This is Part 2 of a two part post on the UK’s Post Office scandal. In Part 1, I described the mindset that made the organisation behave as badly as it did. In this part, I discuss why governance didn’t work.
When the Post Office Horizon scandal starts in 1999, with the roll-out of the computer system by Fujitsu to Post Office branches, the Post Office is a division of the Royal Mail, which at that stage was a publicly owned corporation. The Royal Mail was mostly privatised in 2011 (and fully privatised in 2015), and you may have your own views on that, given that it runs the UK’s universal postal service. The same legislation created the Post Office as an independent entity which was wholly owned by the government, as from April 2012.
Paula Vennells, who had joined the Post Office in 2008 as Group Network Director, from a private sector background—Unilever, Argos, Whitbread, Dixons, etc— became the chief executive of the newly formed organisation.
In the summer of 2012, under pressure from the MP James Arbuthnot, one of the good guys in the story, Vennells agreed to fund an independent investigation by Second Sight into the claims by the sub-postmasters that their losses had been caused by the Horizon system. Second Sight was, and is, a specialist financial fraud investigation company. It issued an interim report in 2013, and two further briefing reports in 2014 and 2015.
(Second Sight’s interim report)
Missing in action
Second Sight was only able to get so far, and there’s some evidence that the Post Office withheld evidence and that Fujitsu actively sought to mislead them. All the same, even their interim report raised enough questions to cause doubts. Enough anyway, for the Post Office to propose a mediation scheme. (It then sabotaged this, but that’s a different part of the story.)
It’s hard to read up on this without thinking—and this is the kindest interpretation—that Paula Vennells was a long, long way out of her depth as CEO, and that the governance structures of the Post Office were missing in action. As a separately constituted business the Post Office had a a non-executive Chair, appointed by the government, and a number of independent non-executive directors, including—always—one non-executive director nominated by the government.
Big flags
As Investopedia explains, non-executive directors are supposed to keep the Board accountable, by raising issues of performance, strategy, and risk, either formally or informally. As the Corporate Governance Institute says,
An effective non-executive director is not a person who is there on behalf of the CEO as a box ticker and ‘yes’ person.
You always need to distinguish what was known at the time from what we have learned later, but these are some of the things that were known in 2013 that ought to have raised big flags for the non-executive directors:
1. The initial Second Sight reports didn’t find evidence of “systemic problems” with Horizon, but they found plenty of examples of faults that produced phantom losses.
2. The Post Office’s internal management information systems were terrible, as a 2013 report identified. As journalist Nick Wallis says:
the Post Office had no real control over its internal accounting systems for the duration of its Horizon-related prosecution spree… and so it didn’t know where money was going, nor could it properly account for where it came from.
3. In 2009 Accountancy Age had covered the Horizon issue and made a specific editorial recommendation that “The Post Office should consider an IT audit to show it has taken the matter seriously. “
4. In 2011, the Post Office’s auditors, EY, had advised it “that the Post Office and Fujitsu did not apply normal, basic management controls over the testing and release of system changes.” (These two points from James Christie’s blog.)
5. Sub-postmasters were highly vetted people who were subject to “good character” checks before they were appointed. The idea that there was a large and sudden increase in criminality after Horizon was rolled out was implausible. The prosecution rate post-Horizon jumped from 2 or 3 a year to 50 or 60, and no-one appears to have asked why this was.
6. No-one seems to have raised a question of risk—that if the prosecutions turned out not to be safe, the consequences for the Post Office would be reputationally and financially catastrophic. Yet Second Sight had already found a Post Office investigator’s report, written prior to the prosecution of Jo Hamilton in 2006, that said “I was unable to find any evidence of theft or that the cash figures had been deliberately inflated.”
And Alan Bates, who ran the Justice for Sub-postmasters Alliance (JSA) had raised the possibility of this risk in 2012 with then then Minister for Posts, Ed Davey, in an email that said “the accounting scandal could leave taxpayers exposed to “astronomical” costs.”
7. No-one senior seems to have properly interrogated the critical question of whether it was possible to access the sub-postmasters’ accounts remotely through Horizon until Vennells and van den Bogerd were called in front of the Business Affairs’ Select Committee in 2015.
‘What is the true answer?’
In fact, both the ITV drama series and the accompanying documentary made quite a lot—rightly—of an internal email from Vennells to senior colleagues, including van den Bogerd, ahead of the 2015 Select Committee hearing. This was found during the discovery process for the civil cases that the JSA launched against the Post Office in 2018. Vennells wrote in the email:
“Is it possible to access the system remotely?”
Underneath, she has written: “What is the true answer? I hope it is that we know it is not possible and that we are able to explain why that is. I need to say no it is not possible and that we are sure of this because of xxx (sic) and we know this because we had the system assured.”.
In short, at least on the face of it, the lack of both situational awareness and curiosity is staggering. It’s possible that non-executive directors raised these points, but were ignored. It seems unlikely. As far as I can see, none of them have come forward to say so, and Alice Perkins, who was Chair from 2012 to 2015, has declined the opportunity to be interviewed about it.
Blocking compensation
And what we know from piecing together the court evidence the Post Office has provided (this is mostly down to the work of Nick Wallis) is that although in 2012 Perkins instigated the process that led to the Second Sight investigation, after that the non-executives, including the government representatives, were actively involved in Board decisions which were about watering down the mediation scheme and trying to block compensation payments.
It probably doesn’t “go all the way to the top”, but the British government is deeply implicated.
The lawyer who blogs as ‘Cyclefree’ suggested earlier this month that the Post Office’s misdemeanours over Horizon were a familiar UK story. We have seen them before over the last 60 years, in how the National Coal Board behaved over the Aberfan disaster, by the police after the Hillsborough tragedy, by the NHS in multiple medical scandals, by the British government in the blood contamination scandal and over Windrush. She didn’t mention it, but the Australian robodebt scandal has similarities, even if that was more ideologically driven.
Lies and cover-ups
The details differ in each case, but the pattern of misbehaviour by those with power is “so very similar”. She lists:
– the refusal to listen to concerns
– the lies and cover ups
– the stingy callous approach to apologies and compensation
– the refusal to accept responsibility
– the avoidance of accountability.
At the core of this, there are two repeating behaviours:
The first is the arrogance of indispensability. It is this which leads to the abuse of power which lies at the heart of the actions taken. The Post Office’s conduct over nearly two decades might best be described as a rampage of extortion with menaces, based on lies.
And the second?
It is an indifference to ordinary people, to the human consequences of misbehaviour, to the impact on others. [Her emphasis].
‘Guardians’ and ‘Traders’
One way to think about this is through the lens of Jane Jacobs’ book Systems of Survival. It’s an odd book, written as a set of dialogues between fictional members of a study group, but it concludes that human societies work on two systems or ‘syndromes’. One is based on territory (‘Guardians’) and the other is based on exchange (‘Traders’).
(Photo: Andrew Curry. CC BY-NC-SA 4.0)
I blogged about the book here, and should nod towards Victoria Ward, who introduced me to it.
When things go wrong, it is either because people in a syndrome are over-zealous, or because people in one syndrome are behaving in a way that belongs to the other. There’s a list in the book of 15 principles for each of the two syndromes, and an explanation of how she arrived at them. The 15 Guardian principles, for example, include:
- Be Obedient and Disciplined
- Adhere to Tradition
- Respect Hierarchy
- Be Loyal
- Take Vengeance
- Shun trading
Over-zealous
My suggestion here is that the Post Office, and the Royal Mail, are both Guardian organisations. I know they sell things, but they are there in different ways to support the state. The state monopoly on the post was created by an Act of Parliament in 1657, in the dog days of the Commonwealth, and the first Postmaster-General was appointed by Charles 1 in 1661. The picture of the monarch on the stamps is also a clue here, along with the fact that the Post Office has its own right of prosecution.
Guardian organisations go wrong in two ways. The first is that they ape traders, which leads to personal corruption. The second is that they become over-zealous versions of themselves. That’s what seems to have happened here. We see this in the language used by investigators, the bonuses they were paid for successful prosecutions, and by the fatal lack of a distinction in the internal prosecution process between investigation and assessment of the case—as in Jarnail Singh’s dismal emails, for example.
HM Customs, another ‘Guardian’ organisation that used to have the right in-house to prosecute, lost it as a result of breaching normal procedures and disregarding the law.[1]
Stopping the losses
And we also see it in the hierarchical culture, where everyone inside the Post Office stayed in line, asked no questions, and repeated the same myths about Horizon when asked about it:
Among both its management and audit team at the time… there was a hierarchical culture in which criticism was not welcomed… Despite individual appeals by sub-postmasters, Post Office managers did not challenge the leadership or organisation, and apparently believed their systems, including Horizon, were infallible.
Or, as the Post Office told BBC South in 2011. In 2011!
“The Horizon computer system is absolutely accurate and reliable”.
That’s only half of the story, though. The other thing that was happening, throughout this story, was a desire by governments first to privatise the Royal Mail, and, from 2012, to reduce the losses being made by the now independent Post Office. This seems to be why Paula Vennells, with her retail background, was appointed Chief Executive. Her objective, set by the government, was to get to breakeven by 2020. Within the senior team, just mentioning ‘2020’ became a kind of short-form for this ambition.
(Photo: Andrew Curry. CC BY-NC-SA 4.0)
Hollowing out
It’s overlooked, but she achieved this goal. This involved cutting payments to sub-postmasters, which is one of the reasons why the sub-postmasters now mostly make a miserable income. It also involved property sell-offs and co-location deals (e.g. with WH Smiths) that meant it was hard—while banks were closing branches—to be strategic about using the Post Office to ensure some basic level of local financial services provision. This is probably the misjudged rationale for Vennells’ CBE in 2019.
If that’s one part of the process of hollowing out the capacity of the state, the other part was in the IT contracts. It’s sometimes forgotten that Post Office engineers built the first computer in the world, as part of the UK war effort at Bletchley Park.
As Helen Margetts of the Oxford Internet Institute writes at The Conversation, Britain had become, over the ‘80s and ‘90s, a “global leader in procuring the ‘mega-IT contract”. This didn’t mean that it got good at it, however:
Over the years, government departments in the UK stopped innovating with technology, and have started contracting it all out to computer services providers… During this period, the National Audit Office (NAO) produced a stack of politely damning reports on government IT outsourcing – about cost overruns, failed projects, error-ridden systems and troubled contract relationships.
‘Poor decisions were being made’
In the case of the Horizon proposal with Fujitsu, Geoff Mulgan recalls being asked to look at it when he was working in Downing Street in the late-90s. (He was called to give evidence to the Public Inquiry because his memos turned up). He had, at the time, recommended cancellation.“It was,” he says, “obvious that poor decisions were being made”
There were two particular flaws, as he said in his testimony:
It was insane that politicians were having to make judgements about complex technical and business issues, far beyond their competence or experience. In this particular case the design of the PFI meant that the post office in general and sub-postmasters in particular played no role in designing the system.[2]
The government insists that it merely sets objectives for the Post Office. It says the organisation
“operates as an independent, commercial business within the strategic parameters set by government.”
‘What the government wanted’
The evidence says otherwise. This piece is already too long, so let one piece from Nick Wallis’ coverage stand for the whole. In 2020, he asked a senior Post Office insider about it:
(T)hey nearly spat out their drink with laughter. The insider told me that whilst they were there, Post Office staff with varying levels of seniority were running in and out of BIS (the relevant government department) the whole time. They also told me that culturally, within the Post Office, senior management priorities revolved around what the government wanted. What the government wanted, I was told, to the exclusion of almost anything else, was for the Post Office to become profitable.
And it seems clear from some accounts that the government’s target that the Post Office break even—which is also likely to have been a factor in their bonus payments—was not far from their minds around the Boardroom table as they were trying to avoid paying compensation to those they had wronged. Be careful what you wish for: the provision for compensation in the Post Office accounts is currently £244 million.
Mutual organisation
The ITV drama has had the effect of accelerating both the legal process to reverse the unsafe convictions, and of paying compensation. Paula Vennells has at last decided to return her CBE. There is, and definitely not before time, some scrutiny of Fujitsu’s role in all of this. Former government ministers are busy covering their backs.[3] These are all welcome outcomes.
But even though the Post Office has a new Chief Executive, a new Chairman, and a new Board, which includes sub-postmasters for the first time, it is still behaving in the same entitled ways.
The legislation that created the independent Post Office in 2012 includes a mechanism to turn it into a mutually owned organisation. This would require a line to be drawn under the scandal. It would need some investment. It might need some subsidy to ensure that post offices remain a community resource. But: I suspect that the only way for the Post Office to regain trust is to do this: to become a mutual, with proper public objectives about serving our communities. To be a proper Guardian, in other words.
[1] A 1997 prosecution brought by Customs led to a trial that was halted by the judge because of a “catalogue of flawed procedures, misleading requests, illegalities and incompetence at a number of levels.” This may sound familiar. There were two independent inquiries into separate failed Customs’ prosecutions that MPs discussed in the House of Commons.
[2] Eleanor Shaikh has written more than you are ever likely to want to know about the early days of Horizon.
[3] Ed Davey, for example, who was Minister for Postal Affairs from 2010 to 2012 and says the Post Office misled him. Computer Weekly published seven serious stories about the scandal between 2009 and 2012. He could have asked a researcher to read them rather than relying on the old boys’ club.
