What governance lessons can be drawn from the Post Office scandal? The latest policy paper from the Institute of Directors, alongside NEDA advisor Barry Gamble, explores what we can learn from one of the worst miscarriages in UK legal history.
“Sub-postmasters found themselves enmeshed in a dystopian nightmare worthy of a novel by Franz Kafka or George Orwell. Denounced as criminals by a defective computer system, they were stripped of their dignity and freedom by a faceless bureaucracy that could not admit that it had made a mistake..." - Dr. Roger Barker, Director of Policy and Corporate Governance.
The Post Office scandal caused untold suffering to thousands of innocent people, and undermined trust in existing frameworks of governance and business leadership.
Although ostensibly an IT scandal, the root causes were failures in human decision-making, organisational culture and business ethics. Post Office governance – and specifically the board of directors – proved unequal to the task of addressing these issues.
In order to mitigate the risk of a Post Office-type scandal in the future, both in government-owned entities and elsewhere, a new approach to directorship is required.
The new paper presents key lessons and takeaways for directors, and makes a series of policy recommendations for government aimed at rebuilding trust in UK corporate governance, including insights on how boards can:
- Professionalise the boards of state-owned entities, requiring directors to undertake an ongoing programme of professional development.
- Commit their directors to clear ethical standards, such as those defined in the IoD’s Code of Conduct.
- Reposition UKGI as a champion of good governance in state-owned entities, through placing a greater emphasis on corporate governance rather than corporate finance expertise.
- Reform the law on computer generated evidence, reviewing the presumption that computers producing evidential records are working properly.
- Introduce a new corporate form for companies operating in the public interest, such as the Post Office, mandating directors to balance shareholder value creation with broader societal/stakeholder objectives.
- Strengthen whistleblowing protections to include self-employed contractors, such as Post Office Sub-postmasters.
- Promote the tech literacy of board members and appoint a Chief Technology Officer to the boards of government-owned entities.
- Encourage responsible management of legal risk by changes to the UK Corporate Governance Code, giving responsibility to a designated board committee.
Commenting on the launch of the paper, Dr. Roger Barker, Director of Policy and Corporate Governance, said:
“Many have categorised the scandal as an IT disaster, given the central role played by the Horizon IT system. However, that would be a mistake. The Post Office was not unique in struggling with the challenges of digital transformation. Indeed, in any organisation, teething problems with IT systems are the rule rather than the exception. What made the Post Office scandal remarkable was the way in which that faulty information was used. Driving that misuse were human beings who made bad decisions at multiple levels of the organisation.
“The roots of the scandal are hence not to be found in the lines of code in the Horizon software, but in the performance of the board, management and ownership function of the Post Office, who should have delivered better supervision and oversight.
“Looking forward, none of the potential shortcomings of directors can be regulated out of existence; it would be a mistake for policy makers to formulate any response to the scandal in those terms. What is needed are better directors with the appropriate knowledge, skills and attitudes to fulfil their crucial societal roles.”
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The full paper is available to read here.