RYB Education struggles to get past scandal
Police back firm’s explanation but outcry not over
Things may be turning in a more positive direction for RYB Education Inc, which has been embroiled in a child abuse scandal at one of its kindergartens in Beijing that sparked nationwide anger and rattled its share price on Wall Street. Some say that the company has turned what could have been a PR disaster for any listed firm into a potential advantage.
On Tuesday night, police in Beijing’s Chaoyang district, in the latest update on the investigation, cleared the RYB kindergarten of any sexual abuse or of giving children unidentified medicine, saying that previous accusations were false.
Though the investigation is still ongoing, so far only a 22-year-old teacher at the kindergarten has been found to have engaged in wrongdoing by pricking children with needles, apparently to discipline them.
These findings confirmed what RYB CFO Wei Ping had predicted when asked about the scandal in a conference call on Friday. Wei said the worst scenario would be police finding “an isolated wrongdoing” at the kindergarten.
On Wall Street, RYB shares saw strong gains, shrugging off a 38.4 percent plunge on Friday. At close of trading on Tuesday, the share price had gained nearly 20 percent, rising to $22.27 from $18.61 when the market opened on Monday.
These developments prompted netizens to declare that RYB had got past the storm and that people would forget about what has happened.
One blogger even predicted, in a widely circulated article on WeChat, that RYB would face “a much more relaxed competitive environment” as government regulations would likely tighten up, making it very difficult to open a new preschool in Beijing.
Others said parents would still choose RYB because of the massive shortage of preschool teachers and kindergartens in the country, and also that RYB has even extended its brand awareness amid the fallout from the scandal.
However, RYB may yet face more problems. The investigation is not over and the public outcry is still continuing.
Police said in Tuesday’s update that a hard drive containing CCTV footage inside the kindergarten was damaged and only part of the footage had been recovered. But some are already questioning the police explanation.
The State Council, China’s cabinet, has dispatched a team of inspectors to check on teacher ethics and work styles across the country, the Xinhua News Agency reported. RYB, which operates hundreds of kindergartens across the country, will have to comply with the investigation. And the firm has already faced similar allegations in at least two other branches.
Also, RYB could face lawsuits in the US, where at least five law firms have announced lawsuits against RYB on behalf of shareholders concerning possible violations of US securities laws.
The Beijing Municipal Education Commission has announced measures to prevent similar child abuse, including installing a supervisor for each school.
Other measures such as enhancing surveillance systems at schools could also come.
And even though RYB might have expanded its brand awareness across China, there may be a risk that the taint of the accusations could put parents off sending their children to RYB schools in future.