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Continued: Capella: A compelling learning vision

  • Article by: JENNA ROSS , Star Tribune
  • Last update: February 4, 2009 - 7:33 PM

Employees at Capella University -- from the CEO to the secretary -- never say "students." Or "customers." The lingo here is "learners."

The word is meant to signal the primary clients of the for-profit, online school: working adults taking graduate courses. It hints at the broader culture CEO Steve Shank has created at Minneapolis-based Capella, where people believe education can and should be profitable, but profits never should dictate how people learn.

Since he founded it in 1993, Capella has grown from five students to more than 24,000, from a few faculty members to 1,150, from privately held to trading at about $60 a share. On occasion, Shank wrote personal checks to cover payroll. Now he's one of the highest-paid executives in the state: In 2007, his total compensation was $11.1 million.

Capella's goal, "quite surprisingly," has stayed the same, he said: offering high-quality online education accessible to busy adults. In March, at age 65, Shank will retire, turning Capella Education Co. and its mission over to Kevin Gilligan, the incoming CEO.

Gilligan doesn't have any experience running an educational organization; he's the top executive of United Subcontractors in Edina and former CEO of the Automation and Control Systems unit of Honeywell International.

But neither had Shank.

A Harvard Law School graduate, Shank worked for two years at the Minneapolis law firm Dorsey & Whitney before joining toy company Tonka Corp. in the early 1980s as its chairman and chief executive.

When Tonka was sold to Hasbro, Shank employed his observations about globalization ("Our society had to be about the knowledge industries"), adult education ("I just thought, wow, there's a huge need here") and technology ("It was clear that information technology could be used in the service of learning") to launch Capella -- then called the Graduate School of America.

The Internet was still "really early, really crude," he said. "But I knew enough about what was going on to know that somebody was going to figure out how to make this actually useful."

'His vision was so big'

Don Smithmier was there for the beginning, working at Capella as a temp, "stuffing envelopes and getting coffee," when Shank asked him to review his five-year business plan.

"To me it was crystal clear: This thing was going to the moon or off a cliff," said Smithmier, who eventually became a vice president. "His vision was so big. There was no mistaking the fact that for him, it was about creating something great, something that hadn't been done before."

Early on, Shank focused on the school's credibility. Capella would meet all the requirements of the Minnesota Department of Education. It would get the same accreditation as the University of Minnesota, giving authenticity to the claim that it was no diploma mill.

That became "a differentiation factor that helped lead to Capella's growth," said David Hopkins, a marketing professor with the University of Minnesota's Carlson School of Management.

Capella is not close to being the biggest for-profit university: with nearly 385,000 students and a significant online course offering, the University of Phoenix holds that title. But Capella has carved out a niche by specializing in certain degrees and focusing on accreditation, Hopkins said.

Shank believes Capella does a better job finding out whether students are learning than many regular schools, as well. Results are measured constantly, he said.

"Here, we focus on, 'Are things working? How can we make it work better?,'" said Pamela Patrick, faculty director for colloquia and a longtime Capella employee. "And some of us from the world of education were like, 'Oh, you can do that? That's OK?'"

The company always has attracted people from two distinct worlds, Smithmier said: "academic leaders who were very progressive and wanted to do something different and business leaders who were closet educators."

Learning on their terms

Shank considers himself a lifelong learner and used to teach law courses held in the evenings. It was there he encountered students -- one in an accounting department at Tonka made a particularly strong impression -- "with fantastic knowledge and abilities" who attended class in addition to full-time work.

"The [traditional school's] attitude is often, 'You'll do this on our terms,'" he said. "You come downtown at night and get a baby-sitter and pay for parking."

The Internet made access easier. About 83 percent of Capella's students are enrolled in master or doctoral programs. Their average age, as of December 2007, was 40. More than two-thirds were women. And, in what has been changing the meaning of the company's focus on access, 42 percent were "learners of color."

Capella introduced undergraduate programs a few years ago, but it will continue concentrating on its graduate programs, Shank said, in part because online instruction is particularly effective for adults.

Capella Education Co. will report its fourth-quarter financial results next week. In its third quarter, ending Sept. 30, Capella earned $5.8 million on $65.2 million in revenue -- up 17.5 percent. Investors have done well with Capella. Since the company went public in November 2006, total return to shareholders is 189 percent while the Standard and Poor's 500 index has declined 38 percent.

Shank thinks the company is still "just at the foothills" of its growth. He expects the transition to new leadership to be smooth. Shank always has prepared for the future of the company by building a management team ahead of the company's need, Smithmier said.

Smithmier -- who recently left Capella to start his own company -- said he was impressed by how Shank planned for the growth of the company.

"I'm still amazed that it happened," he said. "The thing I think made it work is that Steve never seemed surprised or disturbed or overwhelmed by the growth. He always believed we were exactly where we were supposed to be."

Jenna Ross • 612-673-7168

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  • Stephen Shank

  • STeve Shank Position: Outgoing CEO of Capella Education Co., parent company of Capella University Age: 65 Residence: Wayzata Education: Degrees from the University of Iowa, the Fletcher School and Harvard Law School Compensation: Total compensation for 2007 of $11.7 million made Shank the ninth-highest paid CEO in Minnesota. Included were salary and bonus worth $909,688 and $10.2 million from the exercise of stock options. Future: Shank will stay with Capella in an advisory role and remain chair of the Capella Education Co. board of directors
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