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Succession of a Ceo

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Succession of a CEO: How Will ITT Educational Services Incorporated Succeed With Changing Their CEO?
April Peck
Daniel Webster College
October 27, 2014

Executive Summary ITT Education Services, Inc. has been under a vast amount of scrutiny in the past year, not only from the media, but the government as well. How does a company like ITT Educational Services, Inc. overcome this scrutiny? With enacting a new CEO, what will that new CEO need to do in order to change the corporate culture and their strategy? Research that was conducted will show that there are other companies who have found themselves in a similar situation as ITT Educational Inc., as well as what they have begun to do in order to be successful in getting through these issues, while increasing how potential customers felt about the company. Along with this information, research was conducted to show what steps ITT Educational Inc. has already done in order to change their processes to become a more student focused company. In conclusion you will see that the research shows that while ITT Educational Inc. is in dire straits those steps that they have taken will assist with getting the company out of the hole they find themselves in now. Also, it will show that a new CEO can come into this company and with the right structure and strategy can take this company from where they are now to a company that has the ability to feel the same success they felt in early 2000, a while following the government policies that have been put in place for all for-profit educational companies.

ITT (International Telephone and Telegraph) Educational Services, Inc. (NYSE: ESI) provides accredited, technology-oriented undergraduate and graduate degree programs through its ITT Technical Institutes and Daniel Webster College to help students develop skills and knowledge that they can use to pursue career opportunities in a variety of fields. It owns and operates more than 135 ITT Technical Institutes and Daniel Webster College. ITT/ESI serves more than 55,000 students at its campuses in 39 states and online (ITT Educational Services, Inc., 2013). The company has been operating since 1969, but began as an Indianapolis based publisher of technical training manuals and textbooks, and has since become the largest provider of technical degrees in the United States (Reference for Business, 2014). The mission of the company is simple, provide a quality postsecondary education and the services that can help a diverse student body to prepare for career opportunities in various fields involving technology, while striving to establish an environment for students and employees which promotes professional growth, encourages each person to achieve his or her highest potential and fosters ethical responsibility and individual creativity within a framework of equal opportunity (Reference for Business, 2014). ITT Educational Services, Inc. has a corporate philosophy, which is, long term integrity is worth far more than short term profit. The company believes that their success depends on the talent and performance of dedicated employees who concentrate, above all, on quality, compliance and customer service (ITT Technical Institute. 2014). The integrity of the company, however, has been questioned within the past year. Recent headlines about Carmel, Indiana based for-profit education company, ITT Educational Services Incorporated (ITT ESI) have been dire. “Among for-profit colleges already under intense scrutiny, ITT ESI is fighting trouble on many fronts” read the report in the Indianapolis Star (Swiatek & Wang, 2014). Some of these troubles the company are fighting include, a plummet in stock prices by almost 46 percent (Gallagher, 2014), real estate deals falling through, and what might be even more damaging for the company; they are being sued by the federal government. The Consumer Financial Protection Bureau filed a lawsuit in February 2014 stating that ITT ESI encouraged new students to enroll at ITT campuses between July and December 2011, by providing them so called “tuition gap” funding with a zero-interest loan called “temporary credit”. The loan typically had to be paid in full at the end of the student’s first academic year. But, the suit claims, ITT ESI knew from the outset that many students would not be able to repay their balances or fund their next year’s tuition gap (Horovitz, 2014). News of this lawsuit caused the company’s stock shares to fall more than 10.19% (Shareholder Alert, 2014), which was just the beginning of falling stock prices for the company. On May 22, 2014, ITT ESI shares fell again by more than 9.34% (Shareholder Alert, 2014) when the company announced that they were withdrawing its previously disclosed internal goals for the next twelve months and investors shouldn’t rely on those internal goals any longer. Unfortunately for the company, the stocks would fall even more. On June 24, 2014 the stock shares fell more than 3.52% (Shareholder Alert, 2014) when ITT ESI announced they would need to restate unaudited financial statements in its Quarterly Reports, and that the previously issued financial statements should no longer be relied upon. While all of these decreases in stock prices were a hard hit for the company, none would prove to be more costly than the hit the ITT ESI stock took on August 4, 2014 when shares of ITT fell more than 46.05% (Shareholder Alert, 2014), after the company disclosed that its sale leaseback agreement with College Portfolio Buyer, LLC was terminated. More bad news was to face ITT ESI again when in September, 2014 the company received a “Wells Notice” from the Securities and Exchange Commission, which is the last step before a civil enforcement action is filed that gives a recipient one last chance to convince regulators not to file a lawsuit, which has the potential to allow the federal government to place a cease-and-desist order along with fines on the company (Shareholder Alert, 2014). With all the scrutiny in the press that ITT ESI is getting, plummeting stock prices and potential civil lawsuits what has the company done in order to rebound? For now the company is being very quiet in hopes that the deals they are making do not falter again, but one thing that is know for sure the company has decided to move to a new CEO. So how will this company, that in 2010 brought in nearly $1.6 billion in revenue and yielded earnings of $374 million (Alpert, 2012), is going to successfully transition from CEO Kevin Modany to a new CEO while battling government lawsuits, falling stock prices, and media scrutiny. In order to come out successful after all of these pit falls ITT ESI will need to not only bring in a new CEO, but there will also need to be some major changes in the company’s strategy and culture. While one cannot, at this time, have complete knowledge of how ITT ESI will accomplish this task, there are other companies in the past that have faced scrutiny, as well as lowering stock prices. One great example recently would be General Motors. Much like ITT ESI, General Motors (GM) faced multiple federal investigations and a credibility crisis over its handling of ignition problems that were linked to at least a dozen deaths (Guarino, 2014). The reason, other than the deaths, that caused the criminal investigation for negligence that GM faced was the alleged cover-up that dated back a decade, also the terms of its federal bankruptcy, including a provision shielding the company from any liability from lawsuits filed before it went bankrupt, may be called into questioning (Guarino, 2014). Faced with a new position of being the first woman to be appointed CEO, Mary Barra was also facing the federal investigation the company she was leading, as well as plummeting stock prices. How would she lead the company back to the success they had after their government bailout? She rolled up her sleeves and faced the issues head on. For any CEO like Mary Barra, or the new CEO that ITT ESI brings in, one thing is certain, according to Peter Cuneo, CEO of Marvel, they have to be transformational. They will have to think radically every day (Nicholson, 2014). These CEOs, according to Cuneo, need to have the ability to change the strategy of their company, as well as the culture. For example, ITT ESI is already preparing for that change. Even though Kevin Modany is not officially leaving the company until February 2015 (Cramer, 2014), there are some signs that show ITT ESI is planning on making some steps towards transforming their strategy. While ITT ESI did use “temporary credit” during 2010 and 2011, since then they have incorporated a new strategy call the Opportunity Scholarship. This new strategy gets the company back to a more student focused base, offering students a scholarship funded by the company up to $25,000 (ITT Technical Institute, 2014). The scholarship is need based and dependent upon the types of federal financial aid funding each student qualifies for. There have also been new programs introduced to several ITT Technical Institutes throughout the United States, from the Breckenridge School of Nursing, to a degree in Software Development which focuses on program coding, the company is changing based on the degrees that prospective students are looking for, as well as programs that are needed within specific industries. Aside from these changes that the company has already taken, what can the new CEO do to change the company, as well as how people feel about the company due to the media scrutiny they have faced in the past year? The new CEO of ITT ESI needs to take a lead from Mary Barra, by facing the problems head on. The company needs to take responsibility for the mistakes made in the past, much as GM has done, but also show the steps they have taken to ratify those mistakes in order to regain the integrity they have as a part of their corporate philosophy. The company can also take a lead from Citigroup, when in 2005 the company decided to get back to basics by selling Travelers life and annuity unit in order to concentrate on their core strengths (Marlin, 2005). ITT ESI needs to do the same. In the past 3 years the company has taken on new programs, new locations, and a deal with Daniel Webster College. Instead of opening in new markets the company needs to focus on campuses that already have established schools, by changing their marketing strategy for those locations, or introducing different programs to that location. While it is still unknown the exact steps that ITT ESI is going to take, or what the new CEO is going to do to change the shape of the company, one could bet on drastic steps being put in place. It is important for any CEO in the situation that he or she will be in to look at CEOs from different companies in different industries and they changes they have enacted. Also, it would be important for them to view how other companies have successfully pushed through the government investigations and lawsuits, remembering, while the industry may be different, the game is still the same. This is corporate America and it can be a beast, but a beast that can be tamed.

Alpert, B. (2012). Clever is as clever does. Barrons. Retrieved from: articles/SB50001424053111904857404577333971078578982. Cramer, B. (2014). ITT educational CEO Kevin Modany to resign. BidnessEct. Retrieved from:
Gallagher, J. (2014). Daily wrap: stocks rebound; ITT tech in trouble. Retrieved from: rebound-itt-tech-in-trouble-a-540086.html#.VE1skJUtDIU.
Horovitz, B. (2014, Feb 26). U.S. sues college chain ITT over loans. Gannett News Service. Retrieved from:
ITT Educational Services, Inc. (2013). About ITT educational services: Corporate Profile. Retrieved from:
ITT Technical Institute. (2014). Opportunity Scholarship. Retrieved from: http://www.itt-
ITT Technical Institute. (2014). Our Corporate Philosophy. Retrieved from: http://www.itt-
Marlin, S. (2005). Back to basics for Citi, AmEx. InformationWeek. Retrieved from: 6874&title=Informationweek&volume=&issue=1025&date=20050207&atitle=BACK%2 0TO%20BASICS%20FOR%20CITI%2C%20AMEX.&spage=18&pages=18- 18&sid=EBSCO:Academic%20Search%20Premier&aulast=Marlin,%20Steven
Nicholson, N. (2014). The transformative CEO. Communication World. Retrieved from:
Reference for Business. (2014). ITT educational services: Company profile. Retrieved from:
Shareholder Alert. (2014). Pomerantz law firm investigates claims on behalf of investors of ITT educational services. Retrieved from:
Swiatek, J. & Wang, S. (2014). Woes stack up for Carmel based ITT tech. Indy Star. Retrieved from: based-itt-tech/13807225/.

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