Review

The Institute of Directors (IoD) has published a policy paper on the corporate governance failures at the Post Office which contributed to the Horizon scandal and the false prosecution of over 900 sub-postmasters (SPMs), for theft.  The paper details the reasons which contributed to the scandal, lessons learned and recommendations to improve corporate governance

The paper is unique as it details the IoD’s view on the causes of the Horizon scandal (based on round table discussions with academics and industry specialists), before the official inquiry, chaired by Sir Wyn Williams has formally reported.

For many the root cause of the Horizon scandal is self-evident; the Horizon system did not accurately record accounting transactions and was fundamentally flawed. While the paper is comprehensive, questions such as ‘why was Horizon released into the live environment irrespective of significant programming bugs?,’ ‘what level of testing was performed before implementation?,’ and ‘who was ultimately responsible for authorising the system’s release into the live environment?,’ are not answered. Nevertheless, the standout points from the IoD paper are as follows:

False assumptions

One of the significant reasons why the issues with Horizon were allowed to fester were the false assumptions made by directors from Post Office Ltd (POL) and Royal Mail Group (RMG), which culminated in lack of oversight and challenge. From the onset, Sir Michael Hodgkinson, chairman of POL between 2003 and 2007, regarded the SPMs as a separate business entity from RMG. Little board attention was paid to the prosecutions as it was assumed the legal team of RMG were managing.

Adam Crozier, who was the CEO of RMG between 2003 and 2010, stated “POL enjoyed a high level of autonomy” and “was allowed to manage its own affairs.”  This was justified as POL was less “commercially orientated than the rest of RMG.” Similarly, Alan Cook, managing director of POL between 2006 and 2010, assumed the SPM prosecutions were being progressed by the Crown Prosecution Service and testified he know little about POL’s role.

Closed shop: Even the union didn’t come to their members aid when the Horizon scandal hit

Failure to escalate issues

The lack of escalation of Horizon issues to an appropriate governance committee is a common theme. The ability to escalate commercial issues from POL to RMG should have been simple as both the chairman and managing director of POL sat on the RMG Board and were “well placed” to brief the then CEO Adam Crozier.

Prior to 2006 however, the managing director of POL reported to the chair of RMG rather than the RMG CEO. Although this reporting line was subsequently revised, Crozier in his capacity as CEO of RMG, only attended two POL board meetings in seven years.

The paper doesn’t explicitly mention whether the role of the directors and their responsibilities was specified in any formal governance documents, e.g. terms of reference for the POL and RMG governance committees, or job descriptions for the directors. Usually these items are essential to define and embed the governance structure. However, it can be inferred the formal governance arrangements were largely absent as there “was remarkable confusion” at a senior level as to who was responsible for what.

In hindsight Crozier acknowledged the corporate structure failed to provide RMG with sufficient oversight and little information about the prosecution of SPMs was escalated to him. In terms of corporate governance, this was a fundamental omission; if a board is not provided with sufficient management information, it hinders its ability to make reasoned and informed decisions.

Suppression of information

Paula Vennells, CEO of POL from 2012 until it separated from RMG, also blamed the lack of information from Fujitsu over the Horizon faults, as well the inhouse legal team for failing to provide her with crucial advice from external counsel. However, the paper notes Vennells was briefed on the unreliability of the testimony of Gareth Jenkins, a Fujitsu employee, who had acted as an expert witness in previous SPM prosecutions. Vennells also suppressed the inclusion of Horizon within the Royal Mail share prospectus, which suggests she was aware of the issues with Horizon but made a conscious decision to ignore it.

The suppression of critical information was repeated by Alice Perkins, Chair of POL between 2011 and 2015. In her defence, she argued she was not IT literate and did not appreciate the “weight of information received” from EY partner Angus Grant about his concerns about the integrity of the Horizon system, yet she choose to delay publication of Second Sight’s second report which questioned the safety of SPM prosecutions from a key board meeting.

Similarly, Tim Parker who was chair of POL between 2015 and 2022, commissioned a report from Jonathan Swift QC and its conclusion questioned the reliability of SPM prosecutions. However, Parker failed to share this report with other board members or the government of the day. Parker attributes the failure to do so to legal advice from POL’s general counsel as it would have led to a loss of legal privilege. While the IoD paper calls for the professionalisation of directors, surely Parker and others had a fiduciary duty to POL to act in its best interests from the onset?

Risk management framework

Although the IoD paper states the “board members and senior managers did not have clear sight of the risks to which the business was exposed,” there is no mention of the adequacy of any risk management processes in the POL or RMG. This is a missed opportunity. In financial services, the need for adequate risk management systems has been a regulatory requirement since the early 2000s. The production of risk registers and production of risk management information may have flagged the issues over the Horizon system and precipitated more meaningful debate and action at board level.

Conflicts of interest

The paper suggests the trade union which represented SPMs, the national federation of sub post masters (NFSP) was toothless. During the period 2007 to 2018,George Thomson, the union leader downplayed the issues with Horizon and even tipped off the POL’s media team that journalists were investigating the matter. Thomson’s failure to act in members’ interests was probably attributable to the payments the union received from POL, e.g. £500,000 in 2013/14 and over £2.5m in 2017/18. It is evident Thomson was conflicted which compromised the effectiveness of any challenge to the POL Board. It was also unethical of POL to pay union fees for staff.

Photo credit: Mylo Kaye and author