Conspiracy of Silence: The Hidden Governance Agenda Behind the Post Office Fiasco

The Unravelling of a Digital Nightmare

Over the past week the UK has been once again rocked by the British Post Office scandal, especially on the back of the ITV Documentary and the televising of the Public Enquiry. This scandal unfolding over 16 years from 1999 to 2015 and is a stark reminder of how systemic governance failures can lead to widespread injustice and societal turmoil.

The scandal centred around the Horizon IT system, developed by Fujitsu, for accounting and stocktaking in Post Offices across the UK. This system, plagued by glitches and errors, erroneously implicated approximately 3,500 branch owner-operators in financial malfeasance, leading to over 700 wrongful prosecutions.

Governance Breakdown and Its Consequences

The underlying issue was not just a faulty IT system, but also a profound governance failure at multiple levels. Sub-postmasters reported issues with the Horizon system early on, but their concerns were consistently dismissed by the Post Office. This lack of responsiveness, combined with the Post Office’s unwavering stance on the system’s reliability, set the stage for a catastrophic breakdown in trust and accountability.

The consequences of this governance breakdown were severe. Many employees, wrongfully accused, faced criminal charges, imprisonment, and financial ruin. The social and emotional toll was immense, with families breaking apart and community ties severed. Tragically, there were even reports of suicides linked to the scandal.

The Role of Good Governance in Mitigating Crisis

This scandal underscores the critical importance of good governance in any organisation. Effective governance mechanisms, such as robust oversight, transparent processes, and a culture that values accountability and responsiveness, could have significantly mitigated this crisis. The Post Office’s failure to heed early warnings and to engage in open dialogue with its sub-postmasters was a glaring oversight. Not to mention the appalling manner this crisis was handled by the then CEO – Paula Vennells (who has now returned the CBE she was awarded for her “stellar” work in turning around the Post Office after a petition gather millions of signatures calling for it to be remove – well played Paula!

The Board’s Oversight: A Missed Opportunity for Intervention

At the heart of this scandal was not just a technical flaw but a profound failure of governance, particularly at the board level. The role of a board in any organisation is to provide strategic direction and oversight, ensuring risks are managed, and ethical standards are upheld. In the case of the Post Office scandal, the then board’s role should be under scrutiny for its apparent failure to detect and address the systemic issues with the Horizon system and better management of this crisis.

The board’s apparent lack of engagement with the operational challenges and the early warning signs of the Horizon system’s failures was a critical oversight. Reports from sub-postmasters about discrepancies in the system began surfacing shortly after its implementation. However, these concerns seemed to have been dismissed or inadequately investigated by the board. The board’s responsibility includes ensuring robust risk management processes and a culture of openness, which in this case, were evidently lacking. The Board’s missed the signals!

What the Board Could Have Done Better

An effective board should actively seek out and address any red flags in operations, especially when they pertain to critical systems like accounting and stocktaking. The then Post Office board could have:

1. Fostered a Culture of Transparency and Accountability: Encouraging a culture where issues can be raised and addressed without fear of reprisal would have been crucial. These sub-postmasters were technically employees, who raised serious concerns and they were instead investigated and imprisons without any proper internal process.
2. Ensured Robust Risk Management: Implementing comprehensive risk management strategies, including regular audits/reviews and independent reviews of critical systems. Where was the Risk Committee in all this? Did they have this project on the risk Register and what were the reports they were getting on its implementation.
3. Engaged in Active Oversight: Rather than just relying on management reports, the board should have engaged in deeper scrutiny, possibly using external expertise to validate the system’s integrity. Did the Chair of the Audit or Risk Committee or any member of the then Board ever visited the development team or some of the sub-posters after the system go live, just to get a sense of how the system was working so they could provide some independent report back to the Board? Did they even have the knowledge that as Board Members they could do this? As they say hindsight is 20/20.

Possible Causes for the Board’s Oversight

No system is perfect and as a Chair and NED myself, a Company Secretary and Governance professional of over 15 years, I know there could be several factors contributing to the board’s failure to detect and intervene.

1. Over-reliance on Management Assurances: The board may have placed too much trust in the assurances given by the management team regarding the reliability of the Horizon system. I see this too often in the work I do with Board’s looking at Decision Risks and the relationship between Boards and Management. Board members don’t challenge the reports they get from Management enough which is one of the central tenants of being a Non-Executive Director (NED).
2. Lack of Technical Expertise: The board might have lacked the necessary technical expertise to understand and question the nuances of the Horizon system. The implementation of a major system like this should signal to the Chair, in particular, to examine who is around the Board table and if the Board had the needed skills to understand the risks and implementation of this highly technical system – the biggest IT system ever implemented in the Post office history and which they still use. This is where a Board Skills Audit comes in. Board Skills Audit shows the gaps in skills and so Boards can then take action to rectify. Lumorus has a revolutionary Board Skills Audit tool, that have gotten raving reviews from companies and regulators. Just saying….
3. Inadequate Reporting Mechanisms:There may have been a failure in the reporting mechanisms, where concerns raised by sub-postmasters did not reach the board effectively. In my role as Company Secretary, I see this often, where management sometimes “sugar coat” the truth about challenges or bury the context in bulky board packs that they are sometimes overlooked, relying on the idea that Board members don’t or might not read the papers in its entirety.

Aftermath and Accountability: Lessons in Governance

The Post Office scandal is a stark reminder of the vital role governance plays in the health and integrity of an organisation. Boards must be vigilant, proactive, and deeply engaged in the workings of the organisation, especially in areas that carry significant operational risk. This of course has to be balanced to maintain their strategic and oversight role. Creating an environment where issues are not just reported but acted upon is essential for preventing such crises in the future.

The aftermath of the scandal highlights the necessity for organisations to reassess their governance structures and practices, ensuring that they are equipped to identify and address issues before they escalate into crises. Over the past few months, I have been working with some top global companies to do just that, using our preparatory tool – Corporate Governance Precision System (CGPS). The results are that these organisations are well on their way in building modern governance infrastructure to be more resilient both in times of crisis and future growth.

Moving Forward: Lessons for Future Governance

Boards and their organisations should learn from this debacle. Firstly, it’s crucial to have systems in place for employees to report issues without fear of retribution. Just having a Whistle Blow Policy in place is not enough. There has to be visible mechanism that all employees know about and have faith that it works. Secondly, a culture of transparency and accountability should be fostered at all levels. Thirdly, when problems do arise, swift and fair measures to address them are imperative especially when they affect employees or customers. Fourth, ensuring that the technological infrastructure is reliable and thoroughly tested is vital to prevent such crises. Lastly, ensure that at every stage of the business evolution or at ever major “change in circumstance” you evaluate the skills around the Board table to ensure you have the right set of skills required to deliver the business objectives.

As I watch this play out, it is clear that the British Post Office scandal serves as a grim reminder of the dire consequences of poor governance. It’s a call to action for organisations worldwide to build a better governance system. One that is fit for the modern world, what I call “Modern Corporate Governance”, which prioritise robust governance frameworks that works in this new business revolution and changing regulatory environment. This is not just to prevent similar crises but to build trust and integrity with all stakeholders within and outside their institution.

This has definitely been one of Britain’s biggest miscarriages of justice and Governance failures.

Written by:

Romeo Effs is a Governance Professional, Company Secretary for several companies, Board Chair, NED and is CEO of Lumorus (www.lumorus.com) a management consultancy offering services in Governance Advisory, Company Secretary Services and ESG Consulting.