers' unions are by and large not in favour of testing. 

"In short, although any shareholder voice is important, it strikes us that it would be possibly easier for the shareholders concerned to simply sell their 40,000 shares (current market value of £350,000) than agitate for a change in strategic direction," the analysts said. "That they are suggests to us that this is a public relations exercise rather than a true effort to create shareholder value."

It added the resolution merely underlined the point that "for Pearson there is a constant risk that not all stakeholders in the educational process can be aligned all of the time".