Fixing America's future: to stave off a U.S. work force crisis, CEOs are getting more involved in improving the nation's schools.

At first glance, the imposing high school on Irving Avenue in one of the poorer neighborhoods of Brooklyn presents a bleak picture of urban education. The facade of the once-stately brick building with collegiate gothic touches is marred by thick metal doors. The lobby's most striking features are uniformed New York City police officers standing beside a metal detector.

Two flights up, however, colorfully decorated classrooms crackle with conversation, and intimations of change abound. To be sure, the hallways are dim and resources are scarce, but students talk of math instructors who coach them one-on-one during lunch periods. A science teacher tries to engage her class in a discussion of the ethics of genetic engineering. A full-time social worker counsels students on the realities of teen pregnancy and drug abuse.

Welcome to the Bushwick School for Social Justice, a "school within a school" that opened in 2003 with some private support. This public-private hybrid is trying to see to it that most of its students receive high school diplomas and go on to college, despite poverty or other obstacles. Jorge Sequeira, a ninth-grader who hopes to become a lawyer, says the difference between Bushwick and the public middle school he attended is that teachers at Bushwick continually push him, even when he's excelling. "In this school," explains Jorge, "they say, 'You're doing great, but I want you to do better.'"

Bushwick is one result of a campaign in New York and cities across the United States to replace failing public schools with smaller, more innovative schools that work. As a school that has received assistance from an organization established by a husband-wife business team, it's an example of another trend, too: a committed effort by CEOs to champion school reform. In many cases, they seek to apply principles from the business world, such as competition, accountability and merit pay, to a publicly funded industry that has long resisted them.

Bill Gates is perhaps the business community's most visible and vocal advocate for education reform. The Microsoft cofounder has established a foundation that is spending hundreds of millions of dollars on education initiatives, including the establishment of small, high-quality high schools around the country to help U.S. students better compete with their counterparts in countries such as China and India. In a speech in late February, Gates decried the state of high school education in America. "When I compare our high schools with what I see when I'm traveling abroad," he said, "I am terrified for our work force of tomorrow."

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There's also Louis Gerstner Jr., the retired IBM chief executive, whose latest effort is spearheading an organization, called the Teaching Commission, that aims to improve teaching through changes in teacher training and pay. IBM itself is currently spending $70 million on a "reinventing education" initiative that is introducing such practices as online teaching training. And Jack Welch, formerly of General Electric, chairs the advisory board of an academy set up to develop a corps of first-rate principals in New York.

Many other CEOs have joined the school reform crusade, and the reason is simple: They face difficulty filling job positions with recent U.S. high school and college graduates, and they fear the problem will only get worse in the years to come. "I don't think any of the people who expect to be running companies in 25 years would say we are getting an A--or even a C-plus--in running public education," says Peter Temes, president of Antioch New England Graduate School in Keene, N.H. To cite just one example: Last year, the Organization for Economic Cooperation and Development released the results of a survey that found 15 year olds in the United States scored below average in math skills among students in more than two dozen industrialized nations (see chart, page 28).

For many CEOs of U.S.-based companies, these signs spell trouble in an increasingly competitive global economy. "There are no borders anymore," says Eli Broad, who built two major companies--today known as AIG Retirement Services and KB Home--and is donating hundreds of millions of dollars to education reform. "If they have an educated population in other countries and we're not keeping up, why should goods and services be produced here?"

The consensus among CEOs that the nation faces a crisis in K-12 education does not mean, however, that business leaders share a uniform set of ideas about how to turn things around. Indeed, their opinions are as diverse as the companies they run. And while some call for well-known school-reform ideas, such as vouchers, charter schools and greater public financing, others approach the problem from less talked about angles. Here are some of their strategies.

* Extend school hours. Take Chris Gabrielli, founder of GMIS, a health care software company, and now a managing director of Ironwood Equity Fund, based in Boston and Avon, Conn. He wants to challenge the six-hour-a-day, 180-day-a-year school schedule introduced more than a century ago to accommodate farmers who depended on the labor of their sons and daughters. Gabrielli notes that American children today need to know a lot more than those farm children, and yet they spend less time in school than their peers in some of America's leading economic competitors. Moreover, he notes, the schedule is utterly out of sync with the modern reality of parents working on a 9-to-5 schedule, or a longer one, outside the home.

Gabrielli isn't just complaining. He is a cofounder and chairman of Massachusetts 2020, a not-for-profit group that supports a series of after-school initiatives in Boston and around the state. The group has launched a study of schools that have "extended time" schedules. Gabrielli says schools need to be injected with a spirit of what he calls "accountable innovation," the willingness, taken for granted by corporate managers, to put new ideas to the test. "The business approach to a problem is, 'If something doesn't work, try something else,'" he says.

That the nation's educational system lacks this spirit, Gabrielli argues, is evidenced by educators' widespread reluctance to tinker with scheduling, even though one of the landmark reports on the state of modern American education, A Nation at Risk, published in 1983, urged more school time spent on the basics and extending the school day or school year, if necessary, to make sure the job was done right. "It's amazing that 20 years after people started advocating for it," educators still haven't tried it, Gabrielli says.

* Put real managers at the top. What's amazing to Eli Broad is a dearth of strong management skills at the pinnacle of school systems. In 1999 Broad and his wife, Edythe, founded The Broad Foundation, which has so far contributed more than $500 million to upgrading urban schools through better management. Its major initiatives include a training program for new school board members and a management-development residency program that places top candidates--many of them with business backgrounds--into urban school districts. The Broad Foundation's Urban Superintendents Academy, a 10-month program to train CEOs and other executives to be superintendents or other high-ranking education officials, has planted its graduates in school districts in cities such as Washington, D.C.; Montgomery, Ala., and Houston, Tex.

Part of the problem in school leadership, Broad and others believe, is that most people who rise to top-level positions in school districts began their careers as teachers and have spent much of their working lives in schools, not executive offices. He compares the situation to a company run by a CEO lacking training or experience in matters ranging from finance to labor relations to systems operations. "It all starts at the top," he says, "just like any company." There may be excellent people on the front lines, but if senior managers and the board of directors are unskilled "you've got a failing company."

* Reward good teaching. Another major push by CEOs is to establish merit-based pay systems for teachers in place of the lockstep salary schedules now used by districts across the country. Of course, efforts to do so meet intense resistance from teachers' unions. But Broad, who eschews the politically loaded expression "pay for performance," has had a hand in doing what many considered nearly impossible in a major city: the anticipated introduction in Denver of a salary system that rewards teachers not just on longevity but on such factors as whether they work in poor neighborhoods and whether their students meet academic goals.

ProComp, as the proposed wage system is called, still needs voter approval, but through painstaking work over the years, it has already received the support of a constituency that could easily have scuttled it: the Denver teachers' union. The Broad Foundation, whose early efforts in Denver included providing financial support of an independent study of the pilot project on which ProComp is based, has agreed to help pay expenses arising from a transition to the new wage system.

The measure has the support of Colorado executives like Bruce Benson, CEO of Benson Mineral Group, an oil and natural gas exploration company, and chairman of a foundation that supports the Denver public schools. Benson puts an overhaul of teacher compensation at the top of his list of needed changes in public education, arguing that school systems must build financial incentives into good teaching. "We do it in business," Benson says. "Somebody does a great job, you raise the pay. They do a lousy job, you get rid of them."

* Keep testing. There's another business practice many executives would like to see exported to schools: benchmarking. To determine the effectiveness of classroom teaching, it is essential to measure student achievement, and that means testing, says Edward Rust Jr., chairman and CEO of State Farm Insurance Cos. Rust is a veteran of the education reform movement, a former chairman of the Taskforce on Education and the Workforce at Business Roundtable, one of the leading business groups involved in education issues. Today, he is a director of Achieve, a bipartisan group of state governors and top-level executives working on, among other things, raising state education standards and improving assessments.

There is, however, something of a backlash against the amount of standardized testing that awaits public school children today. Some teachers and parents argue that too many teachers merely "teach to the test," and that the stakes of the tests are higher than they should be. Rust disagrees. "Perhaps assessments have gone too far," he says. "But that does not negate the value of assessing where our kids are. If we don't do it in the classroom, I don't know where we do it."

* Build competition into the system. Still another tenet of the business world that many CEOs consider indispensable to school reform is competition, the idea that bad schools will begin to improve only when they go up against better schools. Among these proponents is Jerry Hume, chairman of Basic American, a privately held food processing company in San Francisco, and a director of the Center for Education Reform, a Washington-based group that advocates for charter schools and vouchers. Hume sees the public school system as essentially a monopoly that controls the K-12 education market. "There is no incentive for good performance," he says. "How many people have been fired because kids didn't learn?"

Many CEOs, such as Reed Hastings, founder and CEO of Netflix, the Los Gatos, Calif.-based DVD movie rental service, believe the best way to effect change is through the creation of charter schools. "In the long run," says Hastings, a former president of the California State Board of Education, "competition and deregulation will be the drivers of improvement in public schools. But selling competition to the voters is as difficult as selling free trade."

* Establish alternative programs. Whether through charter schools or some other route, a number of CEOs are driving change by helping to set up alternatives to failing schools. They endorse a wide variety of approaches. William Cooper, CEO of TCF Financial, based in Wayzata, Minn., became interested in school reform in part because of his dismay at what he viewed as a nonrigorous approach to education, including in the private school his two youngest children attended. There, he says, "high self-esteem is more important than accomplishment." In the schools he has assisted, curriculums are built around information to be learned and ideas to be mastered.

Another approach is to champion the movement toward small high schools designed to give students who often come from very difficult circumstances a lot of support, and a good shot at going to college. Gerard Leeds, who along with his wife, Lilo, founded CMP Media, a successful trade magazine publisher, first got involved with school reform when the couple were asked to help create a program for dropouts in a poor section of Long Island, N.Y. It wasn't long before the couple concluded that the dropouts themselves were not the problem. "I come from a business environment," Leeds says. "The question is not what you do with the rejects. The issue is, how do you avoid having rejects?"

The answer, the Leeds decided, lay in small programs that offered, among other things, sustained teacher-student relationships, a college prep curriculum, extended school hours and counseling. In 1990, the Leeds established the Institute for Student Achievement. Four years later, the first group of 29 kids emerged from the program--all with high school diplomas and most on their way to college. Today, the organization works with nine public school systems in New York and Virginia to establish programs based on the institute's principles. The Bushwick High School for Social Justice is one beneficiary of the institute's work.

* Don't be stingy. School financing is another issue for which there is no uniformity of opinion among CEOs. Few voucher supporters, for example, want to pump more money into a system they believe is beyond repair. Nevertheless, a surprising number of executives think too many city schools are starved for resources.

Leeds makes the point with a simple set of figures. The average annual per-pupil expenditure in Great Neck, an affluent New York suburb with one of the best public school systems in the nation, is nearly $20,000. The equivalent figure just over the border in New York City is a little more than $11,000. It is difficult to believe, Leeds says, that a community known for its high concentration of doctors, lawyers and executives is being profligate. "The smart people in Great Neck wouldn't spend $20,000 and pay those taxes if they thought they could do it for less," he says.

Dennis Swanson, chief operating officer of Viacom Television Stations Group, is so disturbed by what he sees as insufficient funding for New York City's public schools that he has made his views known to politicians. He joined a group of business executives who lobbied state legislators to come up with a plan to finance the city's schools more fairly, as ordered by New York State's highest court. When that plan failed to materialize, he excoriated lawmakers' fecklessness in an op-ed piece. "If I ran my business this way," he said, "I would be shown the door."

* Upgrade the infrastructure. If the money ever does flow, where should it end up? A major priority, say many, is repairing school buildings that are often crumbling outside and hopelessly outdated inside. "You should see what is called a science lab in many of these schools," adds Jeanette Wagner, a former vice chairman of Estee Lauder who sits on the advisory board of the New York City Leadership Academy, which is affiliated with Jack Welch. Swanson knows renovations are costly but believes they're a must.

There is no one silver bullet to slay all the problems that face the nation's K-12 system. It's not just urban schools that have failed. Rural schools also face big challenges. And even suburban schools blessed with big budgets may be sending graduates to college, but they also are failing to equip them with enough math, science and language skills to ensure successful futures.

At conferences and various talk fests, CEOs have been saying for years that "someone has to fix education" without really doing much about it. Governments were supposed to deal with it--but haven't.

The new element that has injected urgency is the first-hand knowledge that hundreds of millions of Indians and Chinese have the right skills and are willing to work for a fraction of the cost of an American worker. "That has really elevated CEO consciousness about the U.S. maintaining its preeminence in science and engineering, which is what gives us our competitive edge," says Susan Traiman, director of the education initiative at the Business Roundtable. There may be no choice but to take direct steps to improve the quality of the future U.S. work force.

RELATED ARTICLE: The Merit Pay Debate

Merit pay? No way. That's the stance taken by teachers' unions against linking performance and pay. Through strength in numbers and political organization, combined with the public's general fondness for teachers, the unions have long prevailed.

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But this year could be different. A ballot initiative backed by Gov. Arnold Schwarzenegger is all but certain to go to California voters by November. The measure would establish merit pay in the state's constitution and ban seniority as a consideration in teacher employment decisions, including hiring, firing, transfers and pay In addition, the initiative would extend from two to five the number of years required for a teacher to qualify for tenure.

For the hundreds of thousands of unionized teachers in California, the stakes are enormous. Schwarzenegger has openly stated his intention to leverage his personal popularity to push the ballot initiative and break what he sees as a stranglehold by state employee unions over the legislature.

Union leaders promise to drop a heavy hammer on the governor's merit-pay plan. "The governor will have his money, and education will have its money," says John Perez, until recently head of the United Teachers Los Angeles union. "The entire education community is going to oppose him. The governor will find that voting against teachers and against kids is not popular."

The governor's once sky-high popularity has taken a steep dive, his overall approval rating dropping from 65 percent to 55 since last fall, according to the Field Poll. Still, support for the merit-pay initiative was recently polling at a strong 60 percent.

Both the governor and state Education Secretary Richard Riordan, the former Los Angeles mayor, are racing around the state pushing hard for the merit pay plan. In an interview, Riordan repeated his observation that teaching is the only profession in which pay is completely disconnected from job performance. "If I ran a restaurant," he says, "and I decided to pay everyone the same, every waiter, every cook, no matter what kind of job they do, and I'm not ever going to fire anybody--well, I'm going to go bankrupt."

The unions offer plenty of reasons why pay based on merit won't work. Competition among teachers would make for tension in the schools and have detrimental effects on the students, they say. Performance reviews would be arbitrary, principals would play favorites, and without more money merit pay is a zero-sum game, where even average teachers would fall behind as districts struggle to pay high achievers more. Furthermore, they say, no one has proven that merit pay makes for better teachers.

Almost everyone agrees on one thing: California public schools are among the worst in the nation. Average scores in reading and math on national assessment tests from 1990 to 2003 put California 48th out of 50 states, ahead of only Louisiana and Mississippi. Meantime, per-pupil K-12 spending in California totaled $7,692 in 2003-2004, 25th highest in the country, though factoring in the state's high cost of living pushes the figure comparatively lower.

How would teachers be judged under the California scheme? The amendment's language requires both employee evaluations and evidence of improvements in student academic achievement as measured by standardized tests. Further details, including how to weigh the two factors, are left to the local school boards. The unions are opposed to "subjective" supervisory evaluations and to tying a teacher's pay to student test scores.

The school boards don't have many models to guide them. Merit pay plans in states such as Texas and Tennessee flopped, partly because the plans involved paying teachers more money, an idea that didn't survive state budget crises.

There are a few promising merit pay examples. The Milken Family Foundation, based in Santa Monica, has sponsored experiments in merit pay around the country, including in Arizona and South Carolina. They are part of a larger school-based professional development program for teachers. "Master" teachers, those regarded as the best teachers in the school, work closely to mentor less experienced teachers.

Flexibility and openness to change on the part of teachers, unions and district officials are essential, says Lowell Milken, who heads the foundation. He's amazed at the resistance he sometimes encounters. "Everything we know about inspiration and motivation," Milken says, "for some reason, we do not want to translate into the teaching population."

BY RUSS MITCHELL

RELATED ARTICLE: How American Students Stack Up To Their International Peers

Mathematics

1. Hong Kong/China

2. Finland

3. Korea

4. Netherlands

6. Japan

7. Canada

19. Germany

28. United States

29. Russia

37. Mexico

40. Brazil

Reading

1. Finland

2. Korea

3. Canada

9. Netherlands

10. Hong Kong/China

14. Japan

18. United States

21. Germany

32. Russia

37. Brazil

38. Mexico

Science

1. Finland

2. Japan

3. Hong Kong/China

4. Korea

8. Netherlands

11. Canada

18. Germany

22. United States

24. Russia

37. Mexico

39. Brazil

Problem Solving 

1. Korea

2. Hong Kong/China

3. Finland

4. Japan

9. Canada

12. Netherlands

16. Germany

28. Russia

29. United States

37. Mexico

38. Brazil

Source: Programme for International Student Assessment