12 November 2024 – Katy Steward
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(10.07 am)
Mr Beer: Good morning, sir. May I call Professor Dame Sandra Dawson and Dr Katy Steward, please.
Professor Dame Dawson
PROFESSOR DAME SANDRA JUNE NOBLE DAWSON (affirmed).
Dr Katy Steward
DR KATY MARY STEWARD (affirmed).
Questioned by Mr Beer
Mr Beer: Good morning, Dame Sandra and Dr Steward. My name is Jason Beer, as you know, and I ask questions on behalf of the Inquiry. Can you each tell us your full names, please?
Dame Sandra: Sandra June Noble Dawson.
Dr Steward: Katie Mary Steward.
Sir Wyn Williams: I should say before you start, Mr Beer, that nothing ever surprises me in this life, it’s taken more than 50 years in the law to see two persons in the witness box at the same time.
Mr Beer: I was about to say that trained observers will notice that there are two witnesses.
Sir Wyn Williams: Well, I’m on the ball this morning, as you can see!
Mr Beer: Unusually –
Sir Wyn Williams: Thank you!
Mr Beer: There was another part to that sentence: unusually, we have two witnesses in the witness box. I should therefore set out the process that we intend to adopt when asking questions of the witnesses and indeed, please, when Core Participants ask their questions, which is going to be tomorrow.
The purpose, sir, of setting out these ground rules now is to ensure the orderly and efficient receipt of evidence from the witnesses in circumstances where the witnesses are giving evidence currently.
So the ground rules, if I may. Firstly, the questions that I will ask you, Dame Sandra and Dr Steward, in a moment, about the signing of your reports and whether the contents are true will be asked of you individually.
Secondly, the questions that I shall ask in a moment about your qualifications will be addressed to you individually.
But third, however, questions that will be addressed to you collectively thereafter, it has been agreed that you, Dame Sandra will, in the first instance address each of them either by an answer, or inviting Dr Steward to answer.
Fourthly, we’ll work on the basis that Dr Steward agrees with Dame Sandra’s answers, unless she agrees otherwise or wishes to intervene.
The aim of that approach, sir, is to reduce the possibility of discussion in the witness box and also to ensure that we’ve got a clear record of the evidence that the witnesses give collectively.
So the reports: you’ve prepared two reports. I think, the first, dated 26 March 2024, is 133 pages long, including its appendices; and the second is dated 29 October 2024, and is 154 pages long, including its appendices.
You updated both reports recently in large measure to correct formatting and referencing issues and both reports were reissued yesterday. It those reissued reports that we’re going to use in the Inquiry today and tomorrow.
So the first report. Can we have it on the screen, please. EXPG0000006_R. You should have a copy of that in front of you as well in hard copy.
Dame Sandra: I do.
Mr Beer: You’ll see from the title page, 26 March 2024. It’s the first report, Report 1, updated 11 November, ie yesterday. Can we go to page 133, please.
This is the expert witness declaration and the statement of truth. Those are redacted in the copies that we have, but to start with, Dame Sandra, is that your signature?
Dame Sandra: It is.
Mr Beer: Are the contents of that first report true to the best of your knowledge and belief?
Dame Sandra: They are.
Mr Beer: Dr Steward is that your signature?
Dr Steward: It is.
Mr Beer: Are the contents of that first report true to the best of your knowledge and belief?
Dr Steward: They are.
Mr Beer: Thank you very much. Can we turn to the second report, please, EXPG0000010_R.
You’ll see this is headed Report 2, it’s dated 29 October 2024, and it was again updated yesterday, 11 November.
I think there are some corrections to make, even to that. Can we look, please, to start with at page 33.
Sir Wyn Williams: I think I’d better stop you there because neither assessor is having these things on their screen at the moment. I’ve got it but they haven’t. So that needs to be fixed before we go any further, I think.
Mr Beer: Yes, I’ll just pause and usually somebody from RTS appears.
That’s not going to happen on this occasion, sir. We need a five-minute break to correct the position. So could I ask you to rise for five minutes, and we’ll all wait here.
Sir Wyn Williams: I’ll go out but if you’ll all sit here to save us coming backwards and forwards, I’d be grateful.
Mr Beer: Thank you, sir.
(10.15 am)
(A short break)
(10.20 am)
Mr Beer: Thank you, sir. Take 2.
Can we go to the second report. We were making some amendments. Page 33, please, if that can come up on the screen. In paragraph 114, in the second line, should we cross through the words, “and” and then into the third line, “investigations”; is that right, Dame Sandra?
Dame Sandra: That is correct. Now, it’s correct.
Mr Beer: Page 48, paragraph 176, two corrections. In the third line, into the fourth line, should we omit the words “and investigations”, which are being highlighted on the screen, and should we omit the words “investigation and”, after the acronym “SPM”; is that right?
Dame Sandra: That is correct.
Mr Beer: Thank you very much. Page 60, paragraph 222, in the quotation in italics, three lines from the bottom, should we replace the word “about” with the word “that”; is that correct?
Dame Sandra: Correct.
Mr Beer: Thank you very much. Then lastly, page 99, paragraph 370. In the second line, should we insert the word “are” between the words “there” and “no”, so that I reads “and consistently be done” – sorry, “if there are no decisions”?
Dame Sandra: Correct.
Mr Beer: Thank you. Can we go to page 154, please, and scroll to the bottom. Firstly, is that your signature, Dame Sandra?
Dame Sandra: It is.
Mr Beer: With those corrections brought into account, are the contents of the report true to the best of your knowledge and belief?
Dame Sandra: They are.
Mr Beer: Thank you. Dr Steward, is that your signature?
Dr Steward: It is.
Mr Beer: Are the contents with those corrections brought into account true to the best of your knowledge and belief?
Dr Steward: They are.
Mr Beer: Thank you very much. Can we go back to the first report please, and turn to your qualifications, expertise and experience. It’s the first report at page 131.
Starting with you, Dame Sandra, I think on the first two-thirds of that page your qualifications, experience and expertise are set out?
Dame Sandra: Yes.
Mr Beer: Can I summarise the important parts, tell me if you agree. Firstly, you have taught, researched, written and consulted, on organisational behaviour, leadership and governance?
Dame Sandra: Correct.
Mr Beer: Secondly, you held academic posts at Imperial College London in the University of London before moving to Cambridge?
Dame Sandra: Indeed.
Mr Beer: At Cambridge you were the master of Sidney Sussex College, a Deputy Vice Chancellor and, most relevantly for us, the Director of the Judge Business School for 11 years between 1995 and 2006?
Dame Sandra: Correct.
Mr Beer: You’re now Professor Emerita at the university?
Dame Sandra: Correct.
Mr Beer: In addition to your academic interests and the positions that you have held, you have personal and practical experience of organisational behaviour, leadership and governance, and you set that out in that substantial paragraph that’s at the foot of the page that we’re looking at now. Just picking out some highlights, I think you’ve been the chair of an NHS Trust?
Dame Sandra: Correct.
Mr Beer: You have been a Senior Independent Director, a SID, and chair of a Remuneration Committee?
Dame Sandra: Correct.
Mr Beer: That was at TSB. You have been a NED, a Non-Executive Director, and a member of an Audit Committee, that was at both Barclays Plc and JPMorgan.
Dame Sandra: JPMorgan Claverhouse Investment Trust, yes.
Mr Beer: You were a member of the Senior Salaries Review Body?
Dame Sandra: Correct.
Mr Beer: You have been a Non-Executive Director and a Senior Independent Director at a public body, namely the Financial Services Authority?
Dame Sandra: Correct.
Mr Beer: Thank you.
Dr Steward, staying with page 131, if we scroll down, please, and this goes over to page 132, this sets out your qualifications, experience and expertise, and can I summarise. Firstly you have taught, advised, coached and consulted in leadership, organisational culture and governance for 30 years?
Dr Steward: Correct.
Mr Beer: You were the head of the National Culture and Leadership Programme for NHS England?
Dr Steward: Correct.
Mr Beer: Thereafter, a visiting fellow at the Cambridge Judge Business School and now a visiting scholar at Sidney Sussex College, Cambridge?
Dr Steward: Correct.
Mr Beer: You have also served on the boards of public sector bodies and charities, including an NHS Trust and the UNHCR.
Dr Steward: That’s right.
Mr Beer: Thank you very much. That can come down.
Can I turn to the third topic, then: the methodology that you deployed in approaching your task and the purpose of each of your reports. If we can turn to page 6 of Report 1.
Thank you. Does this set out a summary of your instructions?
Dame Sandra: It does.
Mr Beer: Thank you. In summary, this report, Report 1, was prepared and completed, remembering it’s dated 26 March 2024, before we commenced hearing any evidence in Phases 5 and 6 of the Inquiry; that evidence started on 9 April 2024. So it’s unaffected by any of the evidence that we were subsequently to hear about what actually happened at the Post Office, what happened in the exchanges between the Post Office and UKGI, and what happened involving UKGI, and before it the Shareholder Executive, and central government, from 2000 onwards; is that right?
Dame Sandra: That’s correct.
Mr Beer: Thank you. In paragraph 1, in (i) there, you say:
“We are instructed to provide a report which sets out what might typically be expected/best practice …”
In paragraph (ii), in the second line, you say that the report deals with “generally expected standards”.
Do I understand correctly that the standards which you say ought to have been achieved in this period do not represent, in your view, a counsel of perfection?
Dame Sandra: That’s exactly right. The standards are ones which are generally expected. They’re not the highest level or the lowest level.
Mr Beer: So they’re, is this right, the standards reasonably to be expected from a company in the position of the Post Office?
Dame Sandra: Indeed.
Mr Beer: Thank you. Looking at (iii) and (iv), you tell us that Annex A to your first report provides a chronology of the laws and guidance on governance of companies which applied during the relevant period, 1999 to 2019, presented chronologically, split into columns: the left-hand side are the requirements and guidance which apply to companies, special attention paid to publicly listed companies; the right hand requirements are the public companies or entities which are wholly owned or controlled by the Government. You say, and we’re going to look at Annex A, in a moment:
“Whilst there are differences between publicly listed and publicly owned companies, it is notable that in matters of governance during the relevant period, one finds the requirements and expectations for all organisations in the UK have tended, and tended to be encouraging by governments and regulators, to follow the approach adopted in law and guidance for publicly listed companies.”
Dame Sandra: That’s correct.
Mr Beer: If we can look at Annex A, I am not going to go through the detail but just want to establish how it works. It begins on page 93.
In we scroll down after the preamble, we can see the two columns you mention, one is headed “Formal Legal Requirements for Corporate Governance”, and on the right-hand side “Formal Legal Requirements that would apply to Public Corporations/Companies in Government”.
Dame Sandra: Correct.
Mr Beer: You essentially track across time, we can see on this page 1998 and 2006, and if we go over the page and keep scrolling, and keep scrolling, nothing relevant in ‘93 and ‘94, for example. So that’s the way the thing works.
If we can go back, please, to page 93 and look at box 1.1 and 2.1. Thank you. Here you note some of the requirements of the Companies Acts in 1995 and 2006, on the left-hand side, that applied to companies. Then on the right side, public corporations or companies essentially in Government ownership; is that right?
Dame Sandra: That’s correct.
Mr Beer: You note that the Companies Act, on the right-hand side, covers companies in Government ownership, ie incorporated companies in which the Government is a large or sole shareholder.
Dame Sandra: Indeed.
Mr Beer: So you’re essentially suggesting that we should read what we read in the left-hand box into the right hand box; is that right?
Dame Sandra: Indeed.
Mr Beer: Thank you. Can we look at another example of how this works at page 100, and scroll to the foot of the page, please, and look at paragraph 1.8 and 2.3. 1.8, the left-hand column, normal companies; right-hand side, companies in Government ownership. You point out there that in relation to ordinary companies in 2005, there was revised guidance on the Combined Code –
Dame Sandra: Indeed.
Mr Beer: – in the same year, issued by the Treasury and the Cabinet Office, a Corporate Governance Code in central government departments?
Dame Sandra: That’s correct.
Mr Beer: Is, just by way of detail, that – what’s recorded in box 2.3 – the first occasion on which Government issued a Corporate Governance Code?
Dame Sandra: Yeah.
Mr Beer: So the first time that there was a formal document issued by Government about government-owned companies was that issued by Treasury and the Cabinet Office in 2005?
Dame Sandra: Yes. You’ll note that there was – in 2001, we’ve noted the “Management of Risk – a Strategic Overview”, rapidly became known as The Orange Book, which had, we thought, some relevance.
Mr Beer: If we go back –
Dame Sandra: It was in 2001.
Mr Beer: If we go back to that, that’s on the top of page 99. You’re referring to The Orange Book. Was that principally about risk management for Accounting Officers?
Dame Sandra: It was, yes. It was about the management of risk.
Mr Beer: Rather than the broader subject of corporate governance?
Dame Sandra: Indeed, indeed.
Mr Beer: Thank you. So that’s how Annex A works, and that will be an important source of material for the Inquiry in due course. I’m not going to go through it. It speaks for itself.
Dame Sandra: May I add that on page 94, we’ve moved from formal legal requirements into codes and guidance, which I think you didn’t directly –
Mr Beer: I skipped over.
Dame Sandra: Yes.
Mr Beer: Thank you, you’re right to pick me up, the second person that’s done that this morning. Page 93, just so we can all understand what you’re speaking about. The two headings there are both about formal legal requirements, they both start in that way and address law –
Dame Sandra: Mm-hm.
Mr Beer: – ie primary legislation and Act of Parliament.
Dame Sandra: Mm.
Mr Beer: Then, over the page to 94, and scroll down, please. Essentially new headings, maintaining the same approach: left-hand side companies; right-hand side companies in Government ownership, here dealing with other instruments, codes, guidance, and similar documents.
Dame Sandra: That’s correct.
Mr Beer: Thank you very much.
Can we go back to page 6 of your first report, please. You’ll see in (vi), at the foot of the page, you say:
“Beyond identifying specific requirements and guidance for governance [as summarised in that table we’ve just looked at], we have commented on what might normally be regarded as known reasonable practice in governance, management and leadership. [That commentary] is based on our experience and expertise.”
Just so that I understand what you’re saying there: you’re saying that part of your report is founded on law or one of the other instruments summarised in Annex A, but other parts of your report are not founded on such instruments: they are based upon your experience and expertise?
Dame Sandra: That’s correct.
Mr Beer: You then set out, if we go over the page, please, over eight chapters, the headings of which are set out there, your views on what might reasonably be expected of a company in the position of the Post Office between 1999 and 2019?
Dame Sandra: That’s correct.
Mr Beer: Thank you. This does not comment, Report 1, upon the extent to which those standards reasonably to be expected of the Post Office were, in fact, realised.
Dame Sandra: Makes no comment.
Mr Beer: Thank you.
Can we go to Report 2, please – I apologise for the delay, the system is taking a little while today – and turn to page 6. Here you’ve set out your approach, your methodology, in relation to Report 2, and this report, is it right, was prepared in the course of, and then after, the evidence was heard in Phases 5 and 6?
Dame Sandra: That’s correct.
Mr Beer: You tell us in paragraph 2 that it wasn’t your intention, nor indeed were you instructed to establish any matters of fact. In paragraph 3, you tell us that you have applied, you have been mindful of, the standards of expected behaviour that you set out in Report 1. That is – I’ve used the language within the Inquiry in the past – Report 1 as being essentially the Highway Code of corporate governance; is that an unfair description of it?
Dame Sandra: That’s entirely right and, in relation to Report 1, the concluding section 8, as we identify there, also includes a commentary on what it’s like to experience organisations, particularly in relation to authority, power, leadership, culture and communication.
Mr Beer: You tell us in paragraph 4, by way of a reminder, what Annex A, an important document of Report 1 consists of. In paragraph 5 you say the instruments you mention provide the foundation for considerable consensus reflected in the large volume of written and broadcast advice on what makes good board governance and executive management. What was the point you were making there, that the volume of material –
Dame Sandra: Yes, one might have expected expert evidence from an academic to be replete with references. The truth of the matter is that there is an enormous amount which is written and expressed about management, leadership and Government, there is a general consensus which may be available at any book stall or advice from a professional services organisation, and we felt that that consensus was sufficiently strong for us to rely upon it.
Mr Beer: Thank you. You tell us in paragraph 6 that in preparing this second report you drew on your reading of your selection of the evidence, including excerpts from witness statements and transcripts of oral evidence and, I think, reading some of the underlying material –
Dame Sandra: That’s correct.
Mr Beer: – the primary documents.
You tell us in paragraph 7 that you reviewed that evidence and yourself chose three case studies for analysis?
Dame Sandra: Correct.
Mr Beer: Am I right in believing that those case studies chosen for Report 2 do not represent the entirety of any view on the propriety of the Post Office’s governance, over the time period relevant to this Inquiry?
Dame Sandra: That’s correct.
Mr Beer: Instead, they are prepared to assist the Inquiry but do not reflect any conclusion of the entirety of any good or bad practice in the governance of the Post Office between 1999 and 2019?
Dame Sandra: That’s correct.
Mr Beer: You tell us that in being selective – the third line of paragraph 8, of themes and evidence you:
“… appreciate there may be additional or alternative constructions based on the body of evidence before the Inquiry which we have not considered.”
Can you explain what lay behind that evidence?
Dame Sandra: The vast body of material before the Inquiry was such that we made selection but there may be people who think, “Well, they should have looked at this”, or, “They should have looked at that”, which we didn’t do.
Mr Beer: So you’re telling us that, even in the case of the case studies, the examination of the material has not been exhaustive, ie looking at every document?
Dame Sandra: We cannot know.
Mr Beer: Can we turn, please, to pages 8 and 9. This sets out the scheme of your report. Is this a fair summary if we look at page 9 first. You looked at three case studies: the Wolstenholme case in 1994; the consideration of the Second Sight Interim Report by the Post Office Board in 2013; and the handling of Simon Clarke’s Advice, or one of them, by the Post Office Executive in 2013?
Dame Sandra: Indeed.
Mr Beer: Those are the three case studies. Can you help us: why did you pick those three case studies?
Dame Sandra: We reviewed in general the material that we had before us. We considered the – our instructions, and we thought, as illustrations, those case studies were ones that we would wish to go into some depth with. At the beginning of our work, we were more optimistic and we thought there may be indeed other case studies, but we did – we were only able to do three.
Mr Beer: Then if we go back to page 8, please. You say in paragraph 13 that:
“… the Overview, provides a thematic summary of [your] observations on [the Post Office’s] Board Governance and … Executive Management and Organisation, which are based largely on the description and analysis of the three selected case studies, informed by a wider reading of a selection of evidence before the Inquiry.”
Then you identify your themes. If we just scroll down, are they split between themes that relate to, essentially, governance by the Board and then themes that relate to the executive, for its part?
Dame Sandra: That’s correct.
Mr Beer: So the first six relate to the Board and then, if we scroll down, please, the remaining three relate to the Executive?
Dame Sandra: That’s correct.
Mr Beer: So just pausing there: approaches three case studies across time. We’ve seen one in 2024 and two in 2013.
Dame Sandra: Yes.
Mr Beer: Using those as your evidential base, you’ve identified or isolated nine themes –
Dame Sandra: Correct.
Mr Beer: – six which relate to board level governance and three of which relate to management and organisation by the executive?
Dame Sandra: Indeed, correct.
Mr Beer: While there are no case studies picked up by you between 2004 and 2013, that does not mean that there are no questions of governance arising for you; is that right?
Dame Sandra: Neither before 2004 nor between 2004 and 2013, nor subsequent to 2013.
Mr Beer: So we shouldn’t take from that that there are no questions of governance arising which the Inquiry therefore shouldn’t look at? The Inquiry should look at those by reference to the – firstly, the principles that are derived from your first report but, secondly, from your analysis of the three case studies and the themes in your second report?
Dame Sandra: That is exactly the case.
Mr Beer: Thank you. That can come down.
Throughout this second report, you identify actions on the part of the Executive, the Chief Executive, the Chair and the Board, which amount in your view to a failure of governance?
Dame Sandra: We’d identified a number of things which we believe are indeed a failure of governance. Governance, of course, is a series of processes, structures, systems and rules, underpinned by behaviour and culture. And, therefore, where the failure exactly occurs in that overall network of structures, systems, processes, behaviour and control, we hope we’ve indicated. But failures of governance could be many things.
Mr Beer: What does “failure”, “governance failure” or “failure of governance” mean?
Dame Sandra: When one is concerned with the governance of organisations, you’re concerned with the structure, systems, processes, behaviour and culture which will secure the governance and management of the organisation in the best interests of that organisation and, therefore, if one identifies a failure, it is that it does not appear to be, to us, to be in the best interests of that organisation to pursue its purposes.
Mr Beer: And also a failure to meet the reasonably expected standards of good governance identified in Report 1?
Dame Sandra: And that was the basis on which I made my prior comment.
Mr Beer: So where, in each case in Report 2, a failure is identified by you and Dr Steward, that would have been a failure according to the standards in play at the time?
Dame Sandra: Indeed, in our belief.
Mr Beer: So to take an example, if there were facts on which it might reasonably be concluded that the Chief Executive or the Chair or members of the Executive had critical information about risk that was not provided to the Board, you could break down by reference to the law, the policy or the guidance identified in Report 1 how that would, in fact, be a governance failure?
Dame Sandra: Indeed.
Mr Beer: I think it’s right to say you don’t do that on every occasion –
Dame Sandra: We don’t.
Mr Beer: – because you’ve already identified in Report 1 what the relevant standards are?
Dame Sandra: Indeed.
Mr Beer: So where we read “failure of governance”, “governance failure” or “failure”, that’s to be taken as a reference back to the standards in Report 1?
Dame Sandra: It does, absolutely.
Mr Beer: So in the scenario I’ve just described, the failure to provide relevant information about risk by a member of ExCo or the CEO to the Board, there could be a possible breach of Directors’ duties in the Companies Act?
Dame Sandra: It could be.
Mr Beer: It could be a breach of duties of common law or it could be a failure to adhere to reasonably accepted standards in a Corporate Governance Code?
Dame Sandra: Indeed.
Mr Beer: It might indicate a possible failure in the relationship between one of the individuals and the Board?
Dame Sandra: Indeed.
Mr Beer: Can we turn, please, to Report 1, then. I want to try to deal with this briefly if we can, and start by looking at paragraph 1.2 on page 8.
Dame Sandra: 1.2?
Mr Beer: On page 8. So just to remember, Report 1 has eight topics and this is topic 1: Governance, Principles and Codes. We see that from the top of the page. It might be helpful if you just – this chapter runs for, I think, 12 or 13 pages up to page 20. Could you, in a paragraph or two, describe sort of the purpose or coverage of this chapter?
Dame Sandra: We were eager to lay out the historical context and how that had then developed into codes of practice. We identify that, in a way, the roots of governance were around protecting the rights of shareholders, which became very important when you got a split between ownership and control, and the question was: how were the executive, who no longer owned the business, going to be held to account and who was going to hold them to account? And that led to the formation of boards and, in time, particularly in relation to the development of the contemporary governance, the work that followed the Cadbury Committee, which then became – that was in 1992, and then together with Greenbury in ‘95 and Hampel in ‘98 became enshrined in the Combined Code on Corporate Governance, which really is the first time that these matters have been brought together, which dealt with the need to separate the Chief Executive and the Chair and which identified roles, specific roles, for Non-Executive Directors.
In the subsequent 25 years, that Combined Code, from 2010, understood as the UK Corporate Governance Code, has increasingly identified areas beyond roles and responsibilities dealing, for example, with audit; dealing with risk; dealing with the need to disclose certain matters with relation to conflicts of interest; and then latterly, matters to do with diversity, equality and inclusion, and other societal aspects.
What can be seen, I believe, from Annex A is that this is an evolving story and I’m mindful that the Inquiry is dealing with 20 years of that evolving story, and we’ve tried to be careful to look at what would have been contemporarily expected at the time.
Mr Beer: Thank you. If we just scroll down on this page, just some terminology. You tell us in 1.2.1 that UK practice is to have a unitary board of executive and non-executive directors. That is opposed to what?
Dame Sandra: That is opposed particularly, if one looks to organisations in Continental Europe, where there is often a two-tier board: the overseeing board, which will have a representative of a larger number of stakeholders; and executive board, which is responsible for running the business.
In the UK, the custom has been for the executives and the non-executives to sit together and it’s normal that the Chief Executive and often the Chief Finance Director or Finance Director will sit as board members, as well as having their executive responsibility and, in that sense, it’s called a unitary board.
Mr Beer: Thank you. In 1.2.3 at the foot of the page, you tell us what you have just mentioned about Cadbury, Greenbury, and the Hampel Committees becoming enshrined in the Combined Code, which you told us was called the Combined Code, up until 2010 –
Dame Sandra: Correct.
Mr Beer: – after which time it was known as the UK Governance Code or the Code of Governance.
Dame Sandra: Yeah.
Mr Beer: In what sense was it combined?
Dame Sandra: I’ve often wondered that. It was combined in the sense that it amalgamated these different reports from different committees and these different expectations of governance, and that word “combined” is just asserted.
Mr Beer: Thank you. If we go over the page to page 9, you tell us that that code in 1.2.4, through its principles and provisions, gives a well established base set of regulations and guidance on the two things that you mention there:
“The structure and operation of Boards of Directors, including roles and responsibilities of Chairs and Chief Executives; and
“Roles and responsibilities of Shareholders (particularly institutional shareholders, with relatively large shareholdings).”
So is the point you’re making there that this code, across the entirety of the period that we’re looking at, was an easy-to-find instrument which set out detailed and a well-established base of guidance?
Dame Sandra: I am afraid I didn’t hear the word you said before “set out something” –
Mr Beer: Detailed and well established set of guidance on the two things that you mentioned?
Dame Sandra: Indeed. That’s correct.
Mr Beer: So the point, is this right, that you’re making, is that one doesn’t have to search very far? It’s not a voyage of discovery to find out what corporate governance standards and principles were in this period?
Dame Sandra: No, absolutely not and I think the coming of Cadbury was really a very momentous period for UK governance and, as we’ve seen in relation to Appendix A, Government itself looked back and looked at commercial organisations and said, “Ah, these standards, they should indeed apply as best as they can to those organisations”. Charities similarly looked at them and thought they should apply, and other private organisations began to think, “Oh, these criteria, these recommendations, these principles, are basic and sound, and we should apply them”.
Mr Beer: In terms of the duties to comply, you tell us in paragraph 1.25 that:
“Boards in their … annual reports have either to ‘[complain] or explain’ why, in their ‘special/individual circumstances’, the Code’s requirements are not in their view appropriate or advisable in the circumstances.”
Dame Sandra: They may indeed “complain” but they are required to “comply or explain”. And so if, for example, it says the chair and the chief executive should have separate – should be separated, no one man or woman should hold them both, there were some organisations where it was felt by the board that it was appropriate in their circumstances that they should be combined, in which case, in their annual report, they would have to explain why it was in their particular circumstances they were not complying.
Mr Beer: Thank you. Can we go over to page 10, please, and look at paragraph 1.3.1. You say that:
“It has become increasingly accepted that Corporate Governance codes for commercial companies offer guidance to other forms of ownership, notably …”
Then (c), which concerns us:
“Publicly owned assets, where the owner is the national government (or local authority) and a major element of funding comes from the taxpayer, sometimes in combination with revenue from commercial activity. The governance of such publicly owned companies is central to our instructions.”
So is the point that you’re making there that, what we read in the Combined Code and then the UK governance codes, should be something which is applied to a company which has publicly-owned assets?
Dame Sandra: That is indeed the case, and Government frequently asserted, when looking at different public bodies, that the expectation was that, insofar as was appropriate for their circumstances, these codes and principles should apply.
Mr Beer: Thank you. Can we look at the foot of the page please, which, I think, is the point you have just mentioned. You say in 1.4.1:
“The government has drawn on corporate governance for publicly listed companies to provide a framework for how the governance of an array of public bodies should be governed.”
Then I think you quote from the Treasury publication that we looked at in Appendix A:
“Good corporate governance is fundamental to any effective and well managed organisation and is the hallmark of an entity that is run accountably and with the long-term interest clearly in mind.”
Is that right: that’s one of the pronouncements that you rely on to support the assertion that our Government has suggested compliance with the corporate governance codes for companies in public ownership?
Dame Sandra: That is correct.
Mr Beer: Thank you. Can we go forward, please, to page 15. You start off here dealing with what you describe in the cross-heading above, 1.6.2, with “Four Levels of Accountability”.
Dame Sandra: Yes.
Mr Beer: I find this a little complicating (sic). Can you explain: firstly, the four levels of accountability, are they levels that you have designed or thought of –
Dame Sandra: Yes.
Mr Beer: – in connection with the Post Office?
Dame Sandra: They are our invention of trying to make sense of who is accountable to whom at different stages of the period, the relevant period. And that’s why, in Appendix B, we identify each of the levels. So I’ll explain each of the levels. The first level is who was accountable for running the Post Office business, which –
Mr Beer: Sorry to speak across you there, Dame Sandra, I’m going to come to Appendix B in a moment.
Dame Sandra: Right.
Mr Beer: I just want to work out, at the moment –
Dame Sandra: Okay.
Mr Beer: – what these levels of accountability are. So, firstly, they’re not a concept from corporate governance, academic research that everyone in the corporate governance world would know, “Ah, the four levels of accountability”; they’re your design for this problem?
Dame Sandra: They are our design for this problem.
Mr Beer: Okay. If you then just talk us through. Level 1, POB, the Post Office Business. Here you start appealing to lawyers by using these acronyms. But the Post Office Business, just explain what that level is, please?
Dame Sandra: That is the level which is running the Post Office Business, including, for example, the subpostmasters network and matters connected with Horizon. They had – okay.
Mr Beer: Then if we scroll down, please, to 1.6.4, the second level of accountability. OPOD, the intermediate ownership of Post Office Business. Can you summarise that for us, please?
Dame Sandra: This the level above the Post Office Business, so, very initially, the Post Office Authority, and then in that period when the Post Office was owned – was a subsidiary of variously called Royal Mail Holdings and other holding companies, this was that intermediately ownership level, so it was the ownership of the Post Office Business.
Mr Beer: Thank you. Then level 3, AGS, Active Government Shareholder. Can you briefly summarise this for us?
Dame Sandra: Yes, that is where the Government, as shareholder, identified its role and required some accountability from both the Post Office Business and the intermediate ownership of the Post Office to that shareholder.
Mr Beer: Thank you. Then over the page, level 4: the Government, the fourth level, if you can briefly explain that for us?
Dame Sandra: Ministers and senior civil servants in the relevant sponsoring Department on whose behalf investors were providing oversight.
Mr Beer: Thank you very much.
Then the next part of your report deals with what you describe as three phases in accountability. So this is essentially a chronological account –
Dame Sandra: Yes.
Mr Beer: – across time, between 1999, right up until 2019, which is your relevant 20-year period. So if I can understand what’s going on here, is it right to say that you then looked chronologically at how the four levels of accountability applied across time and split that broadly into three periods, three phases?
Dame Sandra: That’s correct, and the periodicity was our construction again.
Mr Beer: Thank you. So Phase 1 is between 1999 and 2001. What you do is then you narrate for us in 1.6.8(a) what level 1 was and its relationship to level 2, taking us back to your concepts.
Dame Sandra: Indeed.
Mr Beer: Then if we scroll down, please, and over the page. Then in (b) at the top of the page, “Level 2 and its relationship with Level 4”, that’s because there was no level 3 at that stage?
Dame Sandra: Indeed.
Mr Beer: Then Phase 2, again, you’re essentially applying these two dimensions/levels, across time.
Dame Sandra: Indeed.
Mr Beer: Tell us in 1.6.9(a) what level 1 and its relationship to level 2 was in this 11 or 12-year period and in (b) the relationship of levels 1 and 2 to 4, and the relationship of levels 1 and 2 to 3.
Dame Sandra: Indeed.
Mr Beer: Then over the page, please. The last phase, the six or seven-year period between 2013 and 2019, in (a) you tell us about level 1’s relationship to 2, the relationship of 1 and 2 to 3 in (b), and then, over the page and scroll down, please, level 3’s relationship to level 4?
Dame Sandra: Indeed.
Mr Beer: So what you were trying to do, is this right, is bring some sense to a changing picture of corporate structures with either more or less intermediate levels between level 1 and level 4 across time?
Dame Sandra: That’s exactly correct.
Mr Beer: Is that represented in more detail in Annex B of your report, starting at page 112?
Dame Sandra: That was our intention.
Mr Beer: If we turn that up please, page 112. So, rather than setting out essentially in narrative format, which is what you did in the body of the report, the phases and the levels, this seeks to combine the pair of them in a table; is that right?
Dame Sandra: That is correct.
Mr Beer: This is for real aficionados, if we look, for example, in Phase 1, 1999 to 2000, we can see in 1999 the existence of levels 1, 2 and 4, but not level 3, as you’ve just described. You have described the nature of the entity at levels 1, 2 and 4, as respectively Post Office Counters Limited, and you’ve put the company’s number, it’s how it was incorporated and the fact that it was a subsidiary of the Post Office Authority, which was a statutory corporation. You tell us in about the fifth column along, a statutory corporation with power to issue directions to the Post Office. The sponsoring Department was the Department of Trade and Industry, the DTI, and the Secretary of State was Stephen Byers.
Dame Sandra: That’s correct.
Mr Beer: If we just scroll down we see you track that across time from the year 2000 on that page, 2001 into Phase 2, the second period, from the following page, and so on.
Dame Sandra: That’s correct.
Mr Beer: So this is a two-dimensional representation in tabular format of the concepts that you have isolated, ie what is the overall corporate structure at four levels, and how did it change across time?
Dame Sandra: That’s correct.
Mr Beer: Thank you very much.
Was there any relevance or significance to these what might be described as shifting sands of corporate identity across time?
Dame Sandra: The relevance for us was that the essential part of governance is accountability: to whom am I accountable for what? And therefore, it was very important to understand that accountability in overall terms that was based on the corporate structure.
Mr Beer: Thank you. Well, that’s very valuable work, if I may say so, and will be of use to the Inquiry in due course. I am not going to go through the many pages of the table because we’ve got –
Dame Sandra: Thank you.
Mr Beer: Can we go back to page 20 in the body of the report, at 1.6.11, at the top of the page there, you summarise this exercise by saying:
“In conclusion, based on the guidance (Annex A) [which we’ve looked at in summary to see how it works], and the information available to the authors as summarised in Annex B [which we’ve looked at in summary], from 2001, one would expect governance structures in [levels 1 and 2] to be modelled on the corporate governance of commercial companies with [a] fully functioning executive and (where applicable) board structures including NEDs, board committees etc, whilst also paying regard to aspects derived from their public ownership by government.”
Dame Sandra: That’s correct.
Mr Beer: Thank you very much.
Sir, we’ve been going for 1 hour and 15 now, even despite the break. Might we take the morning break now until 11.30?
Sir Wyn Williams: Yes, certainly.
Mr Beer: Thank you very much.
(11.15 am)
(A short break)
(11.30 am)
Sir Wyn Williams: Just give them a second or two.
Mr Beer: Will do, sir.
Can I turn, Dame Sandra, Dr Steward, to Chapter 2 of your first report, that starts at page 21. This chapter runs from pages 21 to 35 of the first report. It’s under the heading of “Accountability”; can you describe for us in a paragraph or two the purpose and coverage of this chapter of your report?
Dame Sandra: Accountability is at the heart of governance. It explains to whom am I accountable for what? Governance is about relationships and responsibilities. So if I am responsible for doing A, who is going to see that I exercised that responsibility; to whom am I accountable for doing that?
Accountability is formal obligation: it can be specified in job descriptions, it can be specified indeed in the codes of governance. But it’s also informal expectation. Since those to whom I am accountable or who are accountable to me will be – understand their accountability by the way in which our relationship develops.
There is also a voluntary choice exercise which is that one may emphasise one’s accountability, for example, to the sense of public interest, or one might emphasise one’s accountability for ensuring the corporate success of the organisation, which is beyond the formal obligation. And the importance of accepting responsibility and understanding that one has to account for one’s actions to a third party is a fundamental aspect of accountability.
Mr Beer: Thank you. Then from paragraph 2.2 onwards, that big bold heading “Board Accountabilities Arising from the Corporate Code”, do you set out, right up until page 30, the elements of a corporation arising from the corporate code and describing the accountability responsibilities of each of them?
Dame Sandra: Indeed we do and so we begin there with the board as a whole.
Mr Beer: Then if we go over the page, please, at the foot of the page 22, you deal with board committees.
Dame Sandra: Indeed.
Mr Beer: Then if we go on to page 24, you address the accountabilities of and to a chair of a board.
Dame Sandra: Correct.
Mr Beer: Then page 27, non-executive directors.
Dame Sandra: Correct.
Mr Beer: Over the page, SIDs or senior independent directors, then halfway down the page the chief executive and then to page 29, other executive board members, the chief finance officer, et cetera, and then at the foot of the page, the company secretary.
Dame Sandra: That’s correct. And with regard to the other executive board members, it particularly says, for example, because they wouldn’t necessarily be on the board but if they were, as an executive director, this would be their duties and accountability.
Mr Beer: Does it follow that, in the pages we’ve just looked at, that is essentially not you speaking, ie the pair of you speaking: this is you explaining the elements of the Corporate Code speaking?
Dame Sandra: This is indeed that basis. We haven’t invented these.
Mr Beer: No, exactly. So these are references to the accountabilities of each of the organisations or things, or individuals by reference to an instrument, which the Post Office ought to have abided by or explained why not.
Dame Sandra: Yes.
Mr Beer: Just one question on the detail of what you have narrated there then, page 27, under the heading “Non-Executive Directors”, and you divide into (a) and (b) two groups of NEDs –
Dame Sandra: Yes.
Mr Beer: – what you describe as INEDs and NINEDs.
Dame Sandra: Yes.
Mr Beer: I think this is a distinction we may not have come across in the Inquiry, can you explain please between INEDs and NINEDs, in simple terms, if you could?
Dame Sandra: Yes, INEDs are independent non-executive directors. They are appointed for the purposes of the fact that they are independent and they will bring that independent perspective as well as their specialist relevant expertise to the board.
Some non-executive directors, that is they are not executives responsible for running the company, are not in fact independent NEDs, INEDs, they are NINEDs, that is they’re non-independent non-executive directors, and non-independent non-executive directors have already got some link to the company or the corporation. They can be nominated by the shareholders because they’ve got a special relationship with the shareholders. And, in the case before the Inquiry, there are examples of the shareholder appointing non-executive directors, and they would be NINEDs, or they may have had a previous executive position in the organisation and they move from an executive position to a non-executive position but they’re not independent because they’re utterly steeped in the company.
They may, indeed, have been responsible for developing various aspects of its strategy or operation, so they cannot be seen to be independent but they are thought by the board of those companies to have such special expertise that they wish to retain them as a non-executive director.
Mr Beer: So within that subcategorisation of NINEDs we’re concerned with the first of them –
Dame Sandra: We are.
Mr Beer: – as you’ve explained, namely nomination by shareholders, in this case the shareholder, the Government. Did that nomination occur both when ShEx and then UKGI were the level 3 intermediary?
Dame Sandra: That is correct.
Mr Beer: Are there any different duties that apply to a non-independent NED as opposed to an independent NED.
Dame Sandra: All directors of the board are governed by their individual and collective responsibility as directors and they share that responsibility as directors.
Ordinary, one might say, non-executive directors are there for the reasons given above. Non-independent non-executive directors are there for the reason of being a director, but also to keep the shareholder regularly informed about matters of concern, to keep the shareholder in touch with what’s going on with the business, to consult with the shareholder on major decisions, and to ensure a two-way channel of communication between the board and the shareholder. They also bring their specialist expertise. So there is a difference.
Mr Beer: Do they fall to be treated any differently by the balance of the board?
Dame Sandra: The way any board operates is very much open to the interpretation within the bounds of the guidance by the chair and the board collectively. In my personal experience, occasionally there will be matters where it is thought that their particular shareholder interest may make it inappropriate for them to continue with the discussion, and they may feel a conflict or their particular position requires them to absent themselves or they may indeed be asked to absent themselves.
In my experience, that’s comparatively rare, but the very fact that they have a particular relationship with the shareholder may mean that there are times when they are not party to certain board discussions. Apart from that, they are fully members of the board.
Mr Beer: Thank you. Can we go on, please, after checking that point of detail, to page 30. This is the next big heading in the report, concerning “The Role of the Shareholder”. Then if we look over the page to paragraph 2.4, “The Role of the Executive”, and then over the page to paragraph 2.5, “Strategy”.
Can I just check the status of those big paragraphs. That’s essentially the pair of you speaking; is that right?
Dame Sandra: With regard to the role of the shareholder and the role of the executive, is that the question?
Mr Beer: Yes, and strategy, as opposed to being drawn from codes?
Dame Sandra: Well, the role of shareholder is implicit in the whole of Corporate Governance Codes and one would say that’s not entirely us speaking because the role of the shareholder is a driver, as we say, a quiet driver, of governance to hold the company to account for what they’re doing with their asset. Hence, the reasons that one has annual reports, one has annual general meetings, and so on, in order to see – allow the shareholder to question.
I think that in the mind, for example, of Adrian Cadbury, going back to the beginning, there was a feeling that shareholders should be more active in holding companies to account and so, in many of the codes and their revisions, the role of the shareholder is identified as an area of expectation. So the role of the shareholder is both our view, plus informed by the way the codes have developed.
Mr Beer: Thank you. Can we move on from Chapter 2 to Chapter 3, which starts at page 36. This addresses monitoring and audit. Again, can you help us, please, by summarising the purpose and coverage of this chapter.
Dame Sandra: Throughout the development of corporate governance it’s been understood that the way information is sought about what is going on in the company means that there should be appropriate means of auditing and monitoring that activity. And executives are required to and expected to monitor and report on finance flows in and out of the company, including verifiable data to show such things as tax liabilities and payments, turnover, expenses of profit, so expected to show what they’re doing with the finances.
Executives need to be held to account and these are the processes by which executives are held to account for the using of the assets. It then developed in terms of requirements for boards and executives to assess risks to the company and risk – specific relations to risk arose out of audit and then, as it were, assumed a role of its own.
Mr Beer: Thank you I’ve got no more questions on Chapter 3, can we move to Chapter 4 please, page 47, where you address the topic of risk and, again, can you help us by summarising the purpose and coverage of that chapter, which runs up to page 54.
Dame Sandra: Well, as we indicate there risk is a necessary part of executive and responsibilities. Historically, it was really designated as something specifically identifiable because it was simply seen as a key part of running the business. One couldn’t run the business without awareness of risk. What has happened in corporate governance is that the requirement for executives and the board to look very carefully at the identification of risks to their business, and the way in which, once identified, those risks are monitored, evaluated and proposals for their mitigation has become an essential part of both governance and management.
Mr Beer: Thank you, just one question arising from Chapter 4, if we can go to page 48, please, at the foot of the page. The text there in 4.2.9 and 4.2.10 seems to arise from an FSA statement of 2003, FSA being the Financial Services Authority.
Dame Sandra: Yes, yes.
Mr Beer: I think that was an agency that regulated financial services in the UK between 2001 and 2013.
Dame Sandra: Yes.
Mr Beer: It then was split and part of it became the Financial Conduct Authority, the FCA. To what extent should a company like the Post Office from, 2003 onwards, have regard to statements like these emanating from the FSA?
Dame Sandra: Post Office handled financial services and, therefore, it would have been wise to pay regard to what the financial services authority was actually saying about risk but, beyond that, the FSA became a leader for identifying risk, which then was taken into the Corporate Governance Code and the FRC, the Financial Reporting Council, then took up some of those ideas. So this is relevant both in terms of it being a leader, in terms of it identifying risk but also bearing in mind that the Post Office itself was in financial services.
Mr Beer: Thank you very much. Can we move to Chapter 5 please, page 55, “Governance and Management of Technically Complex Major Projects”.
I think you explain here, in 5.1.2, that you classified the introduction of rollout of the Horizon computer system as such a project?
Dame Sandra: Indeed.
Mr Beer: Can you again help us with a broad description of the purpose and coverage of this section of your report, Chapter 5?
Dame Sandra: We first of all felt that it would be wise to identify three characteristics of major project management: uncertainty, complexity and scale, which can be found in relation to nearly all such projects, and that, inevitably, there are tensions and trade-offs which need to be made and one can think simply in terms of three groups: time, cost and quality, or delivery.
And it is, in our experience, the case that there are always these trade-offs because there’s never enough resource, there’s never enough time, and you always want a better quality than you’re going to get. So that’s an inherent part of, as it were, their management.
Another part of their management is the use of third-party suppliers, both in assurance and in provision, and we thought that was relevant. We then go into the role of the Executive and the role of the Board in relation to what we see as critical aspects to be expected of their management.
Mr Beer: You divide that up essentially into what you describe as pre-go ahead –
Dame Sandra: Yes.
Mr Beer: – and then part of go ahead.
Dame Sandra: Yes.
Mr Beer: Then, once the project is under way?
Dame Sandra: Indeed.
Mr Beer: Thank you. Can we turn to Chapter 6, please, which is page 63, this relates to “Governance and Management of Whistleblowing”. Although I’ve no questions about this, can you explain why you included a chapter concerning the governance and management of whistleblowing?
Dame Sandra: It’s become a fundamentally important part of governance that boards should make sure that they are enabling people who wish to speak up, to speak up without fear of discrimination and to speak up in ways that will be honest and transparent. And this has been something which has been significantly developed in terms of board responsibilities. And we felt that it was appropriate to look at both the role of the executive and the role of the board in relation to whistleblowing, as it is called.
We relate that also to the behaviour and cultural requirements for effective whistleblowing. This is, for example, how one handles the communication, how one looks at the lived experience of whistleblowers and whether they do in fact enable assumptions about what is accepted to be challenged.
Mr Beer: Thank you. Can we turn to Chapter 7, Stakeholder Management.
Sir Wyn Williams: Before we do, just as a citizen, the word “whistleblowing” has come to my notice more recently, shall we say, than, say, the year 2000.
Dame Sandra: Oh, indeed, and I think –
Sir Wyn Williams: So in the period we’re talking about, has the whole – how can I put it? The concept of whistleblowing seems to me, as a citizen, to have been developing over this period, can I put it in that way, so that those responsible in 2000 might not have the same perception of those responsible now; is that reasonable?
Dame Sandra: Sir Wyn, that is exactly the case. As is the case for quite a number of things that we are looking at. The concept of speaking up, and the arrangements for ensuring that those who wish to speak up can do so freely, has been very significantly developed over this time.
Sir Wyn Williams: Fine. Thank you.
Mr Beer: Albeit, I think, if you look at the foot of page 63, you note in paragraph 6.2.2 that the concept of whistleblowing, even though it might not have been called that, was embedded from at least the mid-1990s in the Employment Rights Act 1996.
Dame Sandra: Yes, and I’m very grateful to you for pointing that out because I was thinking in my mind the Public Disclosure Act is very important in protecting workers. So workers that the right from that period. The response and what was seen to be the responsibilities by the executive and the board developed later, one might say. So the right was there; the arrangements were not always in place.
Mr Beer: So, essentially, I think, what happened was the Public Interest Disclosure Act 1998 amended the Employment Rights Act 1996, and we can see that from page 93 of your report. Just scroll down, under identical sections in 1.0 and 2.0 that, in ‘98, the 1998 Act, introduced a law had protected what you’ve described as whistleblowers – it doesn’t use those words in the Act itself – from negative treatment or unfair dismissal.
Dame Sandra: Yes, correct.
Mr Beer: So the protection was there from at least before the relevant period –
Dame Sandra: Yeah.
Mr Beer: – that we’re considering.
Dame Sandra: Correct.
Mr Beer: But the nomenclature may have changed.
Dame Sandra: The nomenclature has changed and also the very specific requirements, for example, on boards to have a whistleblowing champion, which does come later.
Mr Beer: Thank you. If we go back, please, to where we were, which is Chapter 7 we were about to turn to, which is page 70. In this chapter you deal with what’s described as “Stakeholder Management”, which again may be a word or words that didn’t exist in the late 1990s. Can you describe the purpose and coverage of this part of your report, please?
Dame Sandra: Yes, I think “stakeholders” would have been very well understood in 1999.
Mr Beer: Okay.
Dame Sandra: These are people, groups of people, who both believe and also in fact they have a stake or interest in what the organisation does, how it does it, and what it may do in the future.
These may be internal stakeholders, employees, or elected internal representatives, for example in trade unions; or they may be external stakeholders, customers, clients, suppliers, distributors. We give a whole list in 7.1.3.
And the development of governance, that I think was very clearly there in 1999, is that boards of directors should, if they are interested, as they should be, in serving the best interests of their company, must have an understanding of what these key stakeholder groups are.
Now, what and who is a key stakeholder group would be a matter for the board to decide and, sometimes, their gaze falls perhaps more one stakeholder, rather than another.
The one stakeholder that definitely has a direct impact is, of course, the shareholder but we have used this chapter to talk about stakeholders beyond shareholders.
Mr Beer: I think you identified in addition to the Government and its representatives, as owner, as a key stakeholder –
Dame Sandra: Yes.
Mr Beer: – Fujitsu as a key supplier –
Dame Sandra: Yes.
Mr Beer: – and subpostmasters.
Dame Sandra: Indeed, and we did that because we felt there were three stakeholders that were perhaps of particular interest to the Inquiry.
Mr Beer: Thank you. Lastly, Chapter 8, which begins on page 77. This runs from pages 77 to 92, and is headed “Experiencing Governance and Management”. Again, can you explain the purpose and coverage of this chapter?
Dame Sandra: Yes, Chapter 8 is different to Chapters 1 to 7, which have been constructed around the scaffolding provided by Annex A, paying particular attention to Annex B. In section A we take a different perspective and we take a different perspective more informed from our expertise in organisational behaviour than in the specific requirements of governance, and this is, well, what is it like to experience governance and management? And we do there look at authority, power, interest, interest and conflict together, leadership, culture and communication.
Now, various elements of those are identified in governance codes, for example culture becomes something which is very important in governance codes, but we in this section look at its experience.
Mr Beer: Thank you. I have got no more questions on Report 1. Can we turn to Report 2, please.
You remember the approach that we discussed at the beginning of your evidence session, namely you identified three case studies and, through those case studies, identified nine themes, and in the first part of this report you addressed the nine themes and then you turn to the case studies. I’m going to invert that order, ie consider matters the other way round, by looking at the case studies first then looking at the schemes and then, thirdly, by exploring some very specific topics with you.
So can we turn, please, to Case Study 1, that starts at page 42.
Out of the pair of you, are either of you more expert or across the detail of any of the three case studies?
Dame Sandra: The way in which we approached these has been to work entirely together. We’ve discussed everything, we have come to our conclusions together. With regard to the first drafts of Mrs Wolstenholme’s case and the Simon Clarke Advice case, Dr Steward did the first draft of those, which we then discussed entirely together, and I did the first draft of the second case on Second Sight. I think we’re happy to proceed under option C, which is that you address questions to me but that is the way in which we have constructed the cases.
Mr Beer: Thank you very much.
So can we look at Case Study 1, please. Your analysis runs between page 42, right up until page 54. The way that you deal with each of the case studies is you set out an approach which sometimes involves a description of the facts. You then break down issues, or isolate issues that arise in the case study and then you ask a question at then answer it in a subheading “Conclusion” under each issue. Have I got that right?
Dame Sandra: Yes.
Mr Beer: Thank you. So if we start, please, with paragraph 150 on page 43. There’s a very nice, pithy summary in paragraph 150 of the case:
“… Julie Wolstenholme was a subpostmistress who ran a branch in Cleveleys, Lancashire. The Post Office pursued her for a £25,000 shortfall in the civil courts. During her case, a report by Jason Coyne into her system found Horizon was defective. Her branch had been closed down but she pursued the Post Office for £180k.”
Dame Sandra: Correct.
Mr Beer: Then paragraphs 155, starting on page 44, right through to 160 on 45. They set out, do they, your references to some of the underlying material that you have considered in formulating a view on this case?
Dame Sandra: That is correct.
Mr Beer: Then if we move to 161 on page 45, we set out your conclusions.
Dame Sandra: Indeed.
Mr Beer: I’m going to take these in some detail in relation to each of the cases.
You say, in your view the Royal Mail Group General Counsel and the Post Office Chief Executive Officer must have understood from the exchange about Mrs Wolstenholme’s case that the Horizon system posed a risk to the validity of subpostmaster branches and therefore the safety of prosecutions on Horizon data, yet they did not act.
Do I take correctly from that that that you have sought to draw a wider conclusion arising from the facts in Mrs Wolstenholme’s case about the impact that it ought to have had on criminal proceedings, even though this was a civil case?
Dame Sandra: That is correct, since the problems identified with Horizon were being used in prosecutions and, therefore, that understanding should have been seen to be relevant.
Mr Beer: In the spectrum of failures or criticisms, how serious a failure is this?
Dame Sandra: It’s a failure to connect what was going on in the civil proceedings with read across to prosecutions, and it was a failure to understand that here was material which suggested that Horizon was not bug free, which could impact the use of that Horizon data in both civil and prosecution cases. The connections weren’t made and action wasn’t taken. So, in this specific thing, one would have expected that the connection to have been made.
Mr Beer: In 162, you tell us that:
“The Chief Executive Officer should have talked immediately to the Chief Operating Officer and the IT Director about the concerns brought into sharp focus by the risk of £1 million that was sitting on the risk register. Had he [that’s the CEO] talked to the Chief Operating Officer in May [I think that’s 2004] about the risk, it’s likely that when the Chief Operating Officer was asked to sign off the significant settlement to Mrs Wolstenholme in July 2004, he would have brought this to the attention of the CEO, something which he should have done anyway.”
Dame Sandra: That’s correct. He should have done it anyway, but the very fact that there was this prior knowledge should have alerted him to bring it into the executive discussion.
Mr Beer: Over the page, please, to paragraph 163. You say that it seemed to the pair of you that ExCo: who were you referring to as ExCo there? Not by name, but by description.
Dame Sandra: No, that is the senior leadership team that the chief executive or managing director chooses to have as their most senior team.
Mr Beer: “[They] did not pool their piecemeal knowledge of emergent issues and so opportunities to share and create a collective understanding of the risks were lost.”
What risks were you referring to there?
Dame Sandra: We were referring to the risk that the use of Horizon data in civil and prosecution cases posed risks for the Post Office Business.
Mr Beer: You tell us in –
Dame Sandra: (To Dr Steward) Do you want to add anything to that?
Dr Steward: No.
Mr Beer: You tell us in paragraph 164 that this was not escalated to the Post Office Board, according to the evidence of Sir Michael Hodgkinson but I think it’s your view that it ought to have been.
Dame Sandra: Indeed it is.
Mr Beer: That was a failure, have I got this right, of the Executive to do so?
Dame Sandra: Yes, to escalate.
Mr Beer: Yes.
You tell us in 165 that the independent expert evidence relating to the civil case against Mrs Wolstenholme, ie Jason Coyne’s report, should have been brought to the attention of the Chief Operating Officer when asked to approve the settlement, if he hadn’t asked for it, and it should have been discussed at a Board Risk Committee.
Dame Sandra: Correct.
Mr Beer: These ‘should haves’, are they formulated on the basis of the reasonably expected principles of good governance that you’ve identified in Report 1?
Dame Sandra: They are, and they are also based, as we have said, on our experience. But they are based in the expectations that we’ve laid out in Report 1.
Mr Beer: You say that both the £1 million risk on the register and Jason Coyne’s report should have been escalated to the Chair, and that, if he had known about these matters, he should have escalated to the Group Chair or to the Royal Mail Group Chief Executive Officer, and that, so far as you were aware, none of them were told about the case or its settlement.
Dame Sandra: That was our belief.
Mr Beer: In 168 you described the questions that might have arisen and, over to 169, you say you’ve looked at the board minutes and meetings of the Post Office Limited Board.
Dame Sandra: Yes.
Mr Beer: “… there was always a majority of Executives over Non-Executives. Although there was movement to a point Independent NEDs they were out numbered by Executives and therefore a relatively weak base for independent challenge by way of viewing the business.”
Is this a linked point or is this is an independent point concerning the Wolstenholme case?
Dame Sandra: I think it’s both linked and independent. It’s linked because the lack of scrutiny which we have identified, one might have expected to have been greater if there were more NEDs available. The fact that there weren’t NEDs available was not a failure of governance because they weren’t required at the time for this subsidiary organisation, which was subsidiary to Royal Mail Holdings. So there wasn’t a deficit in governance terms that there were no NEDs but there was a practical result of there being few NEDs, that there was less challenge being made. I’m not sure if that answers your question of whether it was linked or separate.
Mr Beer: It does, thank you.
Dame Sandra: Thank you.
Mr Beer: In paragraphs 170 and 171, you tell us about what the Post Office Board’s focus was at this time.
Dame Sandra: Yes.
Mr Beer: Do I understand you to say that, in these paragraphs, it was because of the focus that this may have been missed, or you simply don’t know?
Dame Sandra: We’re pointing out that that these matters did not get an airing and we are also pointing out that there was a strong emphasis upon survival, on new products and growth, and that, it seems to us, led other matters which could be seen to be operational as not being the subject of interrogation at the Board.
Mr Beer: So I think you come to a conclusion at 172 in the first sentence:
“… if the Chief Executive Officer had acted differently then a collective understanding within the Post Office Executive could have been developed.”
Then the following things that you identify you think ought reasonably to have followed?
Dame Sandra: Indeed. And we also identify that these risks could have been made explicit in a whole different way of – a whole variety of ways. It could have been the one-to-one conversation; it could have been the Board risk register. It could have been the Risk and Compliance Committee. It could have been discussed with the Chair, the truth is that it did not feature in any of these forum.
Mr Beer: That’s issue 1 under Wolstenholme: what in particular should the CEO have done when receiving the email relating to Mrs Wolstenholme.
You then turn, if you go to page 48, to the second issue you isolate as arising of the Wolstenholme case, namely the relationship between the Post Office as subsidiary and the Royal Mail Group as a parent holding company.
Can you help us: why did you address this issue in relation to the Wolstenholme case?
Dame Sandra: Because we were making the relationship earlier between what was going on in the civil cases and what was going on in the criminal cases. And the legal function for the Post Office was not independent. It was a centrally held function by Royal Mail Group – or however it was addressed at that point, I mean in terms of its name. And, therefore, the responsibility for interrogating the way in which prosecutions and indeed civil cases were taken actually lay formally with Royal Mail Group.
Nonetheless, Post Office understood that they were – they had some responsibility because it was conducted in their name. But, nonetheless, Royal Mail, as the parent holding company, was the overall group responsible for prosecutions and civil cases, and their General Counsel – the Post Office didn’t have a General Counsel at that time, it was the RMG General Counsel who was, as it were, responsible here.
Mr Beer: Thank you. Can we turn to your conclusions on this issue, which are on page 50.
You say:
“The way in which Post Office related to RMG added to a situation in which matters concerned with prosecutions went without challenge at the Post Office Board. By the time Sir Michael Hodgkinson, the Chair, left in 2007, ownership for reporting to the Post Office Board on prosecutions was not established and processes for monitoring (Horizon risks, prosecutions policies and practice, whistleblowing, subpostmaster feedback) do not appear to us have been in place.
“The Board of Royal Mail Group paid little attention to Post Office Business operations, even though their group functions, for example, Legal and HR, were responsible for functional management in some areas of [Post Office].
“The [Post Office] Chair should have been told of the IT risk facing [Post Office] of £1 million. This risk … should also have been escalated to the RMG Board directly or via the Risk and Audit Committee. The link between Horizon risk and prosecutions is very clear in the Wolstenholme case, even though not a criminal case because of the Coyne review. This link should have been discussed by both the POL Executive and the Board and should have raised enough concerns about the inherent risks in concerning prosecutions based on Horizon data to warrant discussion between the [Post Office] Chair and the Royal Mail Group Board directly or via the Royal Mail Group CEO.”
Those are your conclusions on issue 2. Collectively, how serious a failing are you describing here?
Dame Sandra: I think it is a failure of accountability because there is no doubt, as far as we can see, that RMG had this overall responsibility and therefore they should have ensured that what was going on in POL enabled that to be – that responsibility to be secured. It was in a way their choice: they had a central function, they could have said to POL, “Down to you, you make sure that you are monitoring these risks, that you’re understanding them, and so on, because we want you as a subsidiary to do that”.
It seems to us had that was not done. That doesn’t excuse the POL Board and Executive from not picking them up, but one might think that they would have thought, “Well, this function doesn’t lie with us; it lies up there”.
So with regard to how serious, it is a serious failure to understand the responsibilities of a holding company, the responsibilities of the subsidiary company and, above all, for those two to sort out appropriate arrangements for risk and for monitoring.
Mr Beer: You mention in that last answer that it doesn’t absolve the Post Office Board of responsibility, the failures you described. You turn to that in issue 3. Can we turn to that, it’s page 51.
This is the third of three issues you identify in the Wolstenholme case. You tell us in paragraph 187:
“The Board and Executive should understand their role in creating culture in the business and in the boardroom. This includes challenge, curiosity and looking for ‘the bigger picture’.”
188:
“The Board at the time of Mrs Wolstenholme’s case was not a full Board”, for reasons you had identified, ie because the absence of a strong non-executive presence.
Dame Sandra: Mm, mm.
Mr Beer: Then if we go over the page, please, to 193, you set out your conclusions between paragraphs 193 and 196, in relation to the POL Board culture when addressing the Wolstenholme case. You say:
“There was a lack of focus on prosecutions at the Post Office Board, which was in [your] view a reflection of the embedded [Post Office] culture.”
Can you tell us what the foundation for that is, please?
Dame Sandra: It is from both transcripts and witness statements that we have read, which talk about the fact that prosecutions was seen as something that the Post Office did. It didn’t feature, for example, in the induction to new Board members; it was not – it was seen to be non-problematic and, indeed, a very important part of the Post Office defending its public duty and its public right to defend Post Office monies, which were the public’s monies. So there was an embedded view that it was an accepted part and it appears to us to have been accepted that it was done in a due process.
(To Dr Steward): Would you like to add anything to that?
Dr Steward: I mean, we heard numerous times during the testimony that people weren’t aware that POL – that RMG did prosecutions. So I think that’s the basis of the finding that it was deep in the culture, that POL wasn’t, if you like – had a clear sense of ownership, if you like, over the prosecutions.
Mr Beer: It was just something that happened?
Dame Sandra: Exactly.
Dr Steward: It appears to be something that happened.
Mr Beer: In 194, I’d like you, if you could, to explain the first sentence that “Post Office Executives failed to conceptualise the operational problem of faults in Horizon as a risk factor”.
What do you mean, “failed to conceptualise”?
Dame Sandra: Well, they didn’t imagine it, they didn’t think about it. They thought they were dealing with a technology system, and were there problems – as far as we could tell – and were there problems with that technology system? That relationship to what was going on in the routine business of prosecutions defending public money was not connected.
Mr Beer: I see, so meaning they failed properly even to think about it?
Dame Sandra: Yes, they failed to conceptualise; they failed to think about it.
Dr Steward: If I might, I mean, the way I see that is that there were, in the Executive Team, at least four functions who were aware of or could have been aware of the Coyne Report: finance function; the IT, it was on the IT risk register; the operator – Chief Operating Officer; the Chief Executive. And had, at that point, there been a conversation between those four functional leads about “What do you know about the Coyne Report? What’s this telling us? Is this telling us that we have an issue with technology or is this telling us that we have an issue with prosecutions?”, then you can see how that conversation would have developed into a broader conceptualisation of the role that POL had in conducting prosecutions and the technology is that – being at the heart of that.
Mr Beer: Thank you.
Paragraph 195 you say:
“… it [I think they’re the failures you mentioned in the previous paragraphs] was exacerbated by a lack of challenge to the Post Office Executive. The governance of Post Office was in embryonic form …”
Can you explain what you mean by that and why you say it?
Dame Sandra: In embryonic form, we mean that there were – as we’ve seen, there was the Non-Executive Chair and there was the first Non-Executive, by this time, appointed, they were getting their feet under the table understanding Post Office Business and they did not challenge what was accepted, taken for granted and they didn’t say, “Well, what’s the real problem beneath this information we’re getting about Horizon? Does it have implications outside the civil context?”, because this of course was a civil case, such as for prosecutions.
Now, one might say well how could they do that if they weren’t told about it? And that is a recurring theme, we’ve found, in the cases that we’ve looked at. Nonetheless, the POL – the Post Office Chief Executive was a member of the Board the Post Office Chief Executive did have a relationship with the independent, the Non-Executive Chair, and the – it could have been challenged, and it wasn’t.
Mr Beer: Can I ask you, Dame Sandra, just to move the microphone. As you’ve moved to the screen, you’ve moved away from the microphone –
Dame Sandra: Ah, right.
Mr Beer: – and, as you’ve warmed to your theme, you’ve sped up a little bit. If you could slow down your answers, we would be grateful. That’s my fault for not properly controlling your evidence.
In paragraph 195, you set out some questions at the end of the paragraph, as to questions that might have been asked and you identify in paragraph 196 that, although Royal Mail Group acted as a challenge to the Post Office in some areas, prosecutions was not one of them?
Dame Sandra: Correct.
Mr Beer: Looking at this issue, the third issue, the culture of the Board and the failure properly to challenge by the Group, how serious are the series of failings that you identify here?
Dame Sandra: I’m sorry, can you repeat?
Mr Beer: Yes, looking at paragraphs 193 to 196, in the scheme of things, in the spectrum of seriousness of failings, where does this sit? I realise I’m asking you on every occasion to pitch on a spectrum –
Dame Sandra: Yes.
Mr Beer: – and that’s because you don’t do so in the report.
Dame Sandra: No.
Mr Beer: That may be because you’re unwilling to do so, but I’m asking nonetheless.
Dame Sandra: We’re willing to help the Inquiry in any way we can. We haven’t come here with a sort of measure of failure. What we’ve done is identified failures which we see as being germane to the interests of the Inquiry. Many of these matters are individual issues – not issues, individual events, which, if you add them all up, you would say that’s a failure to know something to connect with something that we already know, and for us to take a view on. This is one such matter.
If it was alone, then the governance system, one could say, was quite robust, but because this, as we will see in relation to other things, this neglect of seeing the risk inherent in prosecutions in relation to Horizon, this is part of what we see to be a general failure.
Mr Beer: You set out your overall conclusions on the Wolstenholme case study in paragraphs 198 to 205. Here, are you essentially drawing the threads together in relation to the Wolstenholme case?
Dame Sandra: We are trying to do so.
Mr Beer: Thank you. Could you talk us through, then, your views when drawing the threads together in the Wolstenholme case?
Dame Sandra: Yes. Firstly, that POL prosecutions, policies and practices didn’t have priority for either the RMG or for POL. Furthermore, there is a lack of clarity about if they had looked at it, who was really responsible. So we think neither of them gave it priority, and that the lack of clarity probably exacerbated this matter, the lack of clarity on who had oversight of prosecutions.
The POL Board was largely made up of executives, as we’ve talked about. There was little independent challenge. It’s not unusual for there to be little independent challenge at subsidiary boards because it puts then greater responsibility on the holding company to challenge. But that would have required, if I can elaborate on this, as I said earlier, that would have required there to be a clear agreement about, well, with regard to POL – Post Office prosecutions, who is really going to monitor and oversee this? And there wasn’t that clarity.
The Coyne Report, an independent specialist, was neglected but, what’s more, we haven’t seen any evidence that there were independent specialists to advise the Post Office Board on key areas of technology and legal. That was especially important because of the lack of independent challenge and advice one might get from non-executives.
We then go on in 201, the risk wasn’t elevated, as we’ve already talked about, and it should have been. There was a lack of focus on – prosecutions on the POL Board and the whole risk system seems to us to have lacked a coherent framework for risk identification, evaluation and escalation, particularly in the connections that could be made between Horizon and prosecutions.
Mr Beer: Just stopping there on that, the sentence or the part of the sentence which says, “the whole risk system seems to have lacked a coherent framework for risk identification, evaluation and escalation”, that’s in a sentence, which you’ve just spoken about. You said in particular in relation to prosecutions. Does that conclusion apply more generally?
Dame Sandra: We have looked particularly at the aspect of prosecutions and Horizon, and we haven’t looked at risk identification in relation to other areas. I think I’m –
Dr Steward: Not specifically.
Dame Sandra: Not specifically.
Mr Beer: No, there could be all sorts of other things like –
Dame Sandra: There could be –
Mr Beer: – manual –
Dame Sandra: Insolvency.
Mr Beer: Insolvency or manual handling by employees –
Dame Sandra: There could have been.
Mr Beer: – or injury to members of staff on duty, or that kind of thing?
Dame Sandra: Yes.
Mr Beer: This is particularly in relation to the conduct of prosecutions?
Dame Sandra: Yes, and I guess that relates to the opening of that sentence: there was a lack of focus at the POL Board, so lack of focus on prosecutions.
Mr Beer: Thank you very much, then over the page, please, you tell us about a missed opportunity about by both the Executive and the Board in 203.
Dame Sandra: I think this is exactly the point you were making earlier. Do you want to add anything to it?
Dr Steward: I think we’ve made the point that actually there was an initial moment when things could have turned out very differently, perhaps, had the conversation happened in the Executive Team, had that then been elevated to the Board, had that then been discussed with the Chair, had the Chair then discussed it with RMG or the routes through to the RMG, Audit and Risk, used.
Mr Beer: Thank you. Then skipping to paragraph 205, you set out your views on the attribution of responsibility, and, really, it’s a two-pronged conclusion –
Dame Sandra: Yes.
Mr Beer: – that it’s the responsibility of RMG to identify and manage these risks; is that right?
Dame Sandra: Indeed.
Mr Beer: Because it was the parent holding company that, in fact, functionally had carried out the conduct of prosecutions?
Dame Sandra: Yes, and had they wanted it to be held at the level of the Post Office, that should have – that could have happened and it could have been clear in delegated duties that that was the case. But that did not, as far as we know, happen.
Mr Beer: Overall, how significant was the relatively early episode of the Wolstenholme case being in 2004 to the issues which you examined?
Dr Katy Steward: I think it was – it’s significant, in retrospect, as we look at it, because it seems to be that this pattern is repeated. At the time, I would say it showed, with regard to prosecutions, that we had an Executive Team and a Board that were not paying attention to the risks posed in prosecutions, dependent upon Horizon data, and that is a neglected risk throughout the story of this is Inquiry.
Mr Beer: Thank you. Can we turn to the second case study, then, please, which is the Second Sight Interim Report and the consideration of it by the Post Office Board in July 2013. That starts, thank you very much, on page 55. This is a much longer analysis; it runs right through until page 108 of your report.
Dame Sandra: Yes.
Mr Beer: Can we read, please, paragraphs 212 to 214, on pages 56 and 57, which are essentially a short summary of the episode. You call it a context of the case but it is a good primer.
Dame Sandra: Yes.
Mr Beer: “Second Sight was appointed by Post Office in mid-2012 to carry out a review into the alleged problems with the Horizon IT system. The Inquiry has heard that the appointment was in part a response to increasing pressure from James Arbuthnot and other MPs, persistent critical questions from investigative journalists and ministerial interest. The appointment of Second Sight was handled by the Post Office Executive with very little Board involvement, apart from that of the Chair. The Inquiry has heard that the terms of reference were subject to several iterations between the parties and ‘no formal letter of engagement’ was ever signed.
“Second Sight summarised their appointment as follows”, and you set that out.
Then 214:
“The Board met via conference call on 1 July and received their first, very brief account of the work from the Post Office Chief Executive Officer. They were told of the imminent publication of the Second Sight Report. The report was published on 8 July when it was made available to the Board. The Board received an update paper in the light of the report at their meeting on 16 July.”
Were you essentially, therefore, considering the period up until but not after 16 July?
Dame Sandra: That was our focus. Our focus was very much on the preparation for publication, the publication of Second Sight, and its consideration at that Board. As we’ll see, there were a few matters that we felt we should extend our concerns with but, in the main, that was it. It’s a case of the Board’s handling of the Interim Report of Second Sight, at that time.
Mr Beer: If we could look at the top of page 56, please. I think, if we just pan out a little bit on the screen, to the top half of the page, thank you, we can see that you isolated nine issues arising from this episode; is that right?
Dame Sandra: That’s correct.
Mr Beer: They’re listed there as issues 1 to 9.
Dame Sandra: That’s correct.
Mr Beer: What I’d like to do, if I may, is go to the conclusions which you reach in relation to each of the nine issues, rather than examining the run-up to those conclusions in each case.
Dame Sandra: Absolutely.
Mr Beer: So in relation to issue 1, can we look, please, at page 58, paragraph 217. It should identify what issue one was, just look at page 57, please, at the foot of the page. Issue 1, the priorities of the Board in July 2013. Then if we go forwards, please, to paragraph 217 on page 58, you say:
“… the findings of the report contain sufficient information to warrant the Board giving priority to getting a stronger grip on Post Office’s investigations and prosecutions policy and practice, particularly, but not solely, when Horizon data was used. The Board should also have been paying attention to what they were being told by Second Sight about Post Office’s attitudes and approach to subpostmasters, particularly as it had resonance with what was becoming a familiar refrain from investigative journalists and MPs. [You] had not seen evidence that either the Executive or the Board saw those issues as priorities.”
So can you expand upon or explain the conclusion that you reached there? This is about prioritisation.
Dame Sandra: It’s about, yes, where the gaze of the Board was falling. It was falling on brand and reputation, it was falling on securing Government agreement for ongoing funding, it was securing on – it was focused on getting Government support for the strategic plan, which was connected to funding. It was helping RMG prepare for privatisation, and it was continuing to create the Post Office, an independent business, separate from RMG, in which they had to build their own standalone governance structures and central functions. All good priorities.
But, at the same time, there was the, as we’ve indicated, media, ministerial, Parliamentary interest and identity of what, on the face of it, appeared to be serious problems in the use of Horizon data in prosecutions. This, as far as we could see, was not a priority for the Board at all.
Mr Beer: Issue 2, please, over the page at the top. Perceptions of the Horizon IT system, Second Sight and post Office Prosecution Policy and practices and of subpostmasters. Can we look at your conclusion, please, on that issue, at page 65, paragraph 238 onwards. You tell us in 238 – it goes right up to 242 – that:
“The dependence of prosecutions on Horizon data was not articulated as a concern by either the Executive or the Board as they approached the discussions of the report on 16 July. So taken were the Executive with their sense of mission, their distrust of Second Sight, they did not take the advantage of handling an ‘independent’ reviewer in their midst, who was offering various bits of evidence which could have shaken their firmly held perceptions. Not surprisingly then, they did nothing to alert the Board that serious issues were being raised in the Second Sight Report.”
I’ll ask the question that I’ve asked number of times: in the spectrum of importance or significance, where does this sit?
Dame Sandra: I think it’s a serious failing. Here was an independent reviewer that they had deliberately brought in, and yet they were approaching it from a position of fairly fixed views that Horizon was robust; that they – they formed the view that Second Sight weren’t really independent and were partisan; they had fixed views about subpostmasters; and they had fixed views about the importance of their prosecutions which they thought were being conducted, one assumes, appropriately.
This meant that when these bits of information came in from the Second Sight review and, as we’ll see later, they don’t come in in a sort of well capsulated way but they come in, nonetheless, but they simply aren’t identified.
Mr Beer: Do you expand upon that in 239? I think you largely covered that in your previous answer.
Dame Sandra: Yes.
Mr Beer: In 240 you explain that there was no challenge in July 2013 to the accepted view that any problems with the operations of Horizon lay with the people rather than the technology?
Dame Sandra: Yes, correct.
Mr Beer: Could you ascertain why that was, ie there was no challenge?
Dame Sandra: What was the first part of your question? Could we –
Mr Beer: You say there wasn’t a challenge to the accepted view –
Dame Sandra: Yes.
Mr Beer: – yet here was a report that arrived that did challenge it –
Dame Sandra: Yes.
Mr Beer: – why was there no escalation by the Executive or mere acceptance by the Board of the Executive’s perceptions?
Dame Sandra: I think that’s a $50,000 question. Why was there no challenge? There was no challenge and we in this part tie it to the fact that they were concentrating on and looking at things in a way that made them blind to the pieces of information that were coming forward.
Mr Beer: Is that the basis on which you form the conclusion at 241, the last sentence, that the Board did nothing to provide a corrective challenge to the Executive’s defensive position?
Dame Sandra: Yes, I see we did encapsulate what I was trying to say, that –
Mr Beer: In 241?
Dame Sandra: – the belief of Horizon was robust, Second Sight’s independence was questionable, policies and practices of investigations and prosecutions didn’t warrant urgent investigations and a tiny minority of subpostmasters, as before the introduction, were guilty of misappropriating public funds. The Board, as we shall see, many of them did not appear to appreciate how the Post Office was approaching investigations and prosecutions and, although they asked questions when pieces of Private Eye came out, or so on, when told that “There’s nothing in this, Horizon is robust”, they did nothing further to question. And I think we go on later to show how they might have questioned it.
Mr Beer: Thank you.
Lastly on this issue, paragraph 242, you make the point that the Horizon System and Post Office prosecutions were seen as operational matters to be left to the Executive.
Dame Sandra: Mm.
Mr Beer: Is that seen by the Board as operational matters?
Dame Sandra: It is, and probably by the Executive too, and perhaps this is relevant to make the general point that, in Governance Codes, inspected understandings of Government, the role of the executive is to run the company: if they’re a building company, to do the building; if they’re – and to ensure safety precautions – if they’re a financial services company, to offer financial services. They run the company and, in operational matters, to do with running the company, are the executive responsibility.
The board has a responsibility to oversee those operational matters, to ensure that they are being appropriately undertaken but, if you assume that they are – everything is going fine, then it would be inappropriate for the board to enquire into operations.
I don’t know if you’d like me to go on to circumstances, it might come later, where the board would be expected to delve into those operational matters. But I guess what I’m saying is, if I’m sitting at a boardroom and I’m a non-executive director and I regard a particular aspect of the company’s operations, in this case prosecuting – investigating and prosecuting subpostmasters, if I regard that as a matter that’s always been done, that’s part of regular operations, that doesn’t excite any particular mention, then its legitimate for me, as a board, to leave the executive to run that.
Mr Beer: You say the irony is that what was seen by the NEDs as operational matters were, in fact, the basis of existential risk.
Dame Sandra: Yes.
Mr Beer: When you say “irony”, what do you mean?
Dame Sandra: I mean that they got it wrong, that they saw that it’s operational and, therefore, nothing to do with them, but in fact it contained existential risk to the company and therefore – and, I’m told, suffering to subpostmasters – and, therefore, if only they had said, “Perhaps these aren’t regular operational matters, perhaps we should have enquired into that”, they would have revealed the extent of the risk that was there.
Mr Beer: You say that “more such curiosity and challenge may have dislodged the blindfold”. Who was wearing the metaphoric blindfold?
Dame Sandra: I think both the Executive and the Board were wearing a blindfold –
Mr Beer: Thank you.
Dame Sandra: – and that blindfold we relate here to the perceptions we have just identified.
Mr Beer: Thank you.
Sir, that’s a convenient moment. May we break now until 1.45.
Sir Wyn Williams: Yes, 1.45.
(12.45 pm)
(The Short Adjournment)
(1.45 pm)
Mr Beer: Good afternoon, sir.
Good afternoon, Dame Sandra and Dr Steward.
We were in the middle of Case Study 2, we had dealt with two issues and we were turning to the third issue you had identified. Can we turn up in the second report, please, page 70. Here you express your conclusions on the third issue, which is the roles of the Chief Executive Officer and her Executive colleagues, and between paragraphs 262 and 271, you set out your conclusions on this issue.
You make the point that how a CEO leads his or her team is not an exact science. Do you mean that, within the Governance Codes and other similar instruments, there is a reasonable body of divergence in how you discharge the obligations?
Dame Sandra: I believe that the principles are set at such a high level that how one fulfils those principles – I don’t mean a high level in terms of height of standard; I mean in terms of generality, such a level of generality, that it’s possible to be an effective chief executive and adopt different styles.
Mr Beer: You go on to explain – and remembering this is in connection with the treatment and administration and response to the Second Sight Report – you would have expected the Chief Executive, that’s Paula Vennells, to be well aware of all issues which were covered in the report, insofar as they significantly impact Post Office.
By that, do you mean you would have expected her to have been well aware of issues before receipt of the report, or upon receipt of the report?
Dame Sandra: That we would expect her to be aware of the issues of which she was aware before receiving the report but, upon receiving the report, we would have expected her to be aware of those issues that were within the report.
Mr Beer: Okay, so she should have been across the detail of the report upon receipt?
Dame Sandra: Across the particular aspects which we pick out in the report, which we see to have been significant.
Mr Beer: You say you would have expected her to be leading her Executive Team, so that she would have been well aware of the significant views and actions of each of her Executive Directors, so she could bring all significant relevant information into her decisions.
Can you assist us with what you’re referring to there?
Dame Sandra: I’m referring to the fact that, as Chief Executive, she naturally delegates and expects her different Executive Directors, her members of her top team, to be more in touch with details of their particular areas than she is but, nonetheless, we would expect that the way in which she operated that team, that if there were significant areas identified within individual Executive Directors’ areas, that they would be brought to her attention.
Mr Beer: You say that, in dealing with the report, in paragraph 264, she and some of her Executive colleagues, appear to be disproportionately focused on communications and public relations. That whilst messaging and communication are vital parts of executive responsibility, the executive responsibilities in matters covered by the report extend to many areas; including or especially technology, business operations, prosecutions and the law. What led you to the conclusion that she and some to her colleagues appeared to be disproportionately focused on public relations and communications?
Dame Sandra: Because from the evidence that we saw, there was a great deal of communication about how the positioning of the publication of the Second Sight Interim Report should be put, how communication should go to James Arbuthnot and other MPs and what the media statement would say. Looking beneath what the Second Sight Interim Report said, where, as we shall see, they identified a number of issues to do with Horizon, to do with prosecutions, to do with the impact of current processes on subpostmasters, that they didn’t seem so concerned with those things.
Mr Beer: Do you accept that a board owes a fiduciary obligation to protect a company’s reputation?
Dame Sandra: Do I accept that the board has that responsibility?
Mr Beer: Yeah, fiduciary –
Dame Sandra: Yes.
Mr Beer: Do you accept that a general counsel has a fiduciary obligation to protect a company’s reputation?
Dame Sandra: Well, a general counsel has many different roles. Would you like me to expand upon that? The general counsel has a role as an independent adviser to the board, to bring her expertise to the board and to the company on a legal basis.
If the general counsel is a director of the company, then she or he also has duties as a director, which, as we covered earlier, relate to director’s duties. If – that’s the second role she may have, although in relation to the Post Office the general counsel didn’t have that role.
If she also has functional responsibilities for areas of work, for example the legal area of work, or the risk area of work, or aspects of the operations area of work, for example, security, she also has duties in relation to her functional leadership. This means that she can be both a member of the executive team and an independent adviser, and general counsels are often put in the position of holding those dual roles.
Mr Beer: If it is the case that members of the Board, and they say this, received assurances from within the business that Horizon was a robust system, and that any and all allegations about it were unfounded, would it be appropriate or inappropriate for a Board to respond to those allegations in a way that sought to protect the company’s reputation?
Dame Sandra: One would expect the Board to enquire into any matters which suggested that the assurances that they had been given were not as foolproof as they had been led to believe. And, if we look at the particular instance of the Second Sight Interim Report, whilst there was the general conclusion of no systemic problems so far discovered, there was discovery of bugs/anomalies, whatever one wishes to call, and therefore that might have been a basis for saying, “Well, given that we’ve been told on the one hand it’s robust, and yet, given on the other hand we’ve been told that there are bugs and defects, should we not think about what is the connection between those two pieces of information, and should we not then enquire further into what it means that this is robust?”
Mr Beer: Thank you, at 265 you say you haven’t seen evidence that the CEO, Paula Vennells:
“… ensured broad collective executive discussions about the findings of [the report] which included contributions from, or challenges to, all functions and aspects of the business.”
Can you explain what you mean by what you were looking for in the evidence there?
Dame Sandra: We were looking for something more than what are the top-level messages we can give, namely the top-level messages were “Horizon is robust, there’s no systemic problems with it, there are a number of things we’ve got to do with regard to training and support, and we’ll do them”. But what was really understood about the nature of the technology? What was really understood about the meaning of bugs and defects? What was really understood about the experiences of subpostmasters, as related in the Second Sight Interim Report?
We were looking for a broader sense of contribution from the Executive Team into the meaning behind the Second Sight Interim Report.
Mr Beer: You say in the fifth line:
“It is as if specialist functions are in different ‘black boxes’ which non-experts cannot assess and do not feature as part of their shared executive responsibility”?
You cross reference to some sections of Ms Vennells’ oral evidence where she says she’s not an expert in this or an expert in that. Then, over the page to paragraph 266, you say that she appears to have left the preparation of the Horizon Update paper to the General Counsel, Susan Crichton:
“The Inquiry heard that [Ms Crichton] discussed a draft with the Company Secretary and made amendments … for example to refer to ‘defects’ rather than ‘bugs’ … [You] do not know if the CEO and General Counsel discussed the contents of the paper … [We] heard that the CEO felt uncomfortable and ill equipped when she was suddenly required to present the paper at the Board meeting”, which to you suggested:
“… an Executive Team which is fragmented where a sense of shared collective responsibility for all aspects of the business is feint; a mindset which has grown within an organisation where functional silos, certainly in Legal and IT, extend from the top to the bottom.”
Can you expand in any way on conclusions which you drew there?
Dame Sandra: I think we then have to look at the role of the chief executive. The chief executive cannot be an expert in all matters of running the business. That’s very, very well understood, which is why the chief executive needs to delegate to a number of her executive team specialist responsibility. But that very action of delegation does not absolve the chief executive from seeking to understand the whole picture.
So whilst there is delegation, there is also inclusion of bringing these matters up into the chief executive’s mind so that she is sufficiently aware of all the aspects which impact the consideration of any particular issue.
So that’s the chief executive role. The chief executive’s role is also to ensure that the – her executive directors, to which she delegates – imagine them all in their little functional boxes – that they not only communicate upwards and downwards to her, but she ensures that they communicate across each other and that they bring to bear areas of their specialist expertise, to their collective understanding.
And that’s what we did not see evidence of. Of course, we’re very happy to look at evidence which suggests something different to that, but we did not see any evidence of that. And we understand that that sense of both delegation, and yet bringing together that sense of individual responsibility and yet collective responsibility, was something which we did not see in relation to consideration of the Interim Report of Second Sight.
Mr Beer: I think it’s right that you have not examined, and do not opine on the motives for that approach.
Dame Sandra: We do not.
Mr Beer: In paragraph 268, in the second line, you say in your view the Chief Executive Officer, Paula Vennells:
“… did not ensure that the Board, before the meeting [that’s the meeting of 16 July], was fully briefed on important matters, particularly those relating to Post Office policy and practice on prosecutions … It was reasonable that she should flag her immediate concerns about communications. But they were concerning how the story was being told, not about the nature of the story itself.”
Is there anything you wish to expand upon that?
Dame Sandra: I believe that is quite clear, unless there were further questions you’d like to ask.
Mr Beer: No, thank you.
You develop that theme in 269 by saying communications to the non-executives in between 1 and 16 July were focusing on PR rather than substance; is that right?
Dame Sandra: That is correct.
Mr Beer: Then over the page –
Dame Sandra: Perhaps I should just add, that’s relevant to that, there’s this memo, three-page memorandum that went with the circulation of the Second Sight Interim Report, it was a very detailed analysis of where the Executive felt there were factual inaccuracies, which didn’t really affect the substance of the report, and it meant that the concentration was on those factual inaccuracies, not the substance of the report.
Mr Beer: Would it be fair – no, I think that’s probably a bridge too far.
Can we go over the page please, to 270. You say it would have been more appropriate to accompany notification to the non-executives of publication of the report with an executive summary of the key points, rather than to do what the memo did, which was to focus on inaccuracies, and that did nothing to dent the important messages which could be discerned from the report.
Dame Sandra: Exactly. That was the point I anticipated when I spoke earlier.
Mr Beer: Thank you. Is there anything else you want to say in relation to this sub-issue?
Dame Sandra: Well, we’ll probably come onto it but the lack of an executive summary of the key points, either from the Second Sight Interim Report or in the Board Update paper meant that the job of the Board in interrogating that paper was made, to an extent, more difficult.
Mr Beer: Thank you. Can we turn to issue 4, the role of the Chair, which we can see starts at the bottom of that page, and go to your conclusions on page 75, please. You make a similar point, as you did in relation to the CEO, as regards the Chair, in paragraph 284 and I think you make a similar point in 285 as you had in relation to the CEO; is that right?
Dame Sandra: That’s exactly right.
Mr Beer: You say you would have expected the Chair, that’s Alice Perkins, to have interrogated the report to see for herself if there were any issues or problems flagged in the findings beyond those identified by the CEO:
“… we would have expected her to give careful consideration to: how she wished the Board to engage with all the findings of the Second Sight Interim Report; and the purpose and expected outcome of the Board discussion.”
Why would you have those expectations of the Chair?
Dame Sandra: Because I believe and we believe, based on the role of the chair in governance, that her responsibility is to ensure that any paper or any matter which is brought to the Board, that she understand what the issues and problems are which it is being suggested.
Mr Beer: Over the page to paragraph 287. Is this essentially your view or your counterpoint, setting out what should have happened in the Board meeting itself, as opposed to what did happen?
Dame Sandra: Yes, indeed, and I perhaps should say that, in relation to each of these case studies, we are using the base of Report 1, as we described. If we feel there is need for additional background information, then we have provided it in the introduction to the cases. Here, where we talk about the chair at an administrative level to agree how the paper is to be presented, and so on, we felt perhaps we hadn’t put enough information in Report 1, so we added it here.
Mr Beer: Okay, so here you’re saying there needed to be agreement or direction as to who was going to present this important paper – is that right –
Dame Sandra: Exactly.
Mr Beer: – whether they were to be invited into the meeting and involved in both presentation and discussion, and then carry those directions into effect –
Dame Sandra: That’s correct.
Mr Beer: – is that right?
Dame Sandra: That’s correct.
Mr Beer: What view, if any, did you form of the evidence as to what, in fact, happened at 16 July?
Dame Sandra: I believe we come to that later, which we can take now or we can take later.
Mr Beer: Can you discuss it now in the context of this expectation?
Dame Sandra: Well, the expectation, as we’ll see, was, as we understood, that the General Counsel would present – would be present and would present the report. That did not happen.
Mr Beer: You say in 288 that you would have expected Alice Perkins to make it a priority that Susan Crichton was present at the meeting, and that Alice Perkins had been fully briefed by Susan Crichton, despite the apparent strain in their relationship. Why is it that you pick this topic, the Horizon report by Second Sight, for such treatment?
Dame Sandra: Why did we choose Second Sight?
Mr Beer: Yes, so on the occasion of the Board meeting there were a number of papers before the Board.
Dame Sandra: Yes.
Mr Beer: Not just this one.
Dame Sandra: No, but we were – our case study is about the handling of the Second Sight Interim Report –
Mr Beer: Yes.
Dame Sandra: – and therefore that is what we addressed.
Mr Beer: Yes. I am asking you indirectly, and I’ll make it more direct: would you expect this kind of liaison and prior agreement to occur in relation to all papers tabled before a board.
Dame Sandra: I would expect the chair to be fully aware of the agenda that she has either proposed or agreed with the company secretary, and to know how that agenda was going to unfold, who was going to present what, who was going to prepare what. She herself, as the chair, would have views on that, and it would be ultimately her decision, but she would probably discuss these with the chief executive and the company secretary.
So the idea that the chair has responsibility for the agenda is absolutely the case, whatever the item which is there before the board.
Mr Beer: So you’re not picking out the Second Sight Report here for special treatment?
Dame Sandra: No, no.
Mr Beer: Okay, got it.
Dame Sandra: If that’s the question the answer is no.
Mr Beer: Got it. You say that you found no evidence that Alice Perkins prepared in this way and that, once in the Board, that she chaired the meeting in such a way as to ensure that the full import of the findings of the report were appreciated and discussed with decisions on follow-up actions agreed.
Dame Sandra: And we’ll come to it in more detail, I believe, in subsequent issues.
Mr Beer: Yes, can we turn to sub-issue 5, then. That set out what the issue is on page 76, the role of the NEDs, and your conclusions are expressed in paragraphs 302 to 304 on pages 75 and 80, if we can turn to those, please. 302, just scroll down, thank you. You say:
“Given the amount of external interest in Horizon, its role in prosecution of [subpostmasters] and the fact that Second Sight would be reporting on ‘Alleged problems with the Horizon system’, [you] would that have expected the CEO to keep the NEDs sufficiently apprised at a high summary level, of any emerging issues from the work. The minutes of the Board meeting of 23 January 2013 record the Chair, [rather than] the CEO, giving a brief update on the work being undertaken by Second Sight including ‘to date there was no evidence to suggest fault’. Had the NEDs had a hint of any major issues, they may have been alerted to questions they may wish to raise. However, they received no such information until the Board call on 1 July [was received].”
So are you speaking essentially about priming the NEDs here in the run-up to the delivery of the Second Sight Report?
Dame Sandra: Yeah, yeah. I’m talking about the fact that when you’re a non-executive director, and there is a matter going on for over a year, and the board have specifically asked for some updates, probably after January, that, if there was anything emerging, of course there may not have been anything emerging, but if there was anything emerging we’d expect a brief update so that the NEDs are aware, a hint of any major issues, they’ll be alerted to questions they may wish to raise. If what they’re told – which may have been all there was to tell, I don’t know – if they’re told to date there is no evidence to suggest fault, that is an indication that we can relax, all things going well.
Mr Beer: I think you point to a second aspect in which the NEDs were not properly briefed in paragraph 303. This focuses on the Board call on 1 July 2013.
Dame Sandra: Yes.
Mr Beer: You say, the limited time for the call, the fact that the report wasn’t listed as an agenda item or flagged in advance by email, there was no briefing paper that related to it before the call, created circumstances in which the NEDs could not begin to exercise their role in scrutiny or challenge?
Dame Sandra: Yes.
Mr Beer: Essentially, are you saying here that this was an item that was just dropped in?
Dame Sandra: It was entirely dropped in, the Board call was about strategy, we believe, or we’re led to believe, and it opened with the Chief Executive saying, “We’re expecting the interim report to be published on 8 July”, and that they would get a copy of it then. But they didn’t know this was what was going to be the subject of the call. They got no briefing paper, and so it was in a way the first they’d heard of the publication.
Mr Beer: You say, I think, drawing those threads together in 304, the Non-Executive Directors were, in your view, inadequately briefed. This was exactly the time when they were expected to exert their independence, and that the circumstances prevented them from doing so.
Dame Sandra: Yeah.
Mr Beer: Is that right?
Dame Sandra: I believe that to be the case. And the reason why – you might say “Well, how is it that it would be exactly the time they should exert their independence if they knew nothing of it?” But they knew nothing of it from within the Post Office but they were however aware of the large-scale media influence and the influence and the interest of MPs into the matters that Second Sight were enquiring into.
So one might have thought they’d be alert to say, “Well, let’s try and understand this a bit better”, but they couldn’t do that on the basis of the 1 July call because they didn’t know that they were going to hear about it.
Dame Sandra: Thank you. Turning to sub-issue 6 within this case study, it’s set out there:
“What could the Board have taken from the contents of the … report published on 8 July?”
You set your conclusions out on page 82. On to 83, paragraphs 310 to 312, and you say it, the report, contained much information which should have attracted the attention of the NEDs, warranted serious discussion by the Board because it raised issues about Post Office Investigations and prosecutions policy and practice, the attitudes of the Post Office to subpostmasters, the impact of their contracts and contested evidence about the robustness of Horizon. Much of the information does not feature in the conclusions or in some easily accessible summary form in the Second Sight report.
Are you there pointing out that you have to read the report carefully and slowly in order to extract the important issues that you have there identified?
Dame Sandra: I am. It’s not handed on a plate. It’s hardly handled in any way but, within the report, very important matters are raised.
Mr Beer: Not handed on a plate in terms of a good executive summary.
Dame Sandra: Exactly.
Mr Beer: You say in 311 that it would have been good practice for Post Office to require Second Sight to write such a summary, and for the Post Office to have written their own executive summary for the Board, and that, in the absence of both of those things, it was even more important that the Non-Executives interrogated the report for themselves. You say:
“The messages identified above are evident.”
By that, do you mean obvious when one reads the document?
Dame Sandra: A careful read, particularly against the background that we have described, would have meant that these matters were obvious, in our view.
Mr Beer: Likely to be seen as highly significant by a careful reader, but without executive signpost, they needed to be drawn out from a reading of the report and fully interrogated and that’s what the NEDs should have done?
Dame Sandra: Yeah.
Mr Beer: Can we turn, please, to the Board meeting itself, on 16 July, and this is where you deal with issues 7, 8 and 9. Issue 7, you identify as “What were the contents of the Board paper” – that’s for the purposes of the meeting on 16 July – “prepared, and how was the Board paper received by the Board”?
Dame Sandra: Yes.
Mr Beer: Your conclusions are set out at paragraph 323, which start on page 86. You refer us back to the first time that the Board had seen anything of substance or heard anything of substance was the Board call on 1 July when they were given a brief and partial introduction to the report. When they got the Second Sight Report, it wasn’t accompanied or followed by a note from either Paula Vennells or Susan Crichton, summarising the major issues. The report isn’t identified as a subject for Board discussion on 16 July. Do you mean in the Board papers?
Dame Sandra: I mean, yes, the paper is called “Update”, “Following on”, or I can’t remember the exact words, but it’s an update subsequent to the Second Sight Interim Report. So the Second Sight Interim Report is never as such laid before the Board meeting. It has been made available to the Board on 8 July, when it is published, and then this is an update consequent upon that. In a way, it’s implied, as a presence in the board, but it is not expressly put in the board papers.
Mr Beer: So you’re identifying the absence of a note which says, for example, “Discussion of the contents of the Second Sigh report of 8 July”?
Dame Sandra: Yes, or a summary of the contents.
Mr Beer: You say the update paper covers some but not all of the issues identified in the report but does so in a structure which makes some of them somewhat opaque.
What were you referring to there, if you can recall?
Dame Sandra: What I was referring to was the fact that, as I’ve indicated, the Second Sight Interim Report had lots of bits of information which were highly germane to the issue of POL’s – the Post Office’s prosecutions and investigations, attitudes to subpostmasters, the use of Horizon data in prosecutions, and the robustness of Horizon. They were peppered around, and that, as I’ve said before, wasn’t handed on a plate.
And that, then – the update report, deals with what’s happened after the publication, and that update report addresses a number of matters which are, I hope, in this section, identified, but which – the fact that there wasn’t an executive summary meant that the significance of some of the point had to be extracted by the reader, rather than, again, being given on a plate of an executive summary.
Mr Beer: Again, in your examination of the issues, I don’t think you attribute motive or intention –
Dame Sandra: We do not.
Mr Beer: – to the relevant actors here, ie why this was done.
Dame Sandra: Didn’t hear.
Mr Beer: You don’t attribute motive or intention to the relevant actors –
Dame Sandra: We don’t.
Mr Beer: – ie why this was done in this way.
Dame Sandra: We don’t. We note that that was what happened.
Mr Beer: And that it is a departure from the reasonably expected standards that you set out in Report 1.
Dame Sandra: Also, if we look at paragraph 325, we had a checklist of normal expectations of a board. Now you wouldn’t find this in the code of conduct for – on the code of governance. This is more drawing upon our own experience, and also the experience that you can find in many board evaluation processes, where one of the subjects for discussion is usually about how your board paper is presented; do you have any areas where you think they should be improved; what’s the normal standard you expect?
So this summary is our summary based on our experience on the experience of other experts in board governance, and in thinking about the way in which one can run effective boards.
Mr Beer: In summary, you find that out, of the eight-items on the nominal checklist, four were non-existent, two were partially existent, and two were in existence?
Dame Sandra: Indeed.
Mr Beer: If we go over the page, please, to 327, and 8 you say that Paula Vennells should have ensured a comprehensive summary of the major issues was explicitly and comprehensively drawn to the Board’s attention. However, there was, nonetheless, sufficient information in the report and the Update paper to alert an engaged NED that the Board should fully interrogate the issues and require the CEO urgently to report back on whether there were major risks in the three things you mentioned, and that wasn’t done according to the evidence you have seen.
Dame Sandra: That’s correct.
Mr Beer: Is there anything else you want to speak to or identify in relation to this sub-issue 7?
Dame Sandra: We’re dealing with an expectation that NEDs should be informed of major issues, and we’re dealing with an expectation that the Chief Executive will gather together all the information that she has to been to the attention of the Board. Little bits of that process may not happen, and they may not happen in many boards, but when you have the confluence of those various aspects coming together, particularly given that this is known – we’re now in 2013, this is known to be – to address a number of very serious issues for the Post Office, then we would expect there to have been more attention paid to the areas that we’ve identified.
Mr Beer: Thank you can we turn to issue 8, the quality of the discussion and the quality of the decisions made at the Board meeting on 16 July, issue 8. Now, you’ve set out a series of conclusions here. They begin at page 92. Within this subtheme you identify, if we scroll down to paragraph 346, some subsubthemes or conclusions, and there are six of them. I’m not going to ask you to speak to each of those six points that arise from the discussion at, and the decision making of, the Board on 16 July, but instead turn to your overarching conclusions about them. That’s page 100, paragraph 375 and following.
So in the light of the six subpoints you’ve examined, you say:
“In [your] view, the Board’s receipt and discussion of the Update paper was a missed opportunity for the Board. Notwithstanding their annoyance with the management of the process, the Board knew that [the Post Office’s] present unresolved situation with [subpostmasters] and [its] defence of the Horizon system was consuming large amounts of time and energy in the business and threatening that which the Board held dear, namely the public reputation of the [Post Office]. It knew of the accounts of human hardship and suffering from [subpostmasters] which were current in the press and media and of great concern amongst some MPs.”
So you were saying, notwithstanding the manner in which the issue and the materials were presented to the Board, there was a failure by the Board?
Dame Sandra: To look above their annoyance, to look above the irritations, the lack of immediate evidence, the lack of evidence on a plate: to look above and also then to go into the detail, that is what we would have expected.
Mr Beer: In paragraph 377, you say that:
“The Executive did not help the Board to see the bigger picture, or take a longer time perspective, but the Board could itself still have required more focused coordinated and sustained work which is likely to have revealed the magnitude and interconnectedness of the risks in front of them.”
Then over to 378:
“… if the NEDs had made such challenges … it would not have crossed the line between business and Board, or mean that the NEDs were necessarily not supportive of the Executive. NED challenge to the executive is a fundamental part of their role.”
Can you explain what you meant by that paragraph, please?
Dame Sandra: Yes, well, it’s often said in governance terms that NEDs shouldn’t interfere with the running of the business. It goes back to the earlier point we had this morning about the Board not involving itself in operational matters, which are matters for the Executive to run. However, if the Board believes, and believes there is evidence to suggest that those operations are not proceeding within the reasonable bounds of expected performance, or if they believe there are other questions or matters that they should consider, then they should enquire of the executive, “Well, what really is going on here?” And that doesn’t mean they would be overstepping and interfering, rather it means that they would be exercising their due responsibility in relation to the matters.
Mr Beer: Thank you. Can we turn to the last issue, in this case study, number 9, which is the behaviour by relevant actors, in fact before the Board, ie in a pre-meet, and in the Board itself. Your conclusions start at paragraph 389 on page 103. You’re addressing two things there: the pre-meeting of the NEDs and then the exclusion of Susan Crichton from the Board meeting itself. You say:
“It’s relevant to ask if such a series of events is unusual in the conduct of board affairs.”
How did you answer that question?
Dame Sandra: We answered the question to say non-executive directors getting very exercised and angry about something that is in their board papers is not totally unusual in pre-meets. In pre-meets of non-executive directors, there’s often expressions of unhappiness in relation to certain things that are being done. So, a NED pre-meet, which is exercised by what they see to be failings of the executive, is not totally unusual. I think in both our experiences, we’ve come across them.
And, indeed, it’s often said that one of the reasons for a NED pre-meet is that they can get together and share their experiences without totally voicing them in the board. So annoyed non-executives meeting before a board meeting is not totally unusual.
Excluding people who expected to be at a board meeting is also not totally unusual. I mean, sometimes because of pressure of time, sometimes because at the pre-meet people have decided that the board paper isn’t yet ready to be considered, people may be stood down. Perhaps we’ll go on to the manner of standing down in a minute. So excluding executive members from a board meeting is again, not outside our experience.
The general counsel, one could argue, is in a special case because, as we addressed her responsibilities earlier, she has both responsibilities as an executive director and she has responsibilities as the general counsel. And I have never personally come across, nor have I ever seen it written about, where a general counsel was expected to be before a board and was then subsequently excluded. So the exclusion of executive directors because there’s not time or because their paper isn’t ready, is not that unusual; excluding a general counsel is pretty unusual and I’ve never come across it.
Mr Beer: Can I ask, unusually, Dr Steward, whether you have?
Dr Steward: I have never come across it, no.
Mr Beer: Thank you. What view did you form of the reasons given or what the reactions ought to have been for the reasons given for excluding the General Counsel on this occasion, ie that there were concerns over how she had managed the product?
Dame Sandra: The question to me is?
Mr Beer: Did you form a view as to the reasons given for excluding Susan Crichton from the Board?
Dame Sandra: It appeared to be – and this is our reading of the evidence we’ve seen – it appeared to be that the Non-Executives were so exercised with their irritation with how the Second Sight work and the conclusions in the interim report have been raised, they were so annoyed about that that they were expressing a lot of criticism of the General Counsel. And that appears to have, insofar as she speaks about this, have caused the Chair to think, “Well, the best thing is that we have this discussion in the Board without the presence of the General Counsel”.
We go on to consider other matters, I think, later.
Mr Beer: Page 105, paragraph 396, is that you essentially setting out your proposed solution, if the facts are as described by the Chair –
Dame Sandra: Indeed.
Mr Beer: – ie there were two issues: one said to be about the General Counsel’s performance, in relation to the project –
Dame Sandra: Yes.
Mr Beer: – but, nonetheless, there was a remaining issue as to the substance of the report. The substance needs a discussion, she’s the person who knows most about it?
Dame Sandra: Exactly.
Mr Beer: You draw, I think, a wider conclusion in paragraph 397, that takes us outside the case study.
Dame Sandra: Mm-hm.
Mr Beer: Can you explain that, please?
Dame Sandra: It comes – arises from our analysis of the case study. The Board had no senior lawyer, either as a member of the Board or as a routine attendee. Perhaps I should say, in context, the generally accepted standards – and I should also say that the role of the general counsel in boards has developed over time, and I am mindful of the fact that we’re dealing here with 2013, not with 2024.
Nonetheless, as it happens, I can remember facilitating a discussion of general counsels around this time, about their role in the board, and I can say that in general – and these may be larger businesses rather than smaller businesses – in general, a Board would have had a general counsel who was either – probably not a member of the Board but who was a routine attendee.
But, in this case, they had no one who was a regular attendee, Susan Crichton only came in if she was specifically requiring. That, in our sense – view is er … probably in 2013, most general counsels would have been regularly in attendance, probably, but not all.
But she was the most important senior lawyer in the organisation. There were important legal matters on the agenda, not simply this update but also there was this Significant Litigation Report for noting.
So what was happening, by her not being at that Board, was that Board was denied its own legal specialist, who appeared to be the only person who understood the legal matters raised by claims for wrongful prosecution because, as we’ve seen earlier, the Chief Executive, who ended up presenting this report, herself asserted on many occasions or several occasions that she herself was not a lawyer and did not altogether understand these matters.
Mr Beer: Can we go over the page please to paragraphs 399 and 400. You draw a third point from this episode, and you mention the impersonal, public and, some might say, humiliating treatment of Susan Crichton which implies a disrespect for colleagues and lack of human sympathy.
You say in 400 that this appears to give you strong signals about the culture of the Boardroom. You can be sure that, even as this was happening, rumours, speculation, et cetera, would have been rife within HQ. It suggests a disrespect for colleagues, a Board which doesn’t care about people, a rift between the General Counsel, the Chair and the Board and a silence in the face of consideration for others.
How serious a state of affairs are you describing there?
Dame Sandra: I’m describing there something which both reflects and then becomes instantiated within the culture of the boardroom and has wider ramifications for the culture of the organisation. cultures are made up of stories, of accounts of things that have happened, sometimes they’re mythical, sometimes substantive. And I think this, leaving a General Counsel, a very senior member of the Executive Team, sitting outside a boardroom which she is expecting to go into is a very – a significant matter, and it would have been a subject for great, I imagine, discussion and speculation within the organisation.
I don’t know if you want add to anything to that?
Dr Steward: Only the general point, I think, which is that cultures are exactly that. They morph and they change, cultures are made up of what you see going on around you and what you experience. And if you see going on around you people being excluded from meetings, then the culture becomes one in which it is easier to accept that this is the way we do things around here.
Mr Beer: Thank you. Can we turn to Case Study 3, please. That begins on page 109, and concerns, Case Study 3, the handling of Simon Clarke’s Advice by the Executive in 2013. You set out this case study over a large number of pages, over 30 pages, from page 109 onwards. Again, there’s a crisp summary of the facts from paragraph 412. You say:
“Susan Crichton received legal advice from Cartwright King, Post Office’s prosecuting solicitors, because preliminary conclusions from the Second Sight Report were showing that there were bugs in the system which impacted branches. Mr Clarke realised this finding might call into question the integrity of some prosecutions, and might have resulted in some miscarriages of justice, and volunteered the advice. Ms Crichton understood from Mr Clarke that some sort of review of cases may be needed to establish the size of the problem and to enable some sort of disclosure to defendants, if there was a risk their convictions were unsafe.
“Susan Crichton met Cartwright King and received a summary oral report of what would become known as the Simon Clarke Advice on 3 July.
You say you’ve assumed that the oral summary would have been explicit about the serious problems of Fujitsu’s Gareth Jenkins as a witness, which were at the centre of the Simon Clarke Advice. This was five days before the publication of the interim report on 8 July 2013:
“Although the written advice was received by the Post Office Legal Team on 17 July, it was sufficiently clear from the face-to-face meeting on 3 July that immediate action was needed. A review of cases and requirements for disclosure, which became known as the Sift Review was instituted on Ms Crichton’s instructions to be conducted by Cartwright King.
“When the General Counsel received the written advice on 17 July she shared it with members of the Legal Team (Hugh Flemington and Rodric Williams). She doesn’t remember reading it herself, she says in her witness statement.
“By this time actions on the Sift Review were well under way.”
Then over the page to 4.16:
“The Clarke Advice outlines the duties of an expert witness. It shows how the evidence relied on by the expert witness, Mr Jenkins, was tainted. It concludes that Post Office will need to conduct a disclosure exercise for subpostmasters where convictions have been secured on the basis of Horizon evidence and that those grounds for appeal will be able to go to the Court of Appeal. It says emphatically that the existing witness, Mr Jenkins, cannot be used again.”
You then set out over the following pages, I think six issues, the first of which is who should have received the advice. Your conclusions on that appear between paragraphs 438 and 448 and they start on page 116. You say, if it is found that neither Susan Crichton, from July to November ‘13, nor her successor Chris Aujard, until 2015, informed the Board of the Clarke Advice, specifically that criminal prosecutions may have been undermined by the failure of Gareth Jenkins to disclose evidence of bugs in the system, then this is a failure of governance, in so much as governance is a combination of formal roles, competence, formal and informal relationships. It is not a failure which can be laid simply on those two General Counsel.
The general counsel must be able to speak their mind, represent their professional responsibilities in the sure confidence they will be listened to.
What were you implying there, if anything?
Dame Sandra: One could say simply that the General Counsels did not give explicitly the information contained in the Simon Clarke Advice in all its elements. They did give bits of the evidence, even as early as the Board Update paper, written by Susan Crichton, where she said that the – they had a legal duty to review some prosecutions, which is informed by the Simon Clarke Advice but, even if they didn’t let it all out, as appears to us, then whether or not someone speaks, whether or not someone presents information, is a matter of how they think both it will be received, and what they believe other people to know, and so, in that sense, we would say that it’s not simply on them that they didn’t speak it in total.
They gave out bits of it, and perhaps they – we have no idea, but it’s possible that they just thought they should get on with doing the bits that they could do, namely, in Susan Crichton’s way, she had immediately started the Sift Review, which was a direct response to the Simon Clarke.
Do you want to add?
Dr Steward: Yes, I think there are number of different routes to Board for the Simon Clarke Advice. There was Susan Crichton talking to the Chief Executive, the Chief Executive said she – apparently said she didn’t understand it and didn’t communicate it to the Chair. Susan Crichton could have escalated it to the Chair. There is the opportunity that was missed, if you like, when Susan Crichton was in the Boardroom on 16 June for her to communicate face-to-face the contents of the Simon Clarke Advice.
So this 439, what we’re trying to pull out is that actually the communication of this advice, getting into the Boardroom needed a collective effort, it needed – it’s about the relationships, it’s about the social processes, which mean that the information gets to the place where it needs to be got to.
Dame Sandra: I think there’s also an indication – there’s an email, I think, from Alwen Lyons to Paula Vennells relating the fact that she has spoken to Susan Crichton, shortly after Susan Crichton’s exclusion from the Board in, which Susan Crichton says she would have talked about the criminal cases, had she been in there. Whether or not she would have included specifically the Simon Clarke Advices, we do not know.
Mr Beer: Can we look, please, at paragraphs 447 and 448 on the next page. You refer back to some of the evidence given by Paula Vennells to the effect that this is a legal matter, this is an issue for Legal, implying a failure to integrate legal knowledge into collective executive discussions and decisions and, if it’s the case that legal knowledge is in a black box, which the CEO and others do not need to or cannot understand, you say:
“This implies that Legal is almost semi-detached from the business and Paula Vennells is happy for issues of a legal nature to remain the responsibility wholly of the General Counsel and legal advisers.”
Can you explain, please, how this relates to the distribution of the Clarke Advice?
Dr Steward: The distribution of the Clarke Advice, I think if you have a – what I imagine happening, in those circumstances, would be that a chief executive would say to her general counsel, “We have got the Second Sight Report, we have evidence of bugs and defects in the system, what are we doing to understand the implications of that for us?” And that the general counsel would have legal knowledge, but it wouldn’t just sit with the general counsel; it would sit within the general counsel and the chief executive in communication, because this is a significant risk to the business, and the chief executive has – is ultimately pivotal in terms of taking that risk to the board.
So it’s not something which sits just within a legal silo, and I think that’s what we’re trying to pull out here, is the extent to which it sat within a legal silo, or it was seen as a collective appreciation of the risk to the business.
Mr Beer: Thank you.
Sir, that’s a convenient moment for the afternoon break. Can we break until 3.00, please, before we turn to issue 2.
(2.47 pm)
(A short break)
(3.00 pm)
Mr Beer: Thank you, sir.
Dame Sandra, Dr Steward, we were in the middle of Case Study 3, looking at the ending of issue 1 and moving to issue 2. Can we turn up page 117, please, of the second report. You’re dealing with the question from this paragraph onwards: what should have been done with the Simon Clarke Advice of July 2013?
Can we look at your conclusions on that issue, please, page 128, paragraph 483 at the foot of the page. You say:
“When looking at what should have been done with the Advice, we make the following observations:
“On receipt, the Post Office Executive, led by the General Counsel, needed to take immediate action to review past and present criminal cases and start the disclosure exercise using the process agreed with Post Office’s lawyers, Cartwright King. Susan Crichton recognised that immediate action was needed and acted on the advice of the lawyers so that the Sift Review was under way by the time of 16 July Board meeting.
“It was a broad Executive, not just a legal, responsibility to review the conclusions of the Simon Clarke Advice and make recommendations. Initially, discussed and agreed with the ExCo to the Board all functional heads share responsibility for briefing the CEO and their team colleagues, but the CEO’s role, in focusing the team on the issues for the business, is crucial.
“The prosecution policies would almost certainly have been thought a priority by ExCo had they considered it, it should have been addressed as a matter of great urgency. Any member of ExCo who were Board directors have an ultimate duty to the Board to bring any matters of consequence to the Board.
“The General Counsel should have been in regular contact with the CEO throughout the week before the Board meeting conveying to the CEO the lawyers’ proposals and initial work and they should have been jointly discussing any implications for the business in assessing risk.
“The general counsel generally has a duty to fully inform the Audit and Risk Committee and the Board, in order to protect the business in situations where the CEO may not be doing this.
“The General Counsel has a direct duty to the Board if they felt at any time, when the Board was making important decisions of policy, the Board was being given incomplete or inaccurate information. Whilst obviously in a difficult situation, they must inform the Chair of their concerns and express their opinion at the Audit and Risk Committee, even when it differs with that of the CEO. They should discuss or continue to discuss differences of opinion with the CEO.
“The Post Office was slow to react to breaches in their duties as a prosecutor because the CEO and ExCo collectively did not acknowledge that the Simon Clarke Advice (or the substance of it) revealed a problem with prosecutions, nor did they take them as a coherent picture to the Board. The Board also has a duty to challenge the small issues before they become big ones. The Board knew about the need for disclosures, about the possibility of some miscarriages of justice and about the problems with bugs. These were either explicit or implicit in the content of, and subsequent Board Update on, the report.
“The Board should have had frank discussion with the CEO about what the Board must understand in relation to miscarriages of justice in order to be able to recognise the problem before it got out of hand. Had they done so, management might have shown that they knew much more about the issues associated with disclosures than was revealed.”
That’s quite a list of issues and problems.
Dame Sandra: Mm.
Mr Beer: Can you help us, the series of issues that you list there, in relation to the, essentially, consequence management, as a result of the advice, in the spectrum that I have notionally got in my mind of seriousness, where does this sit?
Dame Sandra: You will know I didn’t have that spectrum in my mind, but I’m happy to respond to your spectrum. But before I do that, I think a very strong element of that conclusion is that elements of the Advice were known. All the Advice was known to the General Counsel. Elements of it were known to the Board, who knew that they had to review all criminal cases. Elements of it were known by the CEO, who knew that they had to review all criminal cases, and also, who quite quickly knew there was a problem with the witness, but as she says, she didn’t fully understand what that problem was.
So it’s not a question that this is the Simon Clarke Advice, coherently bound up, and it was kept from people. Bits of it had come off and were held by various people. And the first point, I think, of our conclusions, taking them, as you’re wanting us to do, as a sum, is that there was no – nobody apparently thought to draw all those together. All the players had bits, and they were bits which were related to the – to Post Office’s prosecutions of subpostmasters, which was a major issue for MPs, the media, and so on.
And as such, you would have expected – we would have expected, that they would have been pooled together, and that one would have taken this coherently. So what should have been done with the Simon Clarke Advice, in – it would have been wonderful, had it been bundled up and immediately distributed. It wasn’t done that. Nonetheless, elements were known and those elements should have been brought together by the various people and interrogated. That is what I think we are concluding.
I’m going to find out from Dr Steward if she wants to add any more.
Dr Steward: I think there is a serious, if you like, dropping of the ball or slipping between the cracks here as well, that this was an opportunity to review Post Office’s policy on prosecutions, and the seriousness of not having that conversation, either at the Audit and Risk Committee, until later on, and even then, with information that was not unambiguously clear, meant that there was a material decision, if you like, which was delayed as a result of the handling of this case.
Mr Beer: So, if I’ve understood both of you correctly, you’re saying, although the Advice or the substance of the Advice should unequivocally have been passing to the Board, there were nonetheless fragments of it that both the CEO and the Board knew about, which was sufficient basis for each of them to have taken the further action that you recommend?
Dame Sandra: That is exactly of the case and we do see some parallels between that and the previous case that we have looked at, where similarly important fragments were known.
Mr Beer: Can we turn to issue 3, please, which is in fact identified on the screen here: internal and external conflicts of interest.
You set out your conclusions here on page 131, which is just over the page, at the foot of the page at 490, in this paragraph and 491. Can you summarise for us, at 490 and 491, this issue that you’re addressing here, internal and external conflicts of interest?
Dame Sandra: You would like us to summarise?
Mr Beer: Yes.
Dame Sandra: Right back in the Companies Act and in – throughout the Codes of Corporate Governance for the UK, the identification of conflicts of there are always present. It’s understood that in governance and in management, conflicts/divergent interests can inevitably emerge. Their existence isn’t the problem; the problem is how you address them.
And what we identified here is that – well, and I should say that if the conflicts exist within the Executive, then it’s the chief executive’s ultimate responsible to identify them and to handle them, although one would expect members of her organisation to represent them to her, but she is ultimately responsible for the structures over any conflicts that occur there.
In the Board, if the conflicts exist, it’s the Chair’s responsibility to call them out and to say, “Well, how are we handling these?” So if someone has a conflict of interest, they should have been discussed.
It seemed to us that the General Counsel, as we’ve said, had multiple hats, she had the hat of being the General Counsel, with her independent advice, she had the hat of being Head of Legal, which embraced and included the conduct of prosecutions, and she was a member of the Executive Team.
Elements to do with prosecutions which required enquiry meant that, in a way, she was enquiring into aspects for which she was responsible and one would normally expect that at least to be acknowledged and consider how that should be handled. With regard to the previous case study that we’ve looked at, she was also asked to enquire into what had gone wrong with the management for which she had been responsible.
So our conclusion is that there were conflicts there. They may not have had any impact. We’re not saying they had an #impact, but we’re saying they existed. They should have been addressed and they should have been discussed on how they would be – how they would be handled.
Mr Beer: So to summarise on internal conflicts, you’re saying that the Second Sight Report, the Clarke Advice and the work thereafter, highlighted or potentially highlighted the existence of failings on the part of the prosecution function, or risked the revelation of such problems, and that it might be in the interests of the general counsel that the full extent of such failings did not come to light or minimised –
Dame Sandra: That can be argued. We’re not making conclusions on that whatsoever but the very fact that these structures were such as you’ve described and I described, means that the conflict was potentially there and should have been addressed.
Mr Beer: Can we go over the page to 491, please. Here you’re dealing with external conflicts. Is the summary of it this: that, in respect of Cartwright King, the potential conflict was stark. They were reviewing cases that they had previously had conduct of?
Dame Sandra: Indeed.
Mr Beer: Is that the long and short of it?
Dame Sandra: That is the long and the short of it.
Mr Beer: You pose some questions: what was put in place to ensure that the firm were not overly concerned to make sure their own part in the prosecutions historically was protected? Did the Board and the CEO ask these questions about whether Cartwright King could ever be truly independent?
You say it was a question the Board should have addressed with the CEO. Did you see any evidence that those questions were addressed with the CEO?
Dr Steward: I think I’m right in saying that Brian Altman did review or was asked to review, in one of his advices, the independence of Cartwright King.
Mr Beer: That’s right.
Dr Steward: It is – to be absolutely frank, I think that was legally privileged information, so it’s quite difficult to tell where that went to and who saw that. So we – that’s the …
Dame Sandra: But there was reference to the fact that they – it was understood. I think it was, indeed, the General Counsel who felt that it would be appropriate, and probably others as well, that they should be somehow assured that this conflict did not, in any way, influence what they were doing, and the advice was that the sift was very well conducted.
Mr Beer: You’re essentially saying that the Board ought to have become involved in probing that?
Dame Sandra: I believe that would have been appropriate, given the conflicts that we have described, and, given the spotlight which should have been upon the way in which the Post Office was conducting its prosecutions, it would have been appropriate for the Board to assure itself that that – those conflicts were not in evidence.
Mr Beer: You turn underneath these paragraphs to issue 4, in Case Study 3, communicating risk, and set out your conclusions on page 134 in paragraphs 500 to 503.
Is there anything you wish to add to those paragraphs about communication in this episode?
Dr Steward: I mean, the only thing I would add, to sort of sum all this together, is that, across number of these case studies, there seems to be a common theme of the communication being – of shying away from confronting where there has been wrongdoing or fault. So the partial telling of the stories, the leaving of half the story, but not the full story.
Dame Sandra: I think if you look earlier on, before the conclusions, you’ll see a number of examples of that.
This, again, as it says in 502, or as we say in 502, there was opportunities, perhaps, for the Non-Executives in our words, leaning in, being curious, challenging the case for future prosecutions, and what should be done about past prosecutions within a more holistic risk framework, in which we took account of the risks which were not to crystallise until several years later about the way in which POL was conducting its prosecutions, the way it which it had conducted its prosecutions, and its reliance upon Horizon data.
Mr Beer: Thank you. Can we turn to the executive understanding of risk, page 135, and then your conclusion, please, on page 137. You say that:
“The role of the CEO is critical in creating an executive and management focus on risk discussions. The CEO was not able to bring prosecutions risk to the attention of [the Post Office Executive] because, at a minimum, she did not understand it.
“Without the risks relating to the Simon Clarke Advice being clearly framed in the Executive, it was impossible for managers to go back to their functions and start building governance around risks. Good governance of risks requires the risk to be fully shared and agreed in ExCo, cascaded into the teams where it is discussed and plans and mitigations formulated for consideration within the risk framework.”
So here you’re essentially looking down rather than up; is that right?
Dame Sandra: Exactly, and we’re saying, at this sort of pivotal point of the executive, if you don’t have a coherent understanding of what the risks are, how they are posed for the organisation, then it’s extremely difficult for those lower down in the organisation to see what that bigger picture is and then begin to contribute in their information which will be held lower down in the organisation towards constructing a richer framework.
Mr Beer: You turn to issue 6, immediately underneath these paragraphs, which is Post Office culture, and give us your conclusions on page 141 at the bottom, in paragraph 535, and you tell us that it seems to you that:
“… Post Office culture, with its underlying taken for granted assumptions, was so strong that the CEO and ExCo did not see any link between persistent underlying flaws in the prosecutorial process and the evidence that [the Post Office] had not taken the concerns of [subpostmasters] seriously. They lived, without question, within their accepted beliefs. It was as if miscarriages of justice were a mirage, not quite real and the Sift Review was required because of the disclosure about bugs, not an unsafe witness.”
Is there anything you wish to add to that?
Dame Sandra: No, I believe we have laid out earlier on the prevailing views about the robustness of Horizon, the public duty to prosecute to protect public money, the approach to subpostmasters, and that these gave a set of taken for granted assumptions, which meant that information which was readily available and indeed, in the case of the Simon Clarke Advice, explicit in a piece of advice, was not taken into as we’ve said, a holistic view of what was going on in the business.
Do you want add to anything?
Dr Steward: No.
Mr Beer: Over the page to 537. You say that:
“It seems odd to [you] that the Chief Executive and her ExCo did not seriously challenge the assumption that Post Office had historically been right to pursue prosecutions on the basis of Horizon evidence, even though both General Counsels in the period 2013-14 held personal views that Post Office should not be conducting private prosecutions and at least some members of the team were aware that Post Office had breached its duties from the Simon Clarke Advice.”
Can you explain or expand upon the oddity which you discovered or the oddity about which you speak?
Dame Sandra: Trying to put ourselves into the position, we find it very, very difficult to understand that with all these pieces of information, it didn’t lead someone to say “Should we immediately agree to stop private prosecutions”, even though, as we’ve said, both General Counsels have said that, in their view, they don’t feel that this is something that should continue. The fact that they didn’t continue because they were looking for another witness, the fact that they were ceased or paused is neither here nor there with regard to should we be doing this in this manner, and we find it odd that that assumption wasn’t challenged.
Do you want to add?
Dr Steward: No, thank you.
Mr Beer: Thank you. Can we turn to your overall conclusions on Case Study 3. They’re at the foot of page 143. You tell us that:
“[Case Study 3] provides [your] description, analysis and conclusions on six issues which are important in evaluating the way in which the Post Office Executive handled the Clarke Advice. It should have been escalated to the Board. However, if it is found that there was a failure to do so, in our view it’s not a failure that can simply be laid on the General Counsel.
“It was a responsibility of the CEO and the Executive, not just the General Counsel, to have reviewed the conclusions of the Clarke Advice and made recommendations to the Board and, ultimately, a responsible of the Chief Executive to ensure there’s a focus on all top level risks in the business, so that all members of the Executive Team feel part of a shared endeavour, in which they will identify, communicate and mitigate risks in their areas and escalate them with urgency when needed.”
Is there anything you wish to add to that overall conclusion on Case Study 3?
Dame Sandra: No, thank you.
Dr Steward: No.
Mr Beer: Thank you, that’s the end of the case studies. Can we go back briefly, then, to look at the nine themes that you identified, in the light of them, at page 13 of the report – I should have started at page 11, actually.
I’m not going to adduce each of these in evidence in the same way, the report speaks for itself and others can ask you questions if necessary about them, but just work out what’s going on in the report, so we can all understand it. This is the first of the nine themes, “Board Level Governance”.
If we go on that page, you identify what the issue is or what the importance of the issue is. Here, it’s about strategy and risk. Then over the page, in paragraph 23, and right through to 30, you identify evidence relevant to that issue. Then at the foot of page 13, you set out your conclusions.
Essentially, is what you’re doing from paragraph 31 onwards, identify material from each of the three case studies that’s relevant to the theme that you have identified?
Dr Steward: Indeed, that’s the case.
Mr Beer: To take this as an example, you say in 31, the Second Sight case, that’s our second case study, illustrates the Board did not see the major problems in prosecutions, investigations and culture that had been included in the report.
“All three cases, (Second Sight, Simon Clarke and Wolstenholme) illustrate that the Executive did not systematically identify the key risks in prosecutions or in their approach to [subpostmasters] or propose how they should be mitigated. They didn’t challenge the executive approach, even though they had information before them that suggested serious risks. In 2013, the Board did not take the opportunity to open a window to see the bigger picture …
“In our view, events and discussions during July 2013 reinforced, rather than challenged, the prevailing view of the nature of the problems. The approach that all things to do with Horizon were operational, and therefore an Executive responsibility, regardless of indications of serious risk, particularly in prosecution policies and practices, was a governance failure.”
You do that in relation to each of the nine themes; is that right?
Dame Sandra: That’s correct.
Mr Beer: Essentially, the structure that I’ve outlined?
Dame Sandra: Yes.
Mr Beer: So in relation to this one, for example, and perhaps building on what you say, would you agree that the way in which the Post Office exercised its powers of private prosecution as a routine part of the business, for example the creation of an investigations department, a prosecutorial department, was a significant risk across the period that you’ve examined?
Dame Sandra: When you say the creation, that of course goes back hundreds of years or decades.
Mr Beer: Yes, maintenance of.
Dame Sandra: Thank you, so the maintenance, the continuation of that.
Mr Beer: Yes.
Dame Sandra: The question is: do we see that as a serious risk?
Mr Beer: Yes.
Dame Sandra: Yes.
Dr Steward: Yes, if – unless there is very, very good governance in place, for prosecutions.
Dame Sandra: Ah, sorry, that’s certainly the case.
Dr Steward: It is a serious risk and there needs to be proportionate levels of governance in order to ensure that the risk of prosecutions is –
Mr Beer: Let’s look at it another way round, rather than through the prism of whether there was a risk or not. Would you have expected the Executive Team and the Post Office Board to have had a clear understanding that the Post Office routinely conducted its own prosecutions of subpostmasters on a very significant scale?
Dame Sandra: We would have had that expectation that they would have understood that.
Mr Beer: That they were engaged in that activity?
Dame Sandra: Yes, that they – that they understood that the Post Office was engaged in that activity.
Mr Beer: Is that because the exercise of a private prosecution function is an exceptional activity on the part of a company?
Dame Sandra: Well, first of all, it’s because all business, which is undertaken in the name of the company, the executive, who is running the company, has a responsibility to understand what they’re doing, and the board has a responsibility to have oversight of what the executive is doing in running the business. So it’s an element of the business it should be duly understood and managed by the executive.
In this particular case, there was a lot of external evidence that there were problems in this area, and so we would be expecting them to be particularly focused upon it.
Mr Beer: I’m focusing on the area in between those two things, a Board should be aware of all of the activities that the company undertakes, I think it was the first part of your answer, and then the last part of the answer was: but here, there was evidence of problems with discharge of this function.
Dame Sandra: Yes.
Mr Beer: I’m asking about the part in the middle, perhaps: was the nature of the activity being undertaken one which you would reasonably expect a Board to have paid particular attention to, irrespective of whether it was problematic, in fact, ie bringing employees or quasi-employees before the criminal courts?
Dame Sandra: I’m going to slightly step back and say – still addressing the first point, which you say is between the first and the third point, as a board member, when you join the board of an organisation, it is important that you understand what that organisation does, what its purpose is and what its various activities are and how those activities are organised. So I would expect a board member to have that general understanding.
If I then was in this Board and I understood that part of those activities were to bring exceptionally and perhaps anachronistically, as I believe Brian Altman says, prosecutions under the private route, I would have expected them to be particularly interested in that, had they known it, yes.
Is that –
Dr Steward: Yes.
Mr Beer: What about if we add this into the equation: that the Post Office was in perhaps an unusual position because it was the alleged victim of any crime, it was the investigator of an alleged crime, it was the decision maker as to whether or not to bring proceedings or not about the alleged crime, it was the generator of the evidence about the alleged crime, it was the prosecutor for the alleged crime, and it was the potential beneficiary of a Proceeds of Crime order for the payment of money back to the Post Office. Would that series of roles have added to the risk register?
Dame Sandra: I think it would have both added to the risk register for exactly the reasons that you’re alluding to, and it would also have – because of that, it would have had a special interest, if I’d been on the Board and understood that, it would have had a special interest to me to understand what governance and safeguards were being employed in that aspect of the business.
Mr Beer: Would you have wanted to know, for example, the extent to which there was any external oversight of those functions by, for example, a regulator?
Dame Sandra: I imagine that that would be a question that I would have wished to ask.
Mr Beer: Thank you. Can we go back to your themes. If we can turn to the second theme, please, which begins on page 14. Halfway down, we’ve got it at the top there “Accountability and Clarity in Board Roles, with special reference to the identification and escalation of serious problems”.
I think you set your conclusions out about this at the foot of page 17 and, in fact, it’s just a heading on page 17. The substance begins on page 18. From paragraph 49, right through to 56, you address the issue of accountability and clarity in board roles with special reference to the identification and escalation of serious problems.
Without going through the each of those eight or nine paragraphs, can you help us overall with what you found, what your conclusions were?
Dame Sandra: Yes. I think at the beginning of this report we talk about the fact that board governance and executive management are separate, and yet entirely interdependent activities to ensure appropriate governance of an organisation. The executive have a responsibility to bring information to the board; the board have a responsibility to look into the organisation and see what they think they should know in addition to that which the executive is bringing.
And accepting that the executive does the operational running of the business, the board does the oversight and the determination of strategy and the other things that we’ve managed. So accepting that there are differences, nonetheless, the two elements need to work together. And we have found, I believe, that these two elements didn’t work effectively together in order to bring relevant information into the Board, and it’s the responsibility of both of those sides. That’s the first thing.
The second thing concerns the separation between operational, which is the executive’s role, and oversight, which is the board role. And we’ve – I believe – is it here that we say that that distinction is good, and it prevents the Board overly interfering with what’s going on in the business, because that’s the Executive job, but it does depend upon the Board believing that performance is within accepted bounds of acceptable, and that they’ve got a good and strong Executive Team.
If they’ve got doubts about either of those matters, then they need to enquire further and deeper into what’s going on. And we don’t feel that, as is often – as is asserted in the evidence where people have said, “Well, it was an operational matter so we weren’t concerned with that from the Board”. We don’t think that’s a robust enough defence for what happens because it was an operational matter in which there were clearly problems.
In prosecutions there were problems as was being evidenced by – as we said, all the external evidence and, with regard to Horizon, there was also evidence that there were indeed bugs, defects and anomalies which could call into question the robustness of the system.
Do you want add?
Dr Steward: (The witness shook her head)
Mr Beer: Can we turn to the third theme please, page 20, the heading above paragraph 57, “Effective communications in and around the Board”.
You set out your conclusions on page 22 at paragraph 66. You say:
“The identification of, or change in, a major risk should quickly lead to a communication to the Board about the risk, ideally accompanied by proposals for Board discussion and decision about how it will be tackled, including an outline programme of work which would enable ongoing Board oversight. We have seen no evidence that this was done in any of the three cases, as information was surfacing about major risks arising from [Post Office] past and current investigations and prosecutions.
“The Execs did not do this either before or at the board meeting of 16 July, on receipt of the Clarke Advice in 2013 or in 2004 when Mrs Wolstenholme’s brought a counterclaim against the Post Office for £180,000 …”
Then 68:
“Relevant information in each of our three cases was neither offered nor elicited in ways which in our view would have represented effective communication between the Executives and the Board …”
Dame Sandra: This goes back to the point I made earlier, which is about the requirement to offer and the requirement to elicit, and we find no evidence of that being thoroughly and effectively done with regard to the matters before the Inquiry.
Mr Beer: Can we turn, please, to theme 4. The heading is set out there above paragraph 69, “Expected experience, development and competence of the Board and its members”. You set out your conclusions on page 26. A series of conclusions right up until paragraph 90 on page 27.
You address a range of things: experience of individual Board members; composition of the Board; role that the NEDs played; the NEDs’ understanding of what their role was.
You say in paragraph 90, on page 27, that you haven’t seen evidence that sufficient thought was given to the development and operation of a unitary Board in circumstances in which Post Office ownership changed several times and problems with Horizon, prosecutions and culture were surfacing in many places, but not in the Board.
Can you expand upon or explain your conclusions here, please?
Dame Sandra: In the transcripts and witness statements that we have reviewed, Non-Executives joining the Board, more or less to a man and woman, I think, said that they were not given explicit induction into the Post Office’s approach to prosecutions or to any problems in relation to Horizon. That’s the first point.
The second point is that, given the changes in ownership over this period, the issue of accountability on who had the locus for doing what needed to be very clearly explained, going back to very much where we began this morning in understanding who was accountable to whom for what in those different structures. And it’s not clear to us that that was really thought through.
The third element is that the appointment of non-executives was mainly, it seems to us, driven by the need, as was seen at the time, to introduce people with commercial experience of how to run a successful commercial business, which would be mindful of cutting costs, of making profit, of running it in a way in which people understood private companies run.
The very fact that it was a commercial enterprise, and yet with a very strong public service requirement, indeed in the entrustment, how that was to be played out within the Board and where the attention of the Non-Executives was to go in relation to all those aspects doesn’t seem to have been confronted in induction or, indeed, in the way in which particularly the Non-Executives saw their role, which they saw as mainly offering commercial expertise and advice and, indeed, their backgrounds were very much from that – from that background.
(To Dr Steward) Do you want to add?
Dr Steward: No.
Mr Beer: Can I ask you about the role of the company secretary in this regard. Can we just go back to your first report, please, and page 29. It’ll come up.
At the foot of the page, paragraph 2.2.33, you tell us that:
“[The] company secretary is an officer who is appointed by the directors to advise the board on all governance matters and codes. They will normally seek to ensure compliance with company’s legal obligations. Accountability is to the Board and to the Chair to ensure that all appropriate governance measures are brought to the board’s attention. As regards functioning of the Board, they are technically independent of the CEO and accountable to the Chair. As an executive colleague (and in a sense subordinate to the CEO) they need a very good working relationship with the CEO, who is likely to be very influential in their relationship.”
Then you set out a company secretary’s accountabilities over the remaining five paragraphs.
Dame Sandra: Mm.
Mr Beer: Is the overall responsibility for the handling of a company’s legal obligations and regulatory compliance normally dealt with by the company secretary?
Dame Sandra: At an administrative level, that is certainly the case. That is keeping all the records, maintaining, as is said there.
You’ll note that it says “working with the chair to ensure that all board members are aware of their duties and powers”, and working with the chair on the board agendas. So the relationship – the company secretary cannot be said to be solely and singly responsible for all that compliance, that is ensuring the compliance, but if he or she were to notice that the board was non-compliant, then she would have a duty to identify that.
Mr Beer: Where, as between a company secretary and, if the company has one, a general counsel, does overall responsible for regulatory compliance sit?
Dame Sandra: Well, the general counsel, as I think I said this morning, is not formally identified in the Codes of Governance, as we’ve identified here.
Mr Beer: Just stopping you there. It’s right, is it, that there is not any legal requirement for a company such as the Post Office, whether under the Companies Act or the Code, to have a general counsel?
Dame Sandra: There is no requirement.
Mr Beer: Sorry, I interrupted you. I probably interrupted your chain of thought.
Dame Sandra: So as there isn’t that requirement, you can’t say, well, what is that split between the company secretary and the general counsel?
Mr Beer: If the company does have one, as this one did, where does responsibility for regulatory compliance reside as between those individuals.
Dame Sandra: I think that the role of the company secretary can be kept separately from the role of the General Counsel. I think the fact that you may have a general counsel does not alter the requirements of the Company Secretary, unless there was some specific agreement about the way in which these relationships and duties were to be performed, which would be very formally laid down and may therefore lead to some change. But I don’t think that an occasional “Do we have a general counsel or not” can impact on the duties of the company secretary. That’s my view, although – yes, that’s my view.
Mr Beer: In terms of the role of the general counsel, is the general counsel normally accountable to the board or to the CEO?
Dame Sandra: I think, again, you might find particular arrangements. It’s normally the case that the general counsel for what one might say, sort of, pay and rations administratively is going to work to the chief executive, especially if the general counsel also has other responsibilities, which are to do with their functional responsibilities for – in the case of the Post Office, for the legal teams, and for other elements.
Indeed, as you will be aware, the General Counsel, until the day after the Board meeting of 16 July, also had responsibility for HR, which would mean that she was definitely working to the Chief Executive.
Having said all that, the normal expectation is that the general counsel would have at least an informal dotted line to the chair and to the board, so that if he or she felt that they had a matter which was germane to their legal position, which the chief executive either didn’t understand or wasn’t interested in, that they would be able to take that indeed to the board and to the chair.
So how these relationships actually work out is going to depend upon the way in which the organisation works. What one can’t do, and although I’m not an expert on it, one can’t take away from the general counsel’s requirements as a qualified lawyer to meet certain professional obligations.
Mr Beer: Do you know, in fact, whether there is a requirement for general counsel to hold a practising certificate or even for a general counsel to be a qualified lawyer?
Dame Sandra: I personally do not. I’m not aware of that. It’s not an area of my expertise.
Mr Beer: Thank you. I won’t ask you the questions that follow from that.
Can we go back to theme 5, please, in Report 2, which is page 29 in Report 2.
Your conclusions here are addressing theme 5, which is whether there was a Board culture supportive of effective discussion and decision making.
You say that you have seen how Post Office’s governance structures were still developing in 2013. The Executives were inexperienced in working with NEDs and running an independent company.
Earlier in 2004, the Post Office was still a subsidiary of Royal Mail Group and had only one-year experience of working with a Non-Executive Chair. The first NED to join the Chair was only appointed in that year.
The NEDs appointed at different times were consistent in their views. Their main rule was to instil commercial disciplines to improve performance.
Your analysis of those two cases in 2013 illustrates situations where the culture and conduct of the Board did not encourage the Board in effective prioritisation, discussion and decision making about what Post Office should do with regard to past prosecutions and with future prosecutions, policy and practice.
This is under the heading of I think “Culture”. Why is this relating to culture or board culture?
Dame Sandra: I think it goes back to the earlier questions of what were the – culturally, what were the things that were pre-occupying the Board and how did the Board also behave? So, culturally, we have seen these dominance ideas of Horizon’s robust; prosecutions are in the public interest; subpostmasters occasionally are subject – are guilty of wrongdoing; and we must defend our public position.
And that prior – that set a context in which one approached or they approached past prosecutions and future prosecutions policy and practice. And even though there were indications that this was an area which needed their strong attention, they didn’t focus upon it.
We’ve also seen how, in the particular Board meeting of 16 July, issues that were available to the Board were clouded over by the Non-Executive irritation with the way in which the Second Sight work had been handled, and they were not then brought into a focused discussion by the Chair. That’s why we have identified that in terms of conduct and culture.
Mr Beer: Thank you. You address theme 6, “Policy and practice for handling conflicts of interest”, from paragraph 98 onwards, and set out your conclusions at paragraph 108, at the foot of page 31.
I think there is nothing additional in that paragraph beyond which you leave mentioned already; is that right?
Dame Sandra: Yes.
Mr Beer: Thank you. Theme 7 starts over the page, and this is moving from Board to Executive; is that right?
Dame Sandra: Yes.
Mr Beer: The last three themes, 7, 8 and 9, are all to do with the Executive, the first of which is “Structures and relationships”, and you set out your conclusions on this issue at paragraph 116 at the foot of page 33. You say:
“The case studies featured in the report suggest a number of obstacles to effective Executive teamworking and collective accountability.”
Over the page, thank you:
“It is the CEO’s responsibility to make appointments to senior exec positions of individuals who have the experience and skills to enable the CEO to delegate responsibility … the CEO cannot absolve themselves from responsibility on the basis they have delegated or they are not an expert in any field. They have a responsibility to create relationships with their executive colleagues so that, whilst not an expert in every field, they can rely on and invite their colleagues to keep them informed of major matters. This is especially important if the colleague is not a Board member nor is regularly in attendance at the Board.”
Are you referring there to the General Counsel?
Dame Sandra: I am.
Mr Beer: You say, if we scroll down, please, at 120, that you found very little evidence that the group of Senior Executives in Post Office felt they were working as a team in any of the three cases featured in the report.
So that’s across the three case studies; is that right?
Dame Sandra: Yes.
Mr Beer: Then over the page, please, at 123, you say:
“The Second Sight and Simon Clarke cases suggest a strained relationship between the CEO and the General Counsel, as well as between the Chair and the General Counsel.
“… problems and dysfunctions in the way the CEO operated with some of their Senior Executive colleagues, and the apparent lack of an effective Executive Team taking collective responsibility, which were revealed in [those two cases] are a reflection of the compound impact of strained relationships, structural silos, a CEO who did not see her role as needing to be closely in touch with the all areas of the business and the fact that the GC was not a member of the Board.”
Again, that’s quite the list.
Dame Sandra: Mm-hm.
Mr Beer: On my imaginary spectrum – and you and perhaps even me don’t know the beginning and the end of it – where does the list of issues that you have identified there sit in the spectrum of seriousness? If you’re more content to simply say this was or was not a failure in governance, then please do say so.
Dame Sandra: As we’ve explained, governance isn’t a cup of water which is either fallen – either broken or not. I mean, it is a cup of water, which may be beautifully overfilling with beautiful water or it may lose bits along the way. And what we’ve identified there is the problems that can arise within an Executive Team, which we think we have illustrated in relation to the case studies – and of course the case studies are only illustrations, and as we’ve said, we’ve selected them but there may be other evidence of which we’re not – which we did not review – but it seems to us that that compound effect – there were strained relationships, there were structural silos asserted. There was a CEO who said sometimes that she was not an expert in that, or that she was not aware of certain matters, and yet she could have been, had she asked the Executives responsible for them, to contribute in a stronger way to a collective Executive understanding.
That’s especially difficult if any member is not a member of the Board, then it’s the CEO’s special responsibility to be able to understand sufficient about that area to be able to represent it to the Board.
So a combination of these effects meant that the effective role of Executive management and organisation, that one part of the governance which interrelates with the Board, worked suboptimally.
Mr Beer: Thank you. Can we turn to theme 8, which is identified in the heading that’s on the page there “Performance and capability”, and turn to your conclusions on page 36 at paragraphs 128 and 129. You say:
“… it is the role of the board to challenge and support the executive unless there is consensus amongst the NEDs that there are sufficient concerns about executive performance to conclude there should be a change at the top.
“Boards and shareholders can find themselves at a pivot point between continued support and time to plan for executive exit. One cannot, in our view, sustain a long period of ‘half support’ or ‘half exit’. Having got to such a point it would be usual to follow through on the expressed concerns with a view to clearly demonstrated improvement, or to put in place succession plans about an exit.”
What are you referring to, or to whom are you referring here?
Dame Sandra: I don’t know if it is in this evidence, I’m afraid I can’t recall where we talk about it. UKGI had identified that there were concerns, both by the Board and by UKGI, about the performance of the Chief Executive. They were raised at a committee in UKGI, they went for review. The review concluded that there were problems, both with regard to the fulfilment of the strategy and with regard to the capacity to form effective relationships within the Executive Team, especially if they were with people whom the Chief Executive found to be challenging. I think I’ve got that right.
And we also heard in testimony, in oral evidence, from the Non-Executive Directors that there’d been some concerns about – there were certainly concerns about the General Counsel but there were also concerns about the Chief Executive. And so concerns raised, they took them to a particular point. In fact, UKGI undertook an exercise with an external headhunter to see what would be in scope for – if the Chief Executive were to be replaced.
In fact, it was decided that she shouldn’t be replaced – it seems to us largely on the basis of the fact that she wasn’t doing that badly and, also, that it was difficult to find a replacement for the given salaries.
To us, that – how you leave that, and we – perhaps we haven’t seen all the evidence, but how you leave that is unsatisfactory from a board perspective because you’re neither concluding that everything is fine, nor are you concluding that everything is awful. And that creates tensions, which we haven’t looked at because this is post-2013, but it creates an unsteadiness in the board.
Do you want add anything?
Mr Beer: So if we just scroll up to paragraph 127, you were rightly remembering the evidence of January 2014, where UKGI or ShEx was considering the suitability of Paula Vennells to remain as CEO. And I think you’ve had drawn to your attention some other material that exists –
Dame Sandra: Yes.
Mr Beer: – showing continued consideration of that issue well into 2014, including discussions with the Minister’s office, Jo Swinson’s private office, including a speaking note about what might be said to the Minister about Paula Vennells –
Dame Sandra: Mm-hm.
Mr Beer: – including email exchanges about what the minister might be told about ShEx’s view of Paula Vennells, and the tender document that you’ve just mentioned –
Dame Sandra: Mm.
Mr Beer: – for essentially recruitment consultants to go out and recruit a new CEO.
Does any of that alter the substance of what you say in paragraphs 128 and 129?
Dame Sandra: We were left with the view, even having reviewed that, that it still seemed to be half support. Perhaps it wasn’t half exit because the half exit had not – proved not to be a viable avenue in their view. But it wasn’t a wholesome and wholehearted endorsement.
Mr Beer: Can we turn to theme 9, please. It’s identified in the heading there, “Organisational culture”, and you set out your conclusions on page 39 in relation to this, through to page 41.
At 138, you say that:
“Horizon represented a huge investment and change in operations. By its scale and nature, it inevitably posed risks … if only from popular public discourse about other large-scale system changes in public services, people involved in the commissioning and rollout of Horizon, its various guises, would have been likely to countenance that serious problems may arise during its commissioning and operation …
“By any normal analysis of major system change, subpostmasters were very important end users. They were in the frontline of customer public service … it would have been normal … to listen, learn from and follow up on subpostmasters’ views and experiences …”
In paragraph 140, you say it seems to you that the culture of Post Office did not encourage listening or learning from subpostmasters. The nature of their contract with the Post Office and their experience of Post Office investigation and audit teams seems to be part of the company ethos in which subpostmasters were taken for granted and seen as insignificant. Then paragraph 141:
“The report was an opportunity for the Board to see that it was important to hear and listen to subpostmaster experiences of working both with Post Office and with Horizon and their voices remain unheard.”
Then if we go on to paragraph 144, just at the foot of the previous page:
“The Board’s handling of the report, it is striking that no member of the Executive of the Board asked out loud what is the right thing to do about the subpostmasters who were suffering so much and are protesting their innocence?
“So deep were the assumptions embedded in the culture of the organisation, so corrosive was the company ethos, that the Board did not call the Executive to account to face up to the Post Office’s role in perpetuating miscarriages of justice, which were increasingly evident to others. Failure to uncover and correct the dark spots in the culture is a failure of management and governance.”
I think they’re probably the strongest words that you use in the course of this report; would I be right?
Dame Sandra: Mm, yes. Would you like me to expand?
Mr Beer: Well, if you can explain, yes.
Dame Sandra: Yes. And they’re strong because the issue of the culture of the Post Office, with its perceptions, as we’ve said several times, about what Horizon was, what subpostmasters’ role and approach was, and what the public duty of the Post Office was, created such a strong sense of what was right in the organisation that they found it impossible, apparently, to really hear, in 2013, that people were talking about, and had bits of evidence about, miscarriages of justice, wrongful prosecutions, and an arrogant and defensive approach. It was as if they somehow couldn’t be heard.
And so we conclude on that note because we do think that it actually underlies a lot of the matters that we’ve been discussing today.
Perhaps before I ask Dr Steward to also comment, I say that at the beginning of these conclusions, we say even if you don’t take account of these moral cultural points that we’re making, actually, having a major systems development, putting in new systems, one of the basic points that we understand is that you find out from the end users what’s actually happening, because in these complex systems, the end user, the facing to the public, is the place where the system is experienced absolutely at the frontline.
So even if you didn’t take the moral and ethical matters that we’re addressing at the end, you would say, from an instrumental management effectiveness approach, you’d want to listen and learn from what was going on at the frontline. And in 2013, and indeed in 2004, I think that should have been understood. So there was an instrumental reason, as well as our conclusion on the moral reason.
But on the cultural matter –
Dr Steward: Well, just that sort of topping and tailing that is that the Board should ask questions about the culture. They can’t know the culture in the way the Executive can know it, they can’t shake the culture in exactly and precisely the same way that the Executive and the Management Team can, but the Board and the non-executives’ question, particularly with everything that is going on around it, should be asking questions about what is the ethos of this organisation and what is the culture of this organisation.
If you look across the three case studies, there are, if you like, examples in all of them where there is – we use the word “insignificant” or an indifference to the experiences of subpostmasters, and that appears to be part of the culture.
Mr Beer: Thank you.
Those are the questions that I ask. Thank you very much for answering all of them.
Can we take a break now, sir, until tomorrow. There are questions from Core Participants and it will give them an opportunity to formulate them. I would ask, however, we start at 9.30 to ensure that we finish by 12.30.
Sir Wyn Williams: Fine. Can you just give me an idea of how many sets of questioners there are?
Mr Beer: There are five sets of questioners: the Hodge Jones & Allen Core Participants; the Howe+Co Core participants; the Hudgells Core Participants; the National Federation of SubPostmasters; and the representatives of Paula Vennells.
Sir Wyn Williams: You’ll agree with counsel suitable time estimates for each of them?
Can I say now, since it’s something that concerns me, I would strongly take the view, I think, that questions from Ms Vennells’ advocate should come last because I suspect, though I don’t know, that questions from most other people will be with a view to making things worse for the Post Office, whereas questions from Ms Vennells may be to opposite effect, and I think she should know the full scale of what’s being said before she asks her questions.
I said that’s a strong view. I’m always open to persuasion, but that’s what I currently think.
Mr Beer: Thank you very much, sir.
Sir Wyn Williams: Now, then, how do I direct a witness about not talking to anybody when there are two of them?
Mr Beer: I hadn’t addressed that.
Sir Wyn Williams: I think you can talk to each other.
Mr Beer: Thank you very much.
Sir Wyn Williams: See you tomorrow morning.
(4.11 pm)
(The hearing adjourned until 9.30 am the following day)