Governance Lessons From the Postal Service
Radical Compliance always strives to find the latest, best illustrations of corporate governance gone wrong that we can dissect for lessons everyone else can learn. Today we have a gem: the U.S. Postal Service.
By now you probably know at least the contours of the story. The U.S. Postal Service is a money-losing operation, and newly appointed postmaster general Louis DeJoy arrived in June vowing to turn around that state of financial affairs. Last month he began implementing measures such as eliminating overtime for employees, decommissioning 671 high-capacity mail sorting machines across the country, and removing public mailboxes in at least five states.
DeJoy is a significant fundraiser and donor for the Republican Party and President Trump. He gave $44,000 to the Trump campaign in 2016, and hosted a fundraiser for Trump in his North Carolina home in 2017. DeJoy also gave $157,000 to various Republican candidates in the first five months of 2020 alone.
For many years DeJoy worked in logistics, which means he was either a competitor to, or a contractor for, the U.S. Postal Service. He got rich by building and running New Breed Logistics, a Postal Service contractor that DeJoy sold to XPO Logistics in 2014 for $615 million.
As recently as June, DeJoy owned stock in XPO Logistics worth $30 million to $75 million; XPO is a Postal Service contractor. Trump Administration ethics officials allowed him to keep those holdings, and it’s not clear whether DeJoy still owns the stock today. CNN also reports that DeJoy has bought and sold stock options in Amazon.com, a Postal Service competitor, subsequent to his taking over as postmaster general.
That’s DeJoy, Republican fundraiser and business executive, coming to the Postal Service and cutting costs, even if that means slower delivery of the mail.
Enter coronavirus. And an election in three months that President Trump is currently on trajectory to lose. And roughly 80 million people likely to vote by mail.
So if the Postal Service slows delivery of that mail, DeJoy’s critics say, those ballots might not arrive in time to be counted. Which could tip voting results in Trump’s favor, or at least give Trump an excuse to declare victory on election night even if his victory wasn’t confirmed, and then claim that late-arriving ballots are fraudulent.
Which, Trump’s critics say, is why DeJoy has his job in the first place: to gum up the mail and give Trump greater opportunity to steal a second term.
It’s quite the tale of corporate governance dysfunction. Let’s take a closer look.
Objectives Versus Priorities
First, this debacle underlines the difference between business objectives and priorities. Corporate leaders confuse those things at their peril.
The Postal Services is indeed in financial distress. In 2019 the organization ran an $8.8 billion deficit on $71.2 billion in revenue, and it already carries another $11 billion in debt on its books too. Thanks to a law enacted in 2006, the Postal Service must also fully fund its pension plan, which piles another $47.2 billion in liabilities onto the balance sheet.
On a personal note: My father was a letter carrier for more than 40 years. He told me countless stories of waste and incompetence. Trump and DeJoy are not wrong to say the Postal Service has problems that need attention.
Clearly, better financial management is an objective the Postal Service should pursue. The question is whether better financial management is the primary objective the Postal Service should pursue, given all the other demands on its services.
That’s the difference between business objectives and business priorities. Somebody has to decide which objectives come first, and which come later.
For example, you could — and Democrats do — argue that another priority for the Postal Service is to support fair and effective elections this November, even if that means appropriating billions more to cover the organization’s financial losses.
The Constitution does say we need to hold elections in the fall, and to operate a Postal Service. It does not say the Postal Service needs to turn a profit, nor that we need to vote by mail.
So which objective is more important? Which one takes higher priority?
In one form or another, countless corporate scandals turn on that question. Two objectives exist in tension, and management needs to decide which one comes first. Usually it reduces to whether financial success takes priority over ethical business conduct.
When priorities aren’t defined clearly, or when consensus doesn’t exist about which priority should come first — that’s when trouble ensues. The trouble could be anything from political strife, which is what we see with the Postal Service; to employee misconduct, to operational disaster from risks that were deemed unimportant.
In theory the chief executive officer sets the organization’s priorities. In reality, he or she needs consensus from the organization’s stakeholders — employees, customers, investors, consumers — if you want to succeed.
Which brings us to our next governance dysfunction.
Social Media Pressuring Priorities
Clearly a significant portion of the electorate suspects that Trump and DeJoy are using financial efficiency as a pretext to subvert democracy and keep Trump in power. Another portion of the electorate sees the Postal Service as an organization riven with mismanagement and debt, and they believe the narrative that voter fraud is a widespread danger.
What’s fascinating is that social media allows each side to believe its own version of truth, so they feel more confident fighting for their vision of what the Postal Service’s priorities should be. The result is an organization in paralysis — for example, just this morning the Trump Administration said it wouldn’t decommission mail-sorting machines any longer — rather than the organization pursuing any course of action at all.
The fundamental dynamic here is that social media lets stakeholder groups amplify their voices, so they can press their own standards of accountability against a company more forcefully. For a large organization trying to serve many people at once — such as the Postal Service, or a global business — that can be an excruciating balancing act.
Now, to state the obvious: There is no evidence that vote-by-mail encourages voter fraud. But social media allows Trump and his minions to sustain that fiction anyway. And from their ability to maintain that stance, flows all the political tension we see today.
Large businesses face similar tensions all the time. Social media allows your employees, consumers, business partners, and others to forge alliances, and then question the company’s actions more aggressively. We’ve seen it already with businesses pressured for doing business with the Trump Administration, or working in other authoritarian regimes, or not promoting minority employees, or adopting new policies, or whatever.
The exact issue of the fight is irrelevant. The ability of both sides to fight more tenaciously is the issue. It can leave even the largest organizations caught in the cross-fire. Understand that dynamic, because it can affect any corporate organization.
Conflicts of Interest Breed Distrust
Then there’s the matter of DeJoy himself, in charge of running the Postal Service even as questions swirl about his financial interests in rival businesses.
An analogy from the corporate realm would be a divided board of directors (Congress) and an incompetent, distrusted CEO (Trump) who appoints a general counsel (DeJoy) to clean up excessive spending in the legal department (the Postal Service). Except, that general counsel still has financial interests in various outside law firms or legal tech firms, even as he considers whether to incorporate such businesses into a new legal function.
The result of that scenario: Everyone else in the organization couldn’t trust whether the general counsel’s reforms are necessary, or just part of a scheme for that general counsel to line his pockets at their expense.
In corporate compliance land, we all know the correct response: a strong conflict-of-interest policy that requires the general counsel to divest every questionable holding, so his conflicts are neutralized.
That implies, however, a board and CEO with strong commitment to ethics and compliance in the first place.
At least some members of Congress do seem to care about such matters. Trump obviously doesn’t care about them at all. So when his own Administration clears DeJoy of any conflicts, nobody believes that’s true. Which leads right back to stakeholders fighting about the priorities the Postal Service should have.
Conflicts of interest breed distrust. The proper antidote to that is leadership with a strong, visible commitment to ethics: leadership that generates a proven track record on that front, so stakeholders can feel comfortable with decisions the organization makes.
Ethical commitment of the CEO. Ain’t it funny how everything traces back to that — and when you don’t have it, every manner of mess ensues.
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