O'Sullivan: Ross Armstrong may face last post

By FRAN O'SULLIVAN

Wanted: Chairman for New Zealand Post. Must grasp the big picture and new economy realities.

Core competency: Business acumen. Political operators need not apply.

The job description may not have been written yet, but behind the scenes there have been questions over Ross Armstrong's continued chairmanship of NZ Post.

This would not have been apparent to revellers at Friday's St Patrick's Eve Banquet in Auckland, as Armstrong and Deputy Prime Minister Jim Anderton sat down to a night of conviviality.

Both men had reason to be pleased.

NZ Post's controversial foray into banking had been approved. Armstrong had secured Government funding to invest in a new business and obtain an income stream to offset NZ Post's declining revenues from traditional postal services. Anderton finally had his People's Bank, a home-grown weapon to attack the Australian-based trading banks that dominate New Zealand.

Armstrong's term is not up until December this year.

But in my view the political risk to the Government from having one person chairing two controversial state enterprises - NZ Post and Television New Zealand - has become too high, particularly as Armstrong's highwire tactics in defence of NZ Post's banking push have made him a fixed target for the opposition National Party.

There are other reasons to consider a change at the top of NZ Post.

The challenges ahead require a player who is not distracted by the chairmanship of another powerful SOE which is also undergoing a major shift in emphasis.

Last week, NZ Post announced it had reversed its profit slump and recorded an interim net profit of $22.4 million in the six months to December 2000.

Adroit cost-cutting by chief executive Elmar Toime and the refinement of NZ Post's international investment activity ensured a turnaround after the disastrous $3.8 million June quarter loss last year - recorded as the company shifted its balance date from March 31 to June 30.

The restoration of NZ Post's profit to a level marginally above the 1999 interim result means Toime's own position is assured. However, NZ Post's profit is still below the $30 million achieved in the 1999-2000 year and could yet be eroded if the company loses substantial market share in its core businesses.

As NZ Post morphs into banking activities to make up for losses of market share in its core business, the composition of its board will also need to be addressed.

When National last month started leaking the contents of confidential NZ Post documents which questioned the commercial viability of the SOE's banking proposal, NZ Post directors with National Party connections came under political suspicion.

The reality was that directors such as former National cabinet minister Philip Burdon and former National MP Graeme Reeves had already been replaced on the board when their terms expired late last year. But that was lost in the political heat of parliamentary debate.

Two other directors - Wellington company director Paul Baines and Auckland-based Glennis Webber - will be replaced when their terms expire this month.

Finding replacements with the skills for what is now a politically charged board will be quite a task.

NZ Post must also appoint an establishment board for its banking arm. While Toime has a management team working up the proposal, he expects an establishment board comprised of existing NZ Post directors and senior management together with some outside appointees to be driving progress by July. Once the establishment process is finalised, the banking subsidiary board will have an independent chairman, although there will be some common directors.

The move into banking activities is not the only challenge NZ Post faces. While other international postal agencies dovetail banking facilities in the same branches, NZ Post's decision to in effect re-establish the old pre-privatisation New Zealand Post Office Savings Bank is a risky venture.

NZ Post does not have a core banking competency any more. That was lost when the banking and postal arms of the New Zealand Post Office were split off and the former was sold to ANZ Banking Group.

Swift commercial players such as The Warehouse will move on to its designated patch with well-branded banking services while NZ Post's banking arm is still moving through its establishment phase.

What is now urgently needed at NZ Post is a big-picture focus.

That is where a new chairman comes into play.

Armstrong has been a NZ Post director for most of the 1990s.

His own commercial background is as a one-man-band fish exporter. His strong connections as a former Auckland divisional chairman of the National Party gave him the political smarts to work informally on the retention of the rural delivery service when it came under attack by the ideological right wing of the previous National Government.

But while NZ Post has diversified by investing internationally, it has been too slow to grasp the reality of the internet age. An adroit NZ Post could have moved swiftly to form New Zealand's first substantial internet service provider. By adding on banking facilities, NZ Post is taking an old economy move rather than rethinking its fundamental business.

Telecom is moving on to its e-billing market and while NZ Post's venture capital wing, NZ Post Enterprises Group, has invested in a raft of small IT businesses on top of the SOE's holdings in Datacom and Datamail, it is all incremental stuff.

Postal deregulation has also spawned a host of competitors for NZ Post. These are relative minnows, but Toime acknowledges stronger players will emerge as an inevitable merger process begins.

Not long after the Government took office, a few business players were informally sounded out over the NZ Post chairmanship role.

No criticism of Armstrong was intended. At that stage he was being targeted for chairmanship of Television New Zealand and advisers had been concerned about the wisdom of one person holding two SOE chairmanships.

But the political situation has since toughened.

When Armstrong stepped out and accused National's Jenny Shipley of "fiscal treason" for releasing part of the Cameron & Co report on NZ Post's banking proposal, his verbiage smacked of a political rather than a commercial response.

When he later initiated High Court action against Act's Richard Prebble for continuing to release material from the report his judgment again came under scrutiny.

While Armstrong succeeded in getting Government approval for NZ Post's plan to establish a new publicly owned bank, $78.2 million of startup costs will come from the Government.

The bank will continue to draw fire, particularly, as the Government's approval has been motivated as much by political goals - keeping Jim Anderton happy - as by commercial reasons.

In this highly-charged environment it would make sense for the Government to bring on a new player who does not have political baggage.