Top Ten Triggers of Charter School Bond Default: #7 School Leadership
Alan Wohlstetter Alan Wohlstetter
October 25, 2019 | Reporting + Disclosure Practices

Top Ten Triggers of Charter School Bond Default: #7 School Leadership

Introduction. Why should charter school bond investors be concerned about school leadership at the CEO and Board level as long as it is stable? One might ask the bondholders for a Detroit charter school, an institution that had to draw from its debt service reserve fund despite having a stable Board with many members holding their same seats for over a decade. Yet as the Board remained stable, the demographics of the students and the neighborhood around the school changed.  The stable, well-intentioned, but stagnant Board still saw the school as it was when it opened almost twenty years prior and had not changed strategies or approaches to governance as the students and families evolved; that incongruence eventually ushered the school into the bottom 5% in performance in the state.

School leadership affects three key components to a charter school’s success. First, it drives school culture – the translation of a school’s unique mission into the day-to-day school environment. Second, school leadership controls communication – communication to students and families, the flow of information within the organization, and the perceptions of stakeholders and the public. Third, leadership crucially creates the conditions for transparency and accountability. This article intends to highlight how leadership can have a profound impact on the value of a charter school and its bonds.

Culture. When school leadership does not reflect a clearly defined, communicated and reinforced culture expressing why the charter school exists, expectations are unclear and performance soon falters. Take, for example, Executive Education Academy, a Pennsylvania charter school with 1,400 students of which 80% qualify for free or reduced lunches. Wednesday was Anti-Bullying Day, and to promote the culture behind this initiative, the CEO dyed an orange streak running through his normally white hair to demonstrate that difference is embraced in his school’s environment. When school leadership heard that two students were planning to have a fight before school that morning, they took action immediately; the buses were held and the would-be combatants a structured intervention during their lunch, underlining the fact that they had temporarily forfeited their role in the school’s accepting community. Importantly they missed no class while serving this punishment which was not a surprise at Executive Education; school leaders have not expelled a student in five years. Their culture anticipates such challenges and utilize them as an opportunity for growth for the student. Leadership handles such issues in a way that fulfills its role of maintaining a positive school culture.

Communication. A key role of the CEO is to communicate expectations with the Board and faculty in a way that allows them to effectively do their jobs. At Renaissance Academy Charter School (located approximately 30 miles northwest of Philadelphia), the CEO clearly communicates the priority emphasis on learning and growth, whether through positive words of encouragement regarding student expectations strewn throughout the hallways, or through teacher improvement plans and professional development courses for the educators. Clear and concise communication at this charter school has resulted in high teacher retention and strong academic performance. The clear communication between leadership and teachers facilitates the school’s continued growth and success.

Accountability. School Improvement Partnership’s Board Member Arthur Mitchell often reminds us, “Be careful what you measure – because that’s what you’ll get.” With respect to school leadership, the key statistics tracked should reinforce the culture and communication goals that leadership wishes to achieve.  Inaccurate or inadequate data that skews leadership’s perspective of how well a school performs can have disastrous results. Unfortunately for the bondholders of Life School College Preparatory School in Arizona, they experienced how disastrous it can be. Enrollment and attendance statistics were extremely inflated, and in fact the school never reached its intended student enrollment targets as projected at the closing of the bonds. The failed leadership at this charter school resulted in not only a bond default, but a facility sale that yielded only 61% of principal repaid to bondholders.

Conclusion. Under-performing school leadership can be a leading indicator of impending struggles but can often go undetected unless the right questions are asked of the Board and administration. The cultural expectations will be weakened, communication with key stakeholders can falter and a lack of accountability can impair performance and ultimately the market value of the school’s bonds. For this reason, it is important for bondholders to feel confident that there is competent leadership in place at the charter schools in their portfolios. Reviewing and monitoring school leadership is important for any bond investor concerned about the long-term value of their high-yield charter school bonds.  Next week: #6.