News

June 1 2024

Part Three

This scandal was not an unfortunate consequence of stodgy processes, ill-informed incompetent executives and a blind faith in a flawed IT system. Post Office staff did not behave the way they did just for the hell of it. They did so because they believed this was what was wanted by the government, its owner. It was the government which set its “strategic parameters” while remaining at arm’s length from its day-to-day operations.

I wrote here about one key question which remains to be answered in relation to the cover up and the Post Office’s conduct over the Bates litigation: What did the government know? When did it know it?

But there is another important question which needs asking first.

To what extent did the government’s strategic priorities for Royal Mail and the Post Office lead to the scandal? 

Last week’s evidence from Paula Vennells shed some light on one aspect of this: the 2013 IPO of Royal Mail and her curious intervention, the one which according to her self-appraisal “really earned her keep”.

Royal Mail had been loss-making for years: governments, whatever their political persuasion, were determined to make it more commercial, perhaps even profitable and, eventually, to privatise what could be privatised. The Post Office needed to widen the range of products it sold, with financial products its preferred option. It also needed to reduce costs. These were the priorities. Any sort of admission that IT systems were not fit for purpose, might need more (expensive) investment risked derailing this. It also partly explains why no-one inquired too closely into how Post Office investigators actually behaved. Rather than being a genuine investigations team, they were a debt collection team collecting monies which the Post Office wrongly thought it was owed. There was no incentive to look closely at whether they were complying with the law, actually investigating the reasons for the discrepancies, or abusing their powers. The incentives went the other way.

Once privatisation was on the agenda, this became even more important. Ensuring the Royal Mail was attractive enough to be sold – profitably – and splitting the Post Office into a separate stand-alone company were the focus. Achieving this while ensuring that its day-to-day business and backroom functions are being run as they should be is a challenging task, even in the best run company. Not even its best friends would describe the Post Office thus.

The Royal Mail IPO

The 2013 prospectus for Royal Mail’s IPO contains a section dealing with its relationship with Post Office Limited (“POL”) and the material risks this exposed Royal Mail Group to – para. 1.18. It mentions dependance on the “effective operation of POL’s IT systems and processes” and on the public perception of Royal Mail and POL as one entity. “Any business or commercial decisions taken by POL could therefore be perceived as decisions taken by…. the Group and adversely affect the reputation and brand of the Group……Any failure in POL’s IT … systems …. may lead to adverse publicity and adversely affect the reputation and brand of the Group.”

What this section or the prospectus as a whole nowhere mentions is POL’s prosecutorial role during the period when it and Royal Mail were one entity. Nothing was said about any ongoing responsibilities for (a) any failings in prosecutions carried out pre-IPO and/or (b) any obligations to pay compensation.

Ancient, irrelevant history? No. By mid-2013 there were credible concerns about POL’s IT systems, the safety of past prosecutions and possible liability for compensation. POL’s insurers had been notified. Any prospective investor in Royal Mail would surely have wanted to know about risks arising from past conduct by Royal Mail (unless these had clearly been carved out) as well as ongoing risks relating to a future long-term business partner. Those drafting the prospectus must have thought so because something was put in about the Horizon system.

On her last day giving evidence, Paula Vennells stated that she had managed to remove references to Horizon from the Royal Mail prospectus. According to her, it was irrelevant and damaging to POL. She repeated that she had played no role at all in the prospectus or the IPO so it is odd how she was able to assess the possible relevance of certain statements. Perhaps an understanding of regulatory obligations and listing rules was one of her hidden talents.

What was it she was so keen to remove because it was so damaging and irrelevant? It was the statement which POL had proudly trumpeted in its press releases following the interim Second Sight review to show that subpostmaster allegations and concerns were exaggerated and unjustified.

“In July 2013 an interim report was published into alleged problems with POL’s “Horizon” computer system which is used to record transactions in its branch network. The report confirmed that no system wide problems had been found in relation to the “Horizon” software, but suggests that POL should examine its support and training processes for sub-postmasters.”

How could POL’s own press release be damaging? Two reasons: the reality behind the review and the other advice which POL had received by now made this statement “economical with the truth“. If questions had been asked, who knows where these might have led? Had there been even the merest hint of possible miscarriages of justice arising from matters taking place during the period when Royal Mail was in charge, how would this have affected Royal Mail’s sale? The question answers itself.

More questions, then –

• What exactly did she say to persuade those who drafted the prospectus to remove statements they clearly thought necessary? How accurate and evidence-based was it?
• Was this discussed by the Royal Mail Board? By the POL Board? With the Business Department? With the Treasury? With Ministers? With the underwriters and advisors?
• Were there discussions, arrangements, legal agreements regarding any ongoing responsibility for such matters?
• Who – and at what level – signed off?

And so on.

The Arbuthnot Test

It was Lord Arbuthnot who in his evidence pointed out the problem with the government’s arm’s length approach to POL. Where there was only one shareholder – the state – refusing to get involved in operational matters, even when such matters had gone badly wrong, there was a lack of democratic accountability. What sort of effective governance can you have of a state owned body which faces neither the discipline or scrutiny of the market nor effective democratic accountability through Ministers?

It is a good question. We have yet to receive a good answer.

Arm’s length?

But was the government that arm’s length in reality? There was some evidence that one of the non-executive directors, Richard Callard, representing the government, was closely interested in how POL responded to adverse press coverage, which doesn’t sound particularly hands off. The two other shareholder representatives, Susannah Storey and Tom Cooper, have yet to give evidence. What they say will merit close attention.

The government’s reaction to this scandal has been curious and surprisingly similar to Ms Vennells’ unconvincing response to a key question put by Jason Beer KC. He pointed out that if, for years, she had been told by staff that all was well with Horizon, it seemed odd that she was so insouciant when finally told that there were some serious problems with it and that these affected past and existing prosecutions. Why wasn’t she more shocked? Why didn’t she demand answers about how this could possibly have happened? Why didn’t she ask why she had not been properly briefed? Ms Vennells hand waved it all away by saying it was all historic and had now been fixed. But her reaction at the time was more instructive: it was consistent with someone who had known all along but was reliant on the measures taken to keep this knowledge to as few people as possible.

When Sir Wyn asked her why the briefing for her appearance before the Business Select Committee in 2015 was “very precise, very circumspect, very guarded” she had no answer (see here). In agreeing so easily that this was the intended effect of the briefing prepared for her, she had not thought through the implications of why her staff believed she ought to be briefed in such a way.

It was a telling moment.

The government’s reaction

Much the same could be said about the government’s response. If POL was a rogue organisation which for the best part of two decades had misbehaved, misled the government and the courts and wasted money on pointless litigation, you’d expect the government to be furious when it finally discovered this in 2019. After all, the Common Issues judgment severely criticised the Post Office’s behaviour in the litigation, its witnesses’ credibility and honesty (with one witness referred to the DPP for possible perjury) and its mistaken belief in Horizon’s integrity. It was not so much a mistaken belief as “the 21^st century equivalent of maintaining that the earth is flat” in the teeth of considerable factual evidence to the contrary.

But no – Ms Vennells was sent off with a large six-figure bonus, a CBE, a role in the Cabinet Office and well-placed to fast track into other plum public sector jobs. There is no evidence that anyone else suffered even the mildest rebuke. The Chair, Tim Parker, who presided over this, the disastrous attempt to recuse the trial judge, witheringly dismissed by the Court of Appeal as “without substance”, “misconceived”, “fatally flawed”, “untenable”and “absurd” and the substantive judgment in favour of the subpostmasters, remained in post until 2022.

This reaction does not suggest a government surprised by what it had learnt. Let alone one cross at what had happened and the money wasted. But if it was such a rogue organisation which could not be trusted, why is it – even now – being tasked to deal with the compensation schemes for subpostmasters?

Given the carefully drafted Terms of Reference, the Williams Inquiry may not be able to get to the bottom of what the government really knew and when. It may not be able to determine whether the government incentivised bad behaviour and the turning of blind eyes because it was more concerned to save money and sell Royal Mail. It may not be able to determine whether or not it was actively involved in or approved of the cover up of the miscarriages of justice. It may not be able to assess how far the government approved or encouraged POL’s aggressive and expensive litigation tactics to wear down the subpostmasters.

But if it can’t, this task should certainly be followed up by the Business Select Committee.

This scandal started out as an IT scandal. It has certainly turned out to be that. But it is also a legal scandal, a corporate governance scandal, and possibly also a financial scandal if investors in the IPO were indeed misled.

Above all, it is a governmental scandal – one encompassing the priorities the government set, the incentives it created, the supervision it exercised, whether it was complicit in one of the worst miscarriages of justice, whether it was complicit in or turned a blind eye to attempts cover up those miscarriages of justice and/or to pervert the course of justice and how it has sought to put these matters right. It too now needs to answer some serious questions about its own behaviour.

Photo by Jamie Street on Unsplash

Part Two

Remember that interview question where you are asked to describe a weakness of yours and you have to find something to say which seems to answer while in reality complimenting yourself?

That was the approach adopted by Paula Vennells in her evidence to the Williams Inquiry. Yes – all these bad things happened which shouldn’t have; steps were not taken which should have been: questions were not asked which should have been; briefings, reports, documents and legal advice were not given to her and so, sadly, not read. But this was the way things were done in the Post Office, as if this entity had a mind of its own and paid no heed to the person appointed to run it, as if its chief executive had no authority to change anything nor ultimate responsibility for how it was run. She gave the impression of treating Post Office processes as if they were the equivalent of the laws of physics.

Look, she was saying, it was only her fault because she was a good person who “loved” the Post Office and was too “trusting”, apparently, of people (mainly lawyers and IT professionals) who did not tell her the truth. It was – in essence – the “I’m too stupid to be held responsible” defence. Pity the poor trusting CEO who did not understand IT and was unable to write an email asking for a briefing. (Quite why someone so ignorant of IT was put in charge of a company heavily reliant on IT systems is yet more proof that ignorance is no bar to promotion if you’re willing to shed all ethical and professional standards to achieve it while making sure to include the latest management buzz words in whatever flannel you utter.)

What made this approach risible was that barely had she started giving evidence than she undermined it with her own statements. Well before the first break on her first day, she stated that:

• People sometimes criticised her because she was “too curious”
• She had a campaign saying that “Bad news is good news”. What bad news she did want to hear and why she never asked to be properly briefed was left hanging.

It was not just Vennells who adopted this strategy: so did her predecessors and Chairs of the Royal Mail / Post Office – Allan Leighton, Alan Cook, David Miller, David Smith, Sir Michael Hodgkinson – all of whom were also remarkably uncurious about what it did and seemingly unable to ask the simplest of questions, other than how much they would be paid for this passive “nothing to do with me, guv” approach to their responsibilities.

It is worth remembering that the bulk of the prosecutions happened while these people were in charge, long before Ms Vennells joined. Worth noting that concerns about what was happening to subpostmasters were being raised from 2000 onwards and were escalated to the then Chair, Allan Leighton, in August 2003. As Jason Beer KC put it, at this date –

“many people had yet to be terminated, many people were yet to be prosecuted, many people were yet to be convicted and many people were yet to go to prison.” 

What Ms Vennells defence strategy also did is suggest that the worst miscarriage of justice in English history was simply an unfortunate by-product of having ineffective, but well-meaning, people in charge. It could have happened to anyone. None of it was the result of considered, deliberate actions and failures to act by them. If true, this would be bad enough.

But it is not true, is it? And the fact that it is still being put forward at this latest stage and after all that we’ve learnt is evidence that not only do these executives not grasp the enormity of what they have been responsible for but of their contempt for the entire inquiry process. (See also the tenor of their apologies.) It is an attempt to disguise the fact that what happened was the likely and predictable consequence of priorities chosen, of actions taken to implement those priorities and decisions about how those actions would be implemented.

What prompted those actions is the subject of Part Three.

Photo by Annie Spratt on Unsplash

May 30 2024

This is the first of three articles reflecting on the evidence given by Paula Vennells and others in the Williams Inquiry.

Part One

Listening to Ms Vennells and other Post Office witnesses at the Williams Inquiry, I was reminded of the Report of the Parliamentary Commission on Banking Standards, published in June 2013. This was at the same time that – at the latest – Vennells and others became aware of the likely miscarriages of justice which had occurred and embarked on a series of steps which sought to keep this knowledge from anyone outside a small Post Office circle for the best part of the next 8 years.

This passage, in particular, resonated: –

“One of the most dismal features of the banking industry to emerge from our evidence was the striking limitation on the sense of personal responsibility and accountability of the leaders within the industry for the widespread failings and abuses over which they presided. Ignorance was offered as the main excuse. It was not always accidental. Those who should have been exercising supervisory or leadership roles benefited from an accountability firewall between themselves and individual misconduct, and demonstrated poor, perhaps deliberately poor, understanding of the front line. Senior executives were aware that they would not be punished for what they could not see and promptly donned the blindfolds. Where they could not claim ignorance, they fell back on the claim that everyone was party to a decision, so that no individual could be held squarely to blame.”

[Emphasis in bold added – paragraph 14 of the Conclusions and Recommendations section]

Substitute “Post Office” for “banking industry” and this passage pretty accurately describes the evidence heard by the Williams Inquiry.

What is striking is how much of finance’s worst behaviours was copied. For instance:

• the conflicts of interest – bonuses for criminal investigators based on how much they recovered from subpostmasters;
• a bonus culture unrelated to employees’ conduct. See, for instance, the bonus awarded to a senior employee despite being described by a High Court judge as having sought to “mislead” him (Angela van den Bogerd);
• failing to investigate misconduct (by Angela van den Bogerd);
• ignorance of the front line (not knowing that the Post Office prosecuted staff despite having an 100 strong investigation team, whose budget was presumably signed off at a senior level);
• complicated and poorly understood reporting lines, which diffused responsibility, ensured that emails were sent to many people with no-one having sight of the whole issue and no-one clearly responsible for taking action and seeing matters through. Too many quite senior employees felt able to say that they thought something was someone else’s job with the result that no-one actually did anything effective.

What has worsened has been the behaviour of the lawyers, both internal and external. In 2013 the Parliamentary Commission could write this:

“The professions may not be paragons, but they do at least espouse a strong duty of trust, both towards clients and towards upholding the reputation of the profession as a whole.”

Oh dear! The lawyers’ conduct has been one of the very worst aspects of this affair. The arrogance of Jane McLeod, General Counsel during the Bates litigation, in refusing to attend the Inquiry, sums up the disregard which the lawyers showed for their professional and ethical duties. Lawyers need to have a keen sense of what it is their clients want. But ethical and professional standards mean understanding the difference between giving clients what they want and what the courts / the law / the interests of justice require. Clients need to be told hard truths by their lawyers, even if they may not want this.

If, as Ms Vennells claimed, lawyers were not telling her information she needed to know, it was either because they knew she did not want to know or because they knew (or did not care) that what they and the Post Office were doing was wrong and were trying to give her/the Board some sort of deniability which, coupled with legal privilege, would keep the whole mess under wraps. That some of them are still in position and dealing with the compensation schemes for the people their actions harmed is both insulting and yet another conflict of interest.

It is perhaps unsurprising to find the same sort of behaviour in the Post Office as was prevalent in finance around the same time. There was a widespread belief that if only state owned organisations could adopt the apparently superior practices of – and hire people from – the private sector all would be well. Instead, we got the worst of both worlds. Many of the senior Post Office executives who have given evidence could, with the right suits and haircuts, make a passable impression of the sort of British Leyland managers who appeared so often on TV screens in the 1970’s to explain why the companies they purported to run were so awful and why, nonetheless, yet more government money was needed to keep them going. They too were good at blaming everyone except themselves.

And, as in finance, there was a failure to understand risk and manage it effectively: a failure of both the executives and the in-house and external lawyers. The ignorance shown at all levels of the Post Office of its prosecutorial role, even that it had it, what this required and the risks associated with getting it wrong is astonishing.

If true.

More likely is that they did know of its role but thought it unimportant, something the investigators could be left to get on with with barely any supervision, a hangover from its old-fashioned past and less exciting than the new future flogging financial products through an IT system they did not understand but whose mantra – “Horizon is robust” – they chanted at every opportunity like a child reciting the catechism.

Believing what you would like to be true is a fatal error. It is one which cost the finance sector dearly. It is one which has cost the Post Office. It is one which will cost taxpayers. It is one which has cost its subpostmasters very dearly indeed. It is one which many of its senior executives still seem intent on making, as I explore in Part Two.

Photo by Johnny Briggs on Unsplash