Tuesday, February 26, 2013

Lincolnesque Compromises

Schools-merger backers Hart and Jones should make it happen now.

Posted By on Tue, Feb 26, 2013 at 1:50 PM

Maybe the members of the not very Unified Shelby County School Board or the Memphis and Shelby County School Board or whatever they're calling it these days should go see the movie Lincoln this week instead of muddling through another meeting.

Some of them, notably Memphis school board holdovers Tomeka Hart and Martavius Jones, could use a lesson in the art of compromise. The unified system, via surrender of the MCS charter, is their baby. They need to own up and raise it.

A merger is a marriage, and marriage is about compromise, especially if you're the one who proposed. But Jones wants to call the shots, because MCS was the bigger system. And Hart wants to delay the merger until 2014. They should have thought of this when they surrendered the MCS charter in 2010.

Now we have a superintendent search that has not even started, a $145 million budget gap, five school closings instead of the recommended 21, and the ever-present threat of municipal school systems. In brief, a mess. U.S. district judge Samuel H. Mays could take matters into his own hands and appoint a special master to make the merger happen before the start of school in August. There was a mention of a special master in the judge's 2011 order, but nobody knows exactly what this means or how it would play out. Would the "master" have godlike powers to order school closings or name a new superintedent? Override the school board? Fire people? Add or subtract programs?

It didn't have to come to this. Jones and Hart could have accepted the recommendations of the Transition Planning Commission, of which Jones was a member. They could have led, but they fled.

"I told the TPC I didn't think this was going to work because we were relying on consultants as opposed to the expertise of the city and county schools," Jones told me in an interview this week.

He thinks John Aitken, leader of the 100th-largest school system in the country, would be "a great maintenance superintendent" but is unfit to lead a "reformist board" weighted toward Memphis.

"I don't think it would have been a stretch for the administrators of the 22nd-largest school district in the country [Memphis] to handle this," he said in an affirmation that is laughable to the suburbs and some Memphians.

He liked Hart's idea of postponing the merger a year to see what the state legislature does.

"I don't see the wisdom of bringing the systems together for one year," he said.

And he doubts the TPC recommendations would pass the unified board even if he supported them. If he really believes that, then he is seriously shortchanging himself.

The merger of the school systems would not have happened without the determination and persuasive skills of Jones and Hart. (Hart, now working for Teach For America, canceled an interview.)

The charter surrender was a fluke. The vote was 5-4, with lame-duck member Sharon Webb voting with the "ayes." Superintendent Kriner Cash literally begged the board to vote no. The referendum that ratified the charter surrender excluded suburban voters and included no cost figures. Supporters could project whatever favorable outcome they wanted to on it, from the dollars and cents of lower Memphis property taxes to the warm fuzzy ideal of unification and free pre-kindergarten.

The 23-member unified board has 16 lame-duck members whose terms end later this year, when the Shelby County Commission can expand the board from seven to 13 members.

"My intention is to be appointed to the expanded board," Jones said.

That is his right, but duty is calling pretty loudly right now. Jones and Hart should finish what they started.

If the goal is to push the suburbs out of a unified system and into some sort of Nashville-enabled municipal school districts, force a court-ordered resolution that will drive white people out of the unified system in numbers not seen since the 1970s, and create a merged system with the demographics of the old Memphis school system but a bigger footprint, then insisting that MCS dictate the terms of the merger is the way to do it.

On the other hand, if the goal is a unified system that includes majority-white suburbs, a very capable superintendent who is already on the job and under contract for another year, and single-source funding from Shelby County government, then Lincolnesque compromises will be needed.

Tuesday, February 19, 2013

Thank you, McDonald’s

Kroc Center goes all in for fun, fitness, and healthy lifestyles.

Posted By on Tue, Feb 19, 2013 at 4:05 PM

Billions have been served but only dozens were chosen. And not all of them panned out.

The Memphis Kroc Community Center at the fairgrounds is one of 27 centers in the country that were inspired and funded in large part by a $1.5 billion gift from McDonald's founder Ray Kroc and his wife Joan to the Salvation Army. The grand opening is this Saturday and Sunday, and you really have to see it to appreciate it.

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An indoor pool for swimmers and non-swimmers, with water cannons, depth charges, dump buckets, waterslide, basketball goals, and squirt stations, in addition to lap lanes. An outdoor splash park. A gym with basketball courts, stages for bands, and an artificial-turf-covered area for soccer and lacrosse. A high-tech "challenge center" with ropes course, zip-lines, lasers, and mental and physical challenges suitable for small groups and companies recovering from the trauma of bonding via paint ball and karaoke. Two outdoor soccer fields and indoor fitness areas with personal trainers, Zumba, muay thai kickboxing, and Brazilian jiu-jitsu. Concessions serving healthy food planned by a chef with dual degrees in Christian education and culinary arts. The words "burgers, fries, and shakes" do not appear in the program guide.

How will all of this play out? Too early to say. Each center tries to meet needs and fill in gaps in its host city. The only stipulation is that it be centrally located and strive to serve a diverse clientele. The Memphis Kroc is ambitious and different. That's the point.

There are scaled-down versions of the long-gone waterslides at Libertyland and Adventure River, the river model at Mud Island River Park, the environmentally friendly playground at Shelby Farms, and the row upon row of stationary bicycles and treadmills at Lifetime Fitness. There is serious attention to arts, special events, and worship.

"We're going to keep on doing what we've been doing," said Ellen Westbrook, spokeswoman for the Salvation Army in Memphis, which provides shelters for homeless men and women, disaster relief, and food for the hungry and always seems to be there when needed for the last 113 years.

The founder of the Salvation Army was General William Booth, a bearded evangelist who began his work in London in 1865, adopting the hymn "Onward Christian Soldiers." His words that inspired Ray and Joan Kroc bear repeating:

"While women weep, as they do now, I'll fight. While little children go hungry, as they do now, I'll fight. While men go to prison, in and out, as they do now, I'll fight. While there is a drunkard left, while there is a poor lost girl upon the streets, while there remains one dark soul without the light of God, I'll fight. I'll fight to the very end!"

The Kroc $60 million challenge grant, announced in 2005, was matched by $25 million raised locally over the next four years by the Salvation Army in Memphis, which purchased 15 acres along East Parkway at the Mid-South Fairgrounds in 2006. Groundbreaking was in 2010, but construction delays pushed the opening back to this year. The challenge now is to keep it going.

A single membership is $30 a month. A day pass is $5. There are specials for charter members who sign up before Saturday. The goal is to get members from all income groups and all of Shelby County.

Easier said than done. We live in a time of sports specialization and self-segregation. But Kroc signed up corporate sponsors, including FedEx, AutoZone, and Baptist Memorial Hospital. It has built a relationship with its neighbors in Cooper-Young and Christian Brothers University. And it has hired experienced club managers, instructors, camp directors, techies, and outside-the-box jocks like Ty Cobb, the Ole Miss cheerleader who became a basketball halftime celebrity with his Daredevils dunkers.

After a building binge for professional sports highlighted by AutoZone Park and FedExForum, Memphis government, corporations, and philanthropists turned their attention to sporty things ordinary Memphians can do, such as the Greenline, the skate park, bike lanes, Shelby Farms Park, and the overall fairgrounds redevelopment plan the Memphis City Council was talking about this week.

Whether that continues will depend on how well the Kroc Center is received. I think it's as carefully thought out and executed as any public facility I've seen. Check it out.

Wednesday, February 13, 2013

Investing in “Good People”

When bad things happen to good people, the s*it hits the fan.

Posted By on Wed, Feb 13, 2013 at 8:47 AM

Let's leave schools, Rudy Gay, and Nathan Bedford Forrest aside for a minute and talk about money.

Sooner, if you're over 55, or later, if you're under 30, you're going to have to save some, live off someone else's, or scrape by on Social Security (good luck). If you are in the first category, you will probably eventually fall into the arms of a money manager by choice or because your company retirement plan makes you do so.

This is about Memphis money manager Southeastern Asset Management and its Longleaf Partners Fund, managed by Mason Hawkins and Staley Cates. Several years ago, I put my small treasure in this fund. Invest locally and you get to drive to the annual meeting, drink free wine, and hear the managers explain their hits and misses. It's easier to pay attention. And Longleaf has a good but not great track record.

The first sentence of Southeastern Asset Management's letter to shareholders in 2012: "Great corporate partners can mean the difference between a good investment return and a stellar one. Our investment criteria include having 'Good People' at the helm."

Bravo! You sure don't want Bad People at the helm. Look at Bernie Madoff or Allen Stanford. But sometimes Good People make bad decisions and lose lots of money for other Good People. Such as me. That's what happened to Longleaf investors in 2008 when the value of the fund fell 50 percent. It didn't help that Cates and Hawkins made big bets on two stocks that tanked: Dell, founded by Michael Dell, and Chesapeake Energy, run by Aubrey McClendon.

Cates and Hawkins generally keep a low profile, but for a year they have been making business headlines as activist investors. In 2012, they forced Chesapeake's board to make changes, and in January, McClendon announced he would resign as CEO. In February, Southeastern broke ranks with Dell over a buyout proposal they believe sells the company too cheap to private investors. Southeastern's trope is that "Mr. Market" undervalues stocks and creates buying opportunities for "value investors" to find great investment partners on the cheap.

"We use our vast network of clients, corporate managers, industry experts, and friends to find out everything we can about the CEO, including personal as well as professional insights," Cates and Hawkins said in their 2012 shareholder letter.

This runs contrary to the view that index funds perform as well or better and charge lower fees. As ballplayer Dizzy Dean once said, "If you can do it, it ain't bragging." The Partners Fund has an average annual return of 10.8 percent since its inception in 1987, winning some best-in-the-business recognition. But over the last five years, the annual return has averaged just .25 percent.

Dell was a hot stock when custom PCs came in shipping boxes the size of suitcases. Mr. Market has been over it for years, but not Longleaf. This was Southeastern's view last summer: "Michael Dell is one of the most vested and engaged CEOs we have as a partner."

And this was their view last week about a proposed buyout of Dell at $13.65 a share, well below Longleaf's valuation of $24 a share: "We are writing to express our extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the company. We intend to avail ourselves of all options at our disposal to oppose the proposed transaction."

Dell defended the proposal, saying it "offers an attractive and immediate premium for stockholders." This is hogwash that raises doubts about Mr. Dell's "Good Person" credentials. The statement is only true for investors whose cost basis is below $13. Anyone who bought the stock from 1998 to 2008, when the price ranged from $20 to $59, has earned a huge loss. That includes Southeastern, which owns 8.5 percent of the available shares.

Good People, Part Two: This was Southeastern last year on the "controversial" McClendon, part owner of the Oklahoma City Thunder: "Through our multiple industry, client, professional, and personal contacts, we gained insight about McClendon and arrived at a different conclusion than the image currently portrayed by Chesapeake short sellers and much of the media."

Mr. Market meets Mr. Media. The media bashing was a sorry excuse for analysis. The reports about McClendon's personal investment conflicts were right on target. He's out in April.

There's an old saying about investing that "the stock doesn't know you own it." But the CEO knows you own it if you're one of his top shareholders, and that presents a whole range of issues when "Good People" make bad decisions. Go get 'em, Staley and Mason.

Tuesday, February 5, 2013

Three Things I Think

On Clarence Mumford, school choice, and more AirTran flights.

Posted By on Tue, Feb 5, 2013 at 4:21 PM

Small paper this week and lots to write about, so three columns in one space.

I think Clarence Mumford made a gutsy move when he turned down the original offer from federal prosecutors and got a better deal. Mumford is the confessed "ringleader" in a scheme to hire test-fakers to stand in for test-takers on teacher certification tests in West Tennessee, Mississippi, and Arkansas for more than 15 years.

I don't think Mumford, 59, is a "good guy" by any means, but I don't buy him as Public Enemy Number One in education either. Now, he's looking at a possible seven-year sentence, but U.S. district judge John Fowlkes, a newcomer to the federal bench, will make the call in May. Mumford's case got national attention.

There is so much cheating in education at all levels that it boggles the mind: graduation rates and TCAP scores rigged in Memphis schools, teachers in Atlanta holding parties to rig student test scores, college athletes getting stand-ins to take their entrance exams and write their papers, students at elite schools cheating on entrance exams. Very little of this results in criminal prosecution.

Mumford's clients were twice dumb. They feared they would fail or actually did fail the PRAXIS exam to get certification — some multiple times — and they paid Mumford $1,000 or more to hire a test-faker. Test monitors became suspicious when they saw blatantly fake IDs and the same test-faker at two sessions in the same day at the same place.

Mumford made some money. Using government figures, it works out to less than $10,000 a year if you prorate it. He corrupted at least one young teacher he was supposed to mentor. The children in classes taught by unqualified teachers suffered.

If Mumford had exercised his right to a trial and lost, he could have gotten, in effect, a life sentence. Tough call for Fowlkes.

I think the phrase "school choice" resonates more with parents than "world-class school system."

The optional schools lineup and lottery process are being sorted out by Memphis City Schools, which won't have numbers to analyze until later this week. What we know is that at least 2,000 parents applied, including hundreds who camped out for one or more nights to assure their spots in the most desirable schools.

Memphis is not the only urban district that lets parents take matters into their own hands to some extent when it comes to securing spots in magnet schools. Newspapers in Cincinnati and Dallas report parent campouts. In Nashville, spots are determined by a lottery among applicants who meet rigorous academic requirements. Memphis uses a lottery for only 20 percent of its spots in optional schools within schools.

Legislators in Tennessee, Arkansas, and Mississippi are dealing with the issues of charter schools, and federal courts in Memphis, Nashville, and Little Rock have school desegregation cases on their dockets. Our merger is unique, but not the underlying issues.

The Unified Shelby County School Board has an impossible task. Unity and world-class are lofty ideals, but the reality is fragmentation, more school choices than ever, and a scramble.

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If you're a frequent flyer and a member of the Airport Authority like my friend Jack Sammons, then maybe this week's announcement of four more AirTran flights is "a home run." I see it as a single.

The news is certainly welcome in the sense that it reverses the trend of declining passenger service at Memphis International Airport. But if this is a homer, then what would we call restoration of the Amsterdam flight or even a fraction of the flights Delta has taken away from Memphis in recent years?

Memphians fall into three categories when it comes to flying: time-is-money business travelers and frequent flyers at the mercy of Delta, recreational travelers who can cherry-pick their destinations and dates, and a lot of people who fly rarely, if ever.

One Southwest Airlines executive supposedly said, "The more flights we take, the more we get." As if plane tickets are movies.

They're not. Even "cheap" tickets are expensive, and flights are full, attendants scarce, seats cramped, delays likely, fees mount up, and hub connections can be a hassle. Glamorous it ain't.

The Little Rock and Nashville alternatives have never made any sense to me, but I guess it looks different to a family of four. If it comes, the salvation of the underused Memphis airport and airports such as Baltimore-Washington International and Midway in Chicago will be their convenience and a drastic reduction in the cost of jet fuel.

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