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Our 2007 CEO of the Year

Focusing on quality earns Robert Silberman of Strayer Education our award.

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It's hard to imagine how a company that does not focus on profits could be so profitable, until you learn about  Strayer Education (STRA) and our 2007 CEO of the Year.

Robert Silberman has created a culture at Strayer that would rather provide quality education with subpar short-term financial performance than offer subpar education for short-term financial gain. Interestingly enough, the altruistic mission of providing quality education to those who normally would not have access to it has actually helped Strayer achieve fantastic long-term financial results--and handsome returns for investors.

A Culture of Quality
Strayer's management believes that if one focuses on the quality of education, then the financial performance takes care of itself. In an industry with some competitors growing revenues by packing students into seats regardless of the consequences, Strayer has taken the high road.

Keeping growth at a manageable eight to 10 campuses a year has helped ensure that Strayer's schools are opened only when qualified faculty and staff are available. Strayer has no desire to fill seats for the sake of filling seats. This would grow revenue in the short term, but it would tarnish the company's brand in the long run. Strayer's diplomas are far from the "rubber stamp" variety.

Taking the quality of education seriously means that only capable students who are able to contribute to the classroom are admitted. Filling seats with students not ready for college courses detracts from the learning environment, lowers the quality and value of the degree, and raises dropout rates. Increased dropout rates lead to higher bad-debt expenses, as those no longer enrolled are most likely not to repay their loans. Focusing on quality not only helps manage the bottom line, it also maintains Strayer's reputation, something that will keep classroom seats filled long after the current quarterly earnings call.

Management's Role
To keep quality education the main focus, Strayer's management structure is split along two functions, one for academic and one for business. Silberman and the chief operating officer, Karl McDonnell, are the only two people in the entire organization who have both academic and business functions reporting to them. In any instance where a campus dean and a campus business director are not in agreement, the dean has the final say on anything academic related. This helps ensure that business goals and strategies are not taking precedence over academic ones.

Management focuses on bringing in topnotch talent that understands the goal of providing education for minorities, first-generation college students, working adults, and others who normally would not have easy access to education. Strayer makes its quality programs accessible by offering convenient campuses and flexible schedules, as well as offering evening, weekend, and online classes.

In 2007, Sondra Stallard joined Strayer as its university president. This first-generation college graduate comes from the University of Virginia, where she served 11 years as the dean of the School of Continuing and Professional Studies. Some people might ask why a tenured professor would leave a prestigious school like UVA. The answer is that she, like the rest of Strayer's staff, believes this institution is capable of providing education for a market that is typically underserved by traditional universities.

Focusing on quality and building a culture around it has paid off for Strayer. Over the last five years, the stock has more than tripled, and it was up over 60% in 2007. Returns on invested capital have exceeded 100% the past four years. Additionally, Strayer's 30% operating profit margins are some of the best in the industry. Most importantly, Strayer's focus on quality has not hindered its ability to grow enrollments or revenue. For fiscal 2007, a time when competitors have struggled and many in the industry have seen declining enrollments, revenue growth should be over 20%.

Stewardship Makes the Grade
Along with a great culture and sterling financial performance, Strayer has shareholder-friendly practices, earning our highest "A" Stewardship Grade. Of course, we would prefer to see the CEO and chairmanship split into two separate roles, but there are very few faults.

Like Warren Buffett's  Berkshire Hathaway (BRK.B), management refuses to split the stock and prefers only serious investors become owners. The company also shies away from stock options and chooses instead to grant restricted stock, believing this is more suited for long-term investors because it gives employees downside risk. Directors' compensation is mostly in the form of restricted stock, and executive officers own almost 4% of the company, with Silberman owning over 2%.

Given the superior performance this year along with a long-term, shareholder-friendly (and customer-friendly) strategy, we are happy to name Robert Silberman our 2007 CEO of the Year.

 Watch the winner announcement.

Paul Larson has a position in the following securities mentioned above: BRK.B. Find out about Morningstar’s editorial policies.