Why does NZ Post own Kiwibank? Some years ago, my former colleagues at the Ashridge Strategic Management Centre concluded that there was only one time that any company should own another: if it could add more value to that business than anyone else. If not, it should divest the business, and sell it to someone who could add value to it.
But, as Brian Gaynor points out in a cogent article in Saturday’s NZ Herald, NZ Post is actually siphoning off the entirety of Kiwibank’s $97 m post-tax profit (for 2013), using it to mitigate losses from its core business. This isn’t just failing to add value. It’s subtracting value with a vengeance.
It’s fine to decide that you want to subsidise national postal services (although you don’t need to, and Brian points to the UK and Germany as success stories whose postal services have made it on their own). Either we should subsidise, or we shouldn’t, and that’s a policy decision. If we do subsidise, we should do it directly, without letting NZ Post Group tap the profit of a different subsidiary. That constrains Kiwibank’s cash flow, preventing it from being more successful than it is, and it also distorts NZ Post’s prospects, making it dependent on a revenue stream that’s less predictable than a straightforward Crown subsidy would be. Equally, if you take the position that we shouldn’t subsidise postal services, taking Kiwibank’s post-tax profit allows NZ Post to prop up businesses that aren't viable.
The solution? NZ Post Group should sell Kiwibank - not to the private sector, but to the Crown. It would then pay a dividend to the Crown - exactly as Housing New Zealand does - and it could build its own business with its profit post dividend. The subsidy from the Crown to New Zealand Post would be paid - or not - as voters decided.
If you're interested in how to measure the value the corporate centre adds, try Andrew Campbell and David Pettifer's article on "How to measure the 'corporate centre'."