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Mini-cast 97: Due Diligence and the USPS

Bret Keisling discusses current US Postal Service controversies from the perspective of what an ESOP Trustee would want to understand about recent operational decisions.


Mini-cast 97 Transcript

Bret Keisling: 00:03 Hello, my friends. Thank you for listening to the ESOP Mini-cast. My name is Bret Keisling and as it says on my business cards, I'm a passionate advocate for employee ownership. As I've said, many times in the past employee owned businesses, be they ESOPs, co-ops, or collectives, are first and foremost businesses. As a result issues that affect businesses generally always affect employee owned businesses as well.

Bret Keisling: 00:33 That is certainly true with the United States Post Office from sales to service, accounts payable and accounts receivable, from chasing that initial lead to sending a post-transaction thank you note, the post office is intertwined with our professional lives. Although email and messaging have certainly taken the place of much snail-mail communication, the post office will play a crucial role in the United States and around the world for many years to come.

Bret Keisling: 01:00 You're likely aware of the red hot controversy swirling around the post office as it relates to absentee voting and the sanctity of the US elections. As a result a week ago on August 21st, the United States Senate held hearings and Monday, August 24th, the House of Representatives followed suit and both hearings featured the testimony of Postmaster General Louis DeJoy. The hearings focused, among other issues, on the removal of 700 high speed sorting machines and numerous blue boxes where mail is dropped.

Bret Keisling: 01:33 Keeping with our attempts to be nonpartisan here at the podcast, I'm going to sidestep the issues related to the election and focus on some business operations issues that came to light in the hearing. Postmaster General DeJoy began his term in June, 2020, and within a very short time approved the removal of the sorting machines. The focus on the hearing was on whether the instructions were given for political reasons and with interference from the White House.

Bret Keisling: 02:00 As I heard the questions and the answers during the hearings, I kept thinking back to when I was an ESOP trustee. As we'd have our annual due diligence meetings with management, we'd often be told of strategic decisions the company had made or were contemplating. In every case, management was able to provide to the trustee satisfaction the analysis that went in to making the decision.

Bret Keisling: 02:22 Let's say my trustee client had a $3 million piece of equipment that they were planning to take out of commission. Management would explain every factor that went into that decision. So in the case of the post office, I expect them to be able to show significant analysis prior to the machines being taken out of service that would justify the decisions made. At 700 sorting machines, each capable of sorting 36,000 pieces of mail per hour, the post office voluntarily reduced its capacity by almost 25 million pieces of mail every hour. I don't know what percentage of post office capacity this is, but it seems like it would be significant. So what I was troubled most by the hearing is where Mr. DeJoy would simply assert the machines weren't needed, but didn't offer to provide any of the backup analysis. And indeed, when asked by a representative, if you would turn over all management documents relevant to the decision, Mr. DeJoy said, he wasn't sure there were that many documents. That to me is a major red flag. I would expect the Postmaster General, just as I would have expected my trustee clients, to be able to say, of course, here's what led to the decision, here's all of our research and here's why we feel it was the right decision.

Bret Keisling: 03:41 Now it's important to note as an ESOP trustee, it wasn't my job to replace my decision with management's. Rather, my job was simply to understand management's thinking and be assured that management had some basis for making these decisions. And that for me again, is what was lacking at these hearings. Other than justifying it as an appropriate decision, there was no supporting documentation available. By the way, I'll note, the absence of any justification or documentation does not necessarily mean there was political interference. The post office is a huge bureaucracy and it could just be very bad management. But if we look at a situation and we're left trying to decide whether a policy arises from political interference or very bad management, well neither one of those answers should give us comfort as post office stakeholders.

Bret Keisling: 04:32 While we're talking about, the business side of the post office, there are two other issues that in my view will forever prevent the post office from being fixed until these issues are resolved. They are the pension fund and what's known as the last mile problem.

Bret Keisling: 04:48 As for the pension, approximately 15 years ago, Congress required the post office to fund its pensions 75 years into the future. I'm a strong believer in funding pensions, just like ESOPs have to manage repurchase obligations, but there's no way any entity can afford to fund such a major item like pensions 75 years into the future. Make no mistake about it. This requirement is political in nature. It's not based at all on sound management principles.

Bret Keisling: 05:22 The other major problem with the post office is what is referred to as "the last mile problem." As you know, packages, these days are often primarily delivered by private companies. But because the post office has mandated provide equal service everywhere in the United States at the same flat rate, private, extremely profitable shippers are able to pick and choose their deliveries. For the vast majority of the country, the private firms will deliver right to the doorstep but there are certain rural areas that these private companies can't profitably deliver to.

Bret Keisling: 05:59 So the private companies take the package as far as they can go and then they turn it over to the post office in what's known as "the last mile" for final delivery to the doorstep. Folks, if the companies, the private companies can't afford to make these deliveries profitable, and yet they were able to force the post office to make these deliveries at a subsidized rate, that again is an issue that needs to be resolved before the post office can reach financial stability. I don't have a solution for that particular problem but as long as the very profitable private companies can benefit in this way, it's a recipe for continued disaster into the future.

Bret Keisling: 06:45 With that, we're going to wrap up today's episode. I hope you're doing well during these very turbulent times. We're going through them together and that's how we'll get through them, together. Please join us Tuesday for our primary ESOP/EO Podcast, where we'll have another great episode in our summer school series. This is Bret Keisling. Thanks for listening and be well,

Bitsy McCann:07:08 We'd love to hear from you! To contact us, find us on Facebook at KEISOP, LLC and on Twitter @ESOPPodcast. To reach Bret, with one "T", email, on LinkedIn at Bret Keisling, and most actively on Twitter at @EO_Bret. Again, that's one "T". This podcast has been produced by The KEISOP Group, technical assistance provided by Third Circle, Inc. and BitsyPlus Design. Original music composed by Max Keisling, archival podcast material edited and produced by Brian Keisling, and I'm Bitsy McCann.

Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.

A note on the transcript: This transcript was produced by Temi, an automated transcription service. While it has been reviewed by The ESOP Podcast, we can not guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.


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