Steve Bostic is nothing if not tenacious. The man who founded American InterContinental University (AIU) and sold it to Career Education Corporation (NASDAQ:CECO) in 2001 sent his first public letters to Career Education CEO and Chairman Jack Larson about a year ago, expressing his displeasure that the company was in trouble because of a "lack of strong leadership and a collapse of both corporate governance and board oversight."
The bickering has gone on ever since, and it may finally reach a head this Thursday, when shareholders will vote on whether to accept Bostic's recommendations for Career Education's board of directors -- a list that includes Bostic himself.
At Career Education's annual stockholders' meeting on May 20, 2005, the majority withheld their votes for the board's nominees for directors. That was an unprecedented rejection, and according to Bostic, it was a clear mandate for change. Larson saw things a little differently. Six days after the meeting, he said, "We have received a great deal of positive feedback from investors about our operation performance, and there has been a clear expression of support for our current management and board of directors."
Bostic was particularly upset that the Southern Association of Colleges and Schools (SACS) had placed AIU, Career Education's flagship division, on probationary status because "it failed to demonstrate compliance with the Prologue to Principles of Accreditation: Integrity of student academic records and accuracy in recruiting and admission practices." This is no small matter, given how important AIU is to Career Education's success. Bostic's 2001 sale of AIU made Career Education the world's largest for-profit provider of postsecondary education, with more than 100,000 students and 80 campuses worldwide.
The squabbles went on like this all year, with Bostic jabbing for answers to his questions ("What changes do you plan to make?" "What specific steps to you plan to take?") and Larson feinting with reassurances that Career Education had been knocking itself out to improve internal controls and even mandating "ethics training" for all employees. Larson was particularly happy to report that this past April 5, the Securities and Exchange Commission recommended termination of a probe into the company and elected to take no enforcement action.
That wasn't enough for Bostic. On April 24, he sent proxy materials to stockholders and asked them to vote for his own board nominees: former Deloitte & Touche CEO James E. Copeland Jr., former American Bar Association President R. William Ide, and himself. The voting will take place at the annual shareholders' meeting this week.
So are you thinking it might be worthwhile to own some Career Education stock just so you can vote for either Bostic's Battling Big Boys or Larsen's Long-Term Lads? The company's recent history has not been all that rosy, thanks to all of the regulatory problems, as Bostic is quick to point out. Wall Street was looking for $0.60 a share on revenue of $540.7 million for the first quarter of 2006. When the company came in at a disappointing $0.53 on revenue of $528.6 million, its stock price dropped 13%. On May 4, Piper Jaffray and Credit Suisse cut the company to an "underperform" rating. And there's still that potential TKO on the horizon: Half of the company's operating profits come from AIU. What if it fails to regain accreditation at the end of this year?
Can Bostic, who owns more than a million shares of Career Education, turn this all around if he wins the election on May 18? His entrepreneurial ego may be just the one-two punch the company needs to fight its way back to the top of the for-profit educational institutional heap. Stay tuned.
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Fool contributor Ellen Dowling does not own any shares of Career Education but would like to be ringside on May 18.
