Business Cafe - All Change for Postman Pat


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Royal Mail has been privatised. Most of the shares the government owned in it have been sold off to private investors. You might have thought that ‘privatisation’ had become something of a forgotten word until recently. After all, the last comparable sale was Railtrack (now Network Rail) back in 1996. Even Margaret Thatcher would not allow the sell-off of Royal Mail.

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Business Cafe - All Change for Postman Pat

  1. 1. All change for Postman Pat This month, Royal Mail has been privatised. Most of the shares the government owned in it have been sold off to private investors. You might have thought that ‘privatisation’ had become something of a forgotten word until recently. After all, the last comparable sale was Railtrack (now Network Rail) back in 1996. Even Margaret Thatcher would not allow the sell-off of Royal Mail. Royal Mail has existed in one form or another since 1516. The government said it would sell up to 52% of the shares initially, with more being made available if demand was high enough – and it now looks like they will be; the shares made available sold out within hours at the end of last month raising around £3b. Is Royal Mail a ‘healthy’ business? At first sight, the figures are staggering; something like 15 billion letters are delivered a year to over 20 million addresses and Royal Mail delivers 99% of these. So why is there a need for such a radical change? Here we run straight into controversy. Those who favour the sale say that Royal Mail needs to access more capital. That is fair enough as far as it goes; all large businesses need funds in © Copyright 2013 Tutor2u Limited order to invest and innovate. The volume of mail in the UK has fallen by over a quarter since 2006 – unsurprisingly since emails (usable of course with attachments) are faster and are free compared to sending a document by post. Furthermore, direct mail’s (from business targeting specific customers by letter) share of the advertising spend has also declined. These have resulted in a drop in revenue. However Royal Mail does not need funds because it is ‘short of money’ (in the sense of having cash flow problems)- it needs funds to take advantage of the growth in the parcel market that couriers have experienced following the growth of online purchasing. Letters will never die away completely, but the technology and infrastructure needs to be in place to deliver an increasing volume of parcels. tutor2u
  2. 2. All change for Postman Pat continued Those who oppose the sale claim that the government is a much more secure borrower than any private company and has a much lower risk of default on any loan. This means that the government could borrow money to modernise Royal Mail far more cheaply than any large company ever could. Although this would increase government borrowing, if the returns are potentially so spectacular, then won’t it get the money back fairly easily? They also say that the government is undertaking the sale purely because it needs the money; with a large budget deficit, £3b or so is not to be shrugged off lightly. Furthermore, could this be another example of the government looking after its friends in ‘big business’? “City firms will scoop fees of £50m, split between those advising the Government and the Royal Mail group” reported The Independent. 1 This is clearly a topic worthy of a lengthy debate rather than a short article but we can at least give a brief consideration as to how three key stakeholders in Royal Mail might be affected. © Copyright 2013 Tutor2u Limited What about post offices and the communities they serve? Doesn’t the privatisation mean they may be closed if they are in a remote area and don‘t make much profit? No, it doesn't. “Royal Mail and the Post Office are separate companies. Royal Mail is the company that delivers parcels and letters - the provider of the universal postal service. The Post Office is the nationwide network of branches offering a range of postal, Government and financial services. The Post Office is not for sale.” 2 However, even if it is not also going to be privatised, the Post Office is not going to be immune from change. “The Post Office is planning to turn almost a fifth of flagship crown 372 branches into smaller franchised outlets in supermarkets and newsagents which the Communication Workers Union (CWU) fears will result in redundancies.” 3 Employees? Royal Mail has around 150,000 and unsurprisingly the CWU (which also represents Royal Mail’s employees) is worried that talk of ‘efficiency’ is code for ‘job cuts’ and has tutor2u
  3. 3. All change for Postman Pat continued scheduled a series of strikes. It has been announced by the government that all employees will be given shares in the company to the value of around £2000 with the chance to buy more if they wish. It could be argued that this shows that the company cares about its workforce and is allowing it not only a stake in the business’ future success but a voice in its running as well since shareholders have the right to attend the company’s Annual General Meeting, ask questions and vote on issues. On the other hand, it could be considered as a not- too- subtle ‘sweetener’ in the hope that financial gain will dissuade employees from striking and encourage them to accept change more readily. statutory redundancy payment) a further £2000 from the shares, while better than nothing, is unlikely to be sufficient compensation for having no job. Whatever happens, life for employees will certainly be different in a private firm. An amusing take on the situation in The Daily Mirror went as follows: “What will it all mean for Britain’s most celebrated man of letters, Postman Pat? Truth be told, it looks pretty grim. In years gone by, Pat was free to roam the country roads in and around Greendale with his loyal cat Jess, working at his own pace while getting the job done effectively. That’ll all change soon, once the profit-thirsty shareholders take the reins of the Royal Mail. The amiable animated mailman will find himself subject to an unending list of targets and accountable to shareholders who want the best results and the lowest costs.” 4 There will certainly be pressure to reduce costs - and labour costs are an obvious target. If employees are made redundant then (although entitled to a In reality, we simply don’t know what will happen and you can be sure that even in a few years, there will be bitter arguments over whether whatever has occurred represents ‘success’ or not, but for students of business studies there are interesting issues here and an opportunity to use ‘the stakeholder framework’ to pose some serious questions. © Copyright 2013 Tutor2u Limited Will customers benefit? The government certainly says so, claiming that the organisation will be a more efficient, faster-moving company better able to meet the needs of its customers. That sounds good. The other side of the argument is that, although it is unlikely (though still possible?) that the sort of universal delivery service that exists now will be discontinued, there are concerns that the prices to deliver to ‘out of the way areas’ will be hiked up considerably. 1 Jim Armitage. The Independent 28/9/13 2 uploads/attachment_data/file/239307/bis13-756-royal-mail-myth-busters-revised-sep 12-2013.pdf 3 Jennifer Rankin. The Observer 29/9/13 4 tutor2u