By Adam Jourdan and Philip Wen
SHANGHAI/BEIJING (Reuters) - When RYB Education Inc became enmeshed in allegations of child abuse at one of its Beijing kindergartens, it touched off an angry online furor in China, a police inquiry and a precipitous fall in the company's New York-listed shares.
Barely a week later, the firm appears to have weathered much of the storm, for now. Chinese police said late on Tuesday some claims of abuse were unfounded, although one teacher was in custody for using knitting needles to discipline children.
The company's shares closed up 23.33 percent in New York on Tuesday, after falling over 40 percent last week when allegations first emerged of abuse that included sexual molestation and forced medication.
However, shares fell over 10 percent in pre-market trade on Wednesday after the company said there were parent complaints about other RYB-branded kindergartens and that it was cooperating with police. It gave no other details.
RYB's actions over the week represented a case of effective crisis management, experts said, rare in the Chinese corporate world where companies tend to hunker down in the face of adverse news and allow events to play out.
RYB appeared to have taken "some good corrective actions", said James Robinson, managing director of communications consultancy APCO Worldwide's Shanghai office, adding a well-oiled response and open channels of communication with government stakeholders were key.
"It's essential for companies to respond swiftly, even if it's just to acknowledge they are aware of an issue and are investigating further."
Led by chief executive and founder Shi Yanlai, a vocal proponent for China's early child education sector, RYB appeared to have hit all the right buttons last week.
"When I heard the news, I was personally shocked and very angry," Shi said in an investors call on Friday.
"This issue has struck an alarm bell for us," she said, adding the firm would look to speed up the installation of "blanket surveillance" tools at its schools and day care centres.
RYB announced a $50 million share buyback and said it had dismissed a teacher suspected of involvement in the case as well as the head teacher of the Beijing school.
Shi helped set up RYB in 1998 when her own son was born. It now has over 1,300 play and learn centres and nearly 500 kindergartens in around 300 cities in China. Most are operated on a franchise model.
As the case became a lighting rod for wider anger in China about a lack of trained teachers, low wages and poor regulatory oversight in the massive and fast-growing private pre-school sector, Shi underscored that she was a mother herself and repeated frequently in local media interviews that the children were the top priority.
On Wednesday, the kindergarten in Beijing was operating as normal, with parents milling around waiting for children to finish class. A handful of police officers were the only sign of last week's troubles.
At the company's headquarters in southern Beijing, an RYB official said the police had only released their preliminary findings and that the firm could not provide comment until the investigation had finished.
Shi also refused to comment for this story.
Teachers, investors and experts said RYB had so far had got off fairly lightly, with a lot of the anger being aimed at regulators and wider issues in the market. Beijing is sending inspectors to the city's kindergartens, while China's education ministry is doing a broad investigation into the sector.
"I'm not really surprised," wrote Zhang Xiaolong, an education sector executive who has half a million followers online, referring to Tuesday's recovery in RYB's shares.
"After such a serious issue, the government hasn't taken away RYB's license to operate schools, and so it seems like it's being treated like an isolated incident."
Teachers in China said the furor over the case - hundreds of millions posted online about it last week - reflected bubbling tensions over the fast development of the private pre-school sector and a lack of resources for teachers.
"Thresholds for kindergarten teachers getting into the profession are too low; but also status, social recognition and levels of respect for the role are lacking," said Zhong Qian, the head of a private kindergarten in Chengdu.
"Increasingly there's a mismatch between the demand from students and the need for teachers."
RYB has survived similar scandals in the past, at another of its Beijing kindergartens earlier this year and before that at a nursery in northern Jilin province. Before it listed shares in New York in September, its IPO prospectus flagged abuse by teachers as a risk.
Teachers and academics, however, said that it was tough to stamp out abuse, especially at franchised, private-sector schools where competition was tough, requirements and checks on teachers were less strict and salaries were low.
"It's often one of the poorest paid professions in China, certainly right down bottom of the pay scale," said Geoffrey Crothall, communications director at China Labour Bulletin. "Schools often just want bodies in there who can supervise kids and pay them as little as possible."
The state-run Global Times wrote on Wednesday that even after the police report, there was still fierce criticism online of the case.
"As often is the case when authorities intercede in a case that has touched a nerve about people's welfare, a raging debate has continued to ferment," the newspaper wrote in a commentary.
Robinson, the communications consultant, added: "For RYB, it seems they’ve taken some good corrective actions, but I don’t know whether it’s enough. The facts are still emerging."
(Reporting by Adam Jourdan in SHANGHAI, Philip Wen in BEIJNIG and SHANGHAI newsroom; Editing by Raju Gopalakrishnan)