Where Was Career Education Corporation's Board?

Career Education Corporation (NASDAQ: CECO) posted poor earnings, fired its CEO, and its board announced that an investigation by law firm Dewey & LeBoeuf had “confirmed the existence of improper placement determination practices at certain of the Company’s Health Education segment schools, and, for the Company’s Health Education and Art & Design segment schools.“ Where was the board of directors when the improper behavior was going on?

Additionally, the board failed to detect another problem. The Attorney General of the State of New York is reviewing practices at Career Education. Some of the company’s policies may not have complied with state consumer protection rules.

The corporation’s board does have members who should have seen warning signals if they had been on guard as board members should be. Lead director Leslie T. Thornton was a former chief of staff to the U.S. Secretary of Education. She is currently a partner at law firm Dickstein Shapiro Morin & Oshinsky. She has been a director at Career Education since 2005. Thornton can hardly take the position that she does not know that company’s operations very well and could not understand the legal ramifications of certain management decisions.

Director David W. Devonshire has an impressive background as a financial executive. He was executive vice president and chief financial officer of Motorola. He has a degree in accounting and an MBA. Board member Greg L. Jackson also has an MBA. He has been a mutual fund portfolio manager, which means he has spent years reviewing corporate business practices and balance sheets.

The board of Career Education Corporation will say that CEO Gary E. McCullough effectively slipped the company’s misdeeds past them. Thornton, the lead director, will take his place. She, more than anyone else outside management, should have been alert to the company’s problems.

Where were the board members when Career Education was acting in ways it should not have? Clearly not performing their fiduciary roles.

Douglas A. McIntyre