In the course of the last quarter century, governmental entities in both the United States and England have sought to encourage educational innovation by creating publicly funded schools that are independent from many rules that apply to locally controlled schools. These schools are called charter schools in the United States and academy schools (academies) in England.
1 Private companies run a high percentage of these charter schools and academies. In the United States, these companies are commonly referred to as educational management organizations (EMOs).
2 In England, these organizations are called academy trusts (ATs).
3 EMOs and ATs frequently engage in related-party transactions for a number of services including educational technology, real estate, and consulting.
4 Related-party transactions are business deals between companies with special, pre-existing relationships.
5 These arrangements can occur, for example, between affiliated companies or a parent company and its subsidiaries.
6 Although related-party transactions are legal, they can create harmful conflicts of interest.
7 As a result, in both the charter and academy sectors, governmental entities have created monitoring systems to protect against wasteful and fraudulent related-party transactions.
8 However, despite the existence of these monitoring systems, numerous instances of problematic related-party transactions have occurred in charter schools and academies. Using comparative legal research methodologies, this article attempts to explain why the monitoring systems of each domain are having such a difficult time regulating related-party transactions.