Congress and the Postal Service

The United States Postal Service is unique among publicly-owned postal operators in that no executive department has the "shareholder." responsibility for the enterprise.   By default, this responsibility has fallen on Congress.  Since the passage of the PRA, Congress has tended to downplay its shareholder role which has resulted in Congressional actions that undermine the competitiveness of the Postal Service and the value of the enterprise.

The problem with Congress reflects the inherent conflict between its interest in the Postal Service as shareholder and its institutional interest in reelection.   As such, the Postal Service has frequently become a tool to help balance the Federal Budget, with these actions constantly weakening the financial position of the Postal Service.   (See. USPS-OIG white paper, Federal Budget Treatment of the Postal Service)     Other actions reflect institutional interests in serving constituent groups that could be affected by postal business strategies, many times to the detriment of the enterprise.

The Postal Service has not helped its shareholder see these conflicts as its business strategy has been opaque to even many seasoned observers.   Its current strategy focusing on reducing costs by reducing retail locations and delivery days raise this question again.   As the observer, Rag Content notes:

The potential impact of changing operations is something the Postal Service seems to be doing without much thought to its customer base these days.  As it hides behind the line - matching resources to revenue, it continues to downsize its operations from closing post offices to reducing the remittance mail processing on Sundays in some locations to its AMP consolidation effort. The post office closing is the only docket open before the Postal Regulatory Commission at the moment, yet every change the Postal Service is making operationally affecting its ability to provide uniform service throughout the country.

A similar question is now being raised by shareholders by another troubled enterprise, General Electric.  General Electric, a diversified financial, manufacturing, and entertainment company, has gone through probably the worst year in the company's history.  The company had to take funds from TARP funds to shore up its financial unit and has sold nearly $10 billion in assets and slashed its dividend by two-thirds in order to improve its liquidity.

Now shareholders are looking for a clearer picture of how General Electric will earn a competitive return on investment dollars going forward.  A recent Bloomberg News story covering General Electrics upcoming December 15,2009 shareholders meeting illustrates how involved shareholders think about a company with an unclear business plan.

General Electric Co. Chief Executive Officer Jeffrey Immelt says a financial crisis like the one he faced this past year often demanded action first and explanations later. Later is now, investors say.

“People want them to do a better job explaining what the return hurdles are for the businesses going forward,” said Mark Demos, who helps manage $19.8 billion at Fifth Third Asset Management in Minneapolis. “GE has a mixed track record on putting capital to work over the past five years.”

The shareholder of the Postal Service needs to ask the same types of questions that the shareholders of General Electric are asking GE's management.

• What is your long-term strategy to ensure a commercially viable, and more importantly self sufficient enterprise?
• How do short-term cost cutting efforts affect that long-term strategy?
• What is the long-term business strategy that the changes identified in the Postal Service's business model paper support?
• Is that strategy financially viable and what risks could derail its viability?
• How much capital and cash is needed to execute that strategy?
• If existing capital and cash is not sufficient, what is your strategy to raise more capital?
• What are the risks to the shareholder and the existing holders of Postal Service debt and other unfunded obligations?
  

While these are questions that Congress, as shareholder should ask both now and on a regular basis in the future.   Given Congress's track record on taking their responsibility as shareholder as seriously as General Electric's shareholders do, it may make sense to explicitly give some other government entity that responsibility, especially if solving the current financial crisis will require the Postal Service, like General Electric to seek relief from either unfunded obligations or expansion of its borrowing capabilities. 

Potential Business Models

The range of potential business models include nearly a continuum of options that run the gamut from a government department to a corporation owned by private shareholders. How close a particular model is to one end of the continuum or the other depends on choices regarding to corporate governance, employment and labor law, financial management, operations management and marketing management. This paper divides potential models into two groups, governmental and corporate models, depending upon whether the characteristics of the model are more similar to the characteristics of the models on either extreme of the continuum. In total five models were looked at:

Governmental Models

• Government Department – This is how the federal government currently provides air traffic control, weather, agricultural marketing, national parks, museums and other services to businesses and consumers. In all of these examples, the service is provided under standard federal government law, civil service and all or a significant portion of revenue is generated from the users of the government service or private donations.
• Government Enterprise as defined by current Postal law – This is the existing model under which the Postal Service operates
  
• Government Enterprise with relaxed human capital, financial, and operating constraints – This model maintains the governmental characteristics of the enterprise but modifies specific characteristics in a manner similar to other government enterprises.

Corporate Models

• Government Owned Corporation – The Postal Service operates under standard private-sector law and is owned by the federal government.This is most similar to the structure of municipal owned utilities and publicly owned commuter railroads. Many foreign postal operators fall under this business model. A government-owned private-law corporation can be loss making or profit making.
  
• Private Sector Corporation with or without government shareholders – A private sector corporation would include private sector owners and operate under a charter granted by the federal government. Services provided on behalf of the federal, state or local governments would be provided under contract and could include services that fall within the charter that are not sufficiently remunerative to justify their provisions .
  

The three governmental models reflect the general approach that the federal government has taken with business-oriented services. The corporate models reflect what foreign posts have chosen. The corporate models also reflect the models of all of the Postal Service’s competitors including those offering physical and electronic delivery, and those that compete by providing sortation or transportation of mail. The table below (can be seen on pages iv through vi of the full document as I am not sure how to put it in the blog) summarizes how well each of the models handles the challenges facing the Postal Service and policymakers. Examination of how well each of these models would handle the challenges facing the Postal Service finds all of the governmental models wanting. While relaxing the some of the constraints of the current model would be a reasonably safe choice, it would not be sufficient to serve the Postal Service’s retail and wholesale customers, and ensure that the Postal Service’s obligations to the Treasury are paid. Instead, the best solutions would involve preparing the Postal Service to operate as a government corporation, working under private sector law.

Making this transition will not be easy.The Federal Government has done this only twice with the US Enrichment Corporation and ICAAN. Neither organization was as large as the Postal Service. In particular, neither had the challenge of transferring more than a few hundred employees from civil service to private sector employment, nor did the have significant financial needs to cover modernization, debt and unfunded. However, the experiences of foreign posts, many which employ tens of thousands of employees and had similar financial woes illustrates how this can be done, and how it can be done with minimal disruption of the careers of postal employees.

Executive Summary Part 1: Choosing a Mail Industry Policy
Executive Summary Part 2: Challenges facing all Business Models
Executive Summary Part 3: Potential Business Models (this post)

Full Paper: Examination of Potential Business Models