9 July 2024 – Mark Russell and Robert Swannell
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(9.45 am)
Ms Price: Good morning, sir, can you see and hear us?
Sir Wyn Williams: Yes, thank you very much.
Ms Price: Can we please call Mr Russell.
Mark Russell
MARK FRANCIS RUSSELL (sworn).
Questioned by Ms Price
Ms Price: Can you confirm your full name, please, Mr Russell?
Mark Russell: Yes, Mark Francis Russell.
Ms Price: As you know, my name is Emma Price and I ask questions on behalf of the Inquiry. Thank you for coming to the Inquiry today to assist it in its work and for providing a very detailed witness statement in advance of today. You should have a hard copy of that statement in a bundle in front of you at tab 2A; do you have that?
Mark Russell: Yes, I do.
Ms Price: It is dated 13 June 2024. If you could turn to page 101 of that statement, please.
Mark Russell: Yes.
Ms Price: Do you have a copy with a visible signature.
Mark Russell: Yes.
Ms Price: Is that your signature?
Mark Russell: It is.
Ms Price: I understand you have some minor corrections that you’d like to make to the statement; is that right?
Mark Russell: Yes, yes, please.
Ms Price: Would you like to tell me what those are?
Mark Russell: Yes. So on paragraph 55, where the statement says, “The annual reviews”, and then it gives an example of UKGI disclosure, it should read “The annual reviews illustrate this focus and level of detail”; and also in paragraph 55, where the statement says that the date of Charles Donald’s first witness statement is 6 February 2024, it should read 19 February 2024.
Ms Price: Are those all the corrections you’d like to make?
Mark Russell: They are, yeah.
Ms Price: With those corrections made, are the contents of that statement true to the best of your knowledge and belief?
Mark Russell: They are.
Ms Price: For the purposes of the transcript, the reference for Mr Russell’s statement is WITN00800100.
Mr Russell, your witness statement is now in evidence and will be published on the Inquiry’s website in due course. As such, I will not be asking you about every aspect of that statement this morning, just about certain specific issues which are addressed within it.
I would like to start, please, with your qualifications, professional background and the roles you have held which are of relevance to the matters being explored by the Inquiry.
You explain in your statement that you hold a degree in economics and management science as well as an MBA; is that correct?
Mark Russell: Correct.
Ms Price: Your career has been predominantly in corporate finance. The last role that you held before joining the Shareholder Executive in 2004 was at KPMG; is that right?
Mark Russell: Correct.
Ms Price: You were a Corporate Finance Partner in their London and Frankfurt offices?
Mark Russell: Correct.
Ms Price: When you joined the Shareholder Executive in 2004, is it right that you did so in the role of Director of Corporate Finance?
Mark Russell: That’s right.
Ms Price: At that time, the Shareholder Executive sat within the Department of Trade and Industry?
Mark Russell: It did.
Ms Price: So your employment contract was with the Department of Trade and Industry?
Mark Russell: Correct.
Ms Price: What did your role as Director of Corporate Finance entail?
Mark Russell: Well, if I go back to the purpose of the Shareholder Executive, when it was established in 2002, I think, it was – as we stated, it was professionalise Government’s management of its shareholdings, typically its commercial and economic shareholdings and a number of those shareholdings eventually were sold, so shareholdings such as British Energy and Royal Mail. And that governance role then expanded into the governance of Government’s larger arm’s-length bodies, not necessarily bodies that would be sold. So there was a definite change of emphasis.
In 2005, there was a desire, from the centre of Government, for the Shareholder Executive to expand its remit into essentially providing a corporate finance capability to Whitehall, and it was on the back of that that I was recruited to essentially establish that unit. The individuals who formed that unit already sat in the DTI so I basically moved them over into the Shareholder Executive, and that started the corporate finance function of Whitehall.
As to what it – what does corporate finance really mean? It’s predominantly, in a Government setting, about asset realisations and investments. That’s – and fund-raisings. But I would say predominantly our work has been about asset realisations and, as I’ve said in my witness statement, I saw the developing focus on what we would call distressed situations, so private sector organisations of strategic interest to Government that potentially could collapse and, where Government might choose to intervene, we started to engage on those sorts of situations, more to determine: was there a way of a private sector solution to avoid Government having to intervene, but be prepared for Government to intervene.
My sort of first big case of that was MG Rover, and you may remember that situation. The Government at the time felt this was a strategic asset but it wasn’t prepared to support it, unless there were ultimately some private sector investors that would come in. So the very initial job I did on that was to work out whether there were going to be some private sector investors, as the company unfortunately ran out of cash, and our conclusion was that there weren’t going to be any and so went into insolvency.
That was a very – that was the first big example of distressed intervention, which became a particular feature of the corporate finance part of the Shareholder Executive, through the late 2000s.
Ms Price: In 2007, you say you were appointed as Deputy Chief Executive of the Shareholder Executive. Was this in addition to your role as Director of Corporate Finance?
Mark Russell: Yes, it was.
Ms Price: How did your role change when you took up this additional responsibility?
Mark Russell: To be honest, not significantly. Basically, I was there to deputise for the Chief Executive, who was then Stephen Lovegrove, so – but in terms of the nature of my work, it didn’t change very much. I still – my main remit was still the corporate finance part of the Shareholder Executive.
Ms Price: It was in this role in 2012 that you became involved in the Royal Mail asset sale process; is that right?
Mark Russell: Correct, correct.
Ms Price: Was that the first time you had involvement in Post Office Limited matters?
Mark Russell: Well, in Royal Mail matters, yes. Yes, that’s correct.
Ms Price: In February 2013, you were appointed Interim Chief Executive Officer of the Shareholder Executive; is that right?
Mark Russell: That’s right.
Ms Price: In April 2013, you became the Chief Executive Officer?
Mark Russell: Correct.
Ms Price: In 2016, when the Shareholder Executive combined with UK Financial Investments to form UK Government Investments, you became CEO of UKGI; is that right?
Mark Russell: Correct.
Ms Price: You stepped down in 2019 to become Vice Chair and subsequently a senior adviser for UKGI?
Mark Russell: Correct.
Ms Price: Is it right that you are still a senior adviser with UKGI?
Mark Russell: It is.
Ms Price: But you also hold the role of Chair of the Ministry of Defence’s procurement organisation, Defence Equipment and Support –
Mark Russell: Yes.
Ms Price: – and Chair of Angel Trains, a privately owned train rolling stock company –
Mark Russell: Correct.
Ms Price: – as well as to holding a temporary non-executive position on an arm’s-length body of the Department for Energy Security and Net Zero?
Mark Russell: Yeah.
Ms Price: I’d like to turn, please, to Government oversight of, and responsibility for, Post Office Limited. You explain at paragraph 12 of your statement that Post Office Limited is wholly owned by the Government, operated as an arm’s-length body. Can you help, please, with why an arm’s-length body model might be chosen for a delivery activity of Government, instead of insourcing or contracting out the delivery activity?
Mark Russell: Yeah. So there are – the principal reason you might have an arm’s-length body is if you have an activity, a – what I call the specialist delivery activity – such as the Post Office, such as HS2, such as Network Rail – a delivery activity that is owned by Government but would, with difficulty, be managed by Government, difficulty managing that by Whitehall. So – and the reason for that is those sort of activities, they involve a particular skillset that probably isn’t available within Whitehall.
They also ideally have a governance framework around it, again, would not be available within the core of Whitehall.
So if you have that sort of activity, the question is: is there an alternative to insourcing it? As I say, the trouble with insourcing it is it isn’t always clear that you can attract the right sort of human capability, human resource, to be able to do that. It’s not clear that Whitehall itself can provide adequate oversight to a specialist delivery activity. So the alternative would be potentially to outsource the activity and, indeed, that has happened in a number of cases. You either – you privatise the activity or you, in some way, contract with a private sector management team to manage the organisation. Those are your basic options.
But the key to specialist delivery is specialist human resource and the key feature of that is typically a remuneration regime that, again, you wouldn’t – which would be incompatible with Whitehall.
So that is one very key reason why you would adopt the arm’s-length body model. The other key reason, as I say, is one of oversight. If you have a specialist activity, a specialist delivery activity, then you really need specialists to hold the executive to account, and this very much follows the corporate governance that we see in the private sector. Quite difficult for individual shareholders to provide that sort of challenge and oversight. You need specialist Non-Executive Directors to be able to do that.
So there are various reasons why Government might adopt an arm’s-length body model but the two key reasons, I would suggest, are to ensure that they can get the prototype of human resource and capability, and that often goes to the fact that they need financial freedoms to be able to do that, and, secondly, adequate oversight on behalf of the shareholder through the corporate governance structure of a board.
I mean, a further reason would be arm’s-length bodies can adopt operating flexibilities that just wouldn’t be compatible or available within Whitehall.
Ms Price: You’ve already referenced the function of holding to account and you describe at paragraph 13 that it is best practice for arm’s-length bodies, such as Post Office Limited, to adopt governance regimes similar to private sector companies. Could we have on screen, please, paragraph 13 of Mr Russell’s statement, that is page 5.
In the second half of this paragraph, you explain why the use of boards is important and you say this:
“This reflects the fact that Departments (and the [Shareholder Executive/UK Government Investments] which act on the behalf of Departments) are not resourced to be able effectively to scrutinise the work of a specialised Executive and to hold them to account”, and you discuss that further below.
You go on in the next paragraph to say:
“Although [arm’s-length bodies] are operated at arm’s length from Departments, Ministers retain responsibility and accountability for the activity of ALBs.”
So although the ALB model foresees delegation of certain matters to the ALB Board, in this case the Post Office Limited Board, the ultimate responsibility and accountability for the ALB activity rests with ministers; is that right?
Mark Russell: Correct.
Ms Price: You refer at paragraph 12 of your statement to ALBs typically being given freedoms to carry out delivery activities free from operational interference from Central Government and you explain the rationale behind this at paragraph 25. If we could have that on screen, please, it’s page 10. Thank you. You say:
“It is not simply a consequence of being a Public Corporation [and we’ll come on to what that is in a moment] that neither the Secretary of State, nor the Department for Business and Trade, nor the Minister, nor the [Shareholder Executive]/UKGI, acting on their behalf, has direct responsibility for [Post Office Limited] day-to-day operational or contractual matters. This is instead a specific objective. It is a safeguard against central Government micromanagement which is likely to lack the necessary expertise and experience and be vulnerable to potential conflicts of interest.”
Would you agree, notwithstanding what you say here, that there may be times when the way in which an ALB conducts itself at an operational level can concern ministers at a policy level?
Mark Russell: Yeah, I would.
Ms Price: Indeed, you address in number of places in your statement the fact that there are times when Central Government will become more involved, to use your words, and looking in paragraph 14 of the statement in particular, please, that’s page 5, about six lines down, you say this:
“Importantly, although Ministers and Departments will maintain a distance from operational matters … there will be instances where both will seek to become more involved, especially if issues are concerning enough for direct engagement, but not judged so severe to warrant the removal of Executives or the Board. In my experience, however, these instances are rare.”
You give two examples in this paragraph of these rare instances: one is security matters concerning nuclear decommissioning and the other is ministerial involvement in Post Office Limited concerning Horizon, as ultimately happened.
So, even with a public, non-financial corporation, such as Post Office Limited, which you describe at paragraph 22 of your statement as the “most independent version of an arm’s-length body”, is it right that, in appropriate circumstances, Central Government will become involved in operational matters?
Mark Russell: Yes, absolutely.
Ms Price: Thank you. That document can come down now.
Can you help, please, with why Post Office Limited was designated a public non-financial corporation?
Mark Russell: I think there’s quite a technical reason for that., to do with, in particular, the amount of revenue that it generates from third parties, ie not government revenue. I’m not absolutely sure but I think the measure is, if it’s over 50 per cent, then that can trigger a classification of a public corporation.
Ms Price: Do you think that the objective applicable generally to public corporations, which we’ve looked at at paragraph 25 of your statement, that is safeguarding against Government micromanagement, was a valid objective for Post Office Limited?
Mark Russell: Yes, I do.
Ms Price: Can you explain why?
Mark Russell: Well, I think – I don’t think the Post Office was any different to a number of delivery arm’s-length bodies, where the default should be that Government Whitehall ministers shouldn’t be involved in day-to-day operations, and it goes back to the point about capability. Whitehall ministers, the civil servants, wouldn’t necessarily have the capability to get involved and there may be issues of conflicts of interest as well. So I think, as a model, it was appropriate.
Ms Price: Given that it is ministers who are ultimately accountable and responsible for ALBs, would you agree that they need to receive adequate information about the operation of the ALB in question?
Mark Russell: They need to be satisfied, and the primary source of that satisfaction should be the Board, they need to be satisfied that the operations are being managed properly, yeah. And I should say, the – this is a theme not just for the Post Office but elsewhere – the – it’s almost the length of the arm, and I have to say my view on this is there are very legitimate reasons why Central Government should not operationally interfere, why ministers shouldn’t operationally interfere in these types of organisations.
But there, for sure, are going to be instances where they definitely need to interfere. So the kind of – I don’t – I’ve never accepted a position where, regardless of what the constitutional position of an arm’s-length body is, you can’t escape from the fact that ministers are ultimately responsible to Parliament for the conduct of those organisations. So they must be free, in extremis, to intervene if they need to.
Ms Price: Dealing, then, with the mechanisms in place to ensure that the appropriate information is provided to ministers, and starting, please, with the information sharing and advisory role of the Shareholder Executive, later UKGI, is it right that when you became CEO in 2013, the Shareholder Executive employed approximately 150 people?
Mark Russell: Yeah.
Ms Price: They were a mixture of individuals from the private sector, typically with a background in finance and the Civil Service, employed either full time or on secondment?
Mark Russell: Correct.
Ms Price: At that stage, the shareholder was advising, you saying your statement, on approximately 20 organisations in its shareholder role, and you describe the Shareholder Executive, and later UKGI, as a “pan-Whitehall resource, with the group working for most of the 15 main departments”?
Mark Russell: Yeah.
Ms Price: You stress at paragraph 33 of your statement the importance of departments regarding Shareholder Executive and UK Government Investments staff working on their assets and projects as though they were staff of their own department, with similar rights to information, and the ability to advise ministers directly via submissions or in person.
Mark Russell: (The witness nodded)
Ms Price: With that in mind, is it correct that the Shareholder Executive officials were civil servants bound by the Civil Service Code?
Mark Russell: Indeed.
Ms Price: So was there, therefore, a requirement that they carry out their role with a commitment to the Civil Service and its core values?
Mark Russell: Yes, absolutely.
Ms Price: Those core values are integrity, honesty, objectivity, and impartiality –
Mark Russell: Yeah.
Ms Price: – is that right?
Would you agree that this includes basing any advice and decisions on rigorous analysis of the evidence?
Mark Russell: Yeah.
Ms Price: Were and are UK Government Investments’ employees bound by the same standards?
Mark Russell: They are. I think technically they’re public servants not civil servants but, to all intents and purposes, I think they upheld the same standards.
Ms Price: Can you help with what was and is the system for informing UKGI employees of the standards expected of them?
Mark Russell: Well, the Civil Service Code is widely available and almost certainly will be – or it will be on our website. At the point of induction to the extent that people are coming in from the private sector, they would be given that and talked through it. I think occasionally in letters of appointment the Code is even attached.
So it features fairly prominently and I don’t know if you’re familiar with it but it’s quite an accessible set of criteria. So it should be quite understandable.
Ms Price: What was and is the enforcement mechanism, if anyone fell short of the standards?
Mark Russell: Disciplinary action: dismissal, at the extreme.
Ms Price: You say at paragraph 34 of your statement that, at the time you were Chief Executive Officer, each shareholder or corporate finance activity was overseen by a Shareholder Executive or UKGI Director –
Mark Russell: Correct.
Ms Price: – is that right?
Mark Russell: Correct.
Ms Price: In 2013, you say in your statement that there were approximately 30 Executive Directors or Deputy Directors and four Directors, all being at senior Civil Service level and overseeing the 40 or so shareholder and corporate finance activities?
Mark Russell: Correct.
Ms Price: You explain that, as CEO, you would get involved in a few of those 40 activities –
Mark Russell: (The witness nodded)
Ms Price: – and you say that was mainly where you had the relevant expertise and experience?
Mark Russell: Correct.
Ms Price: You say your personal involvement was normally driven by instances of technical complexity and complex stakeholder management.
Mark Russell: (The witness nodded)
Ms Price: Would you be able to give us an example of those features that might lead to your involvement as a CEO?
Mark Russell: The privatisation of Royal Mail would be an example: technically quite difficult, enormous stakeholder management, very high profile. The establishment, under the Coalition Government, of the Green Investment Bank and the British Business Bank, those would all be examples where I would get more involved.
Ms Price: As CEO, you say you engaged with other departments frequently; do you mean other Government departments?
Mark Russell: Correct.
Ms Price: Typically at Permanent Secretary level?
Mark Russell: Yes, not exclusively, but I would certainly be very familiar with the Permanent Secretaries and the Director Generals who report to them.
Ms Price: You describe the Shareholder Executive and then UK Government Investments as operating in a relatively delegated manner and you say this was made possible by high senior Civil Service to non-senior Civil Service ratios.
Mark Russell: (The witness nodded)
Ms Price: Can you help with why that would mean you could operate in a relatively delegated manner?
Mark Russell: Well, practically, it’s probably the only way you can do it because the activities will often be in a variety of departments. Unless you have adequate delegation, then your ability to add value, to be flexible with the Department, would be quite limited. Going back to the point you made earlier, what was and is very important is that officials from UKGI/Shareholder Executive were treated in the same way as civil servants within a department because I always felt it was very important that those individuals would have the same access rights to the senior stakeholders within a department, in particular ministers, and that necessarily has to be at a delegated level.
So it would just be impractical, if you’ve got 40 activities, for everything to come up through the system, and that the ultimate sign-off was me or one of my four directors. That’s not to say – there has to be common sense for issues that are difficult, sensitive; then, of course, I’d want escalation.
Ms Price: You deal at paragraph 41 of your statement with the Shareholder Executive Board. Could we have that on screen, please, it’s page 17 of the statement. You describe the Board, its composition and functions in this way, you say:
“The [Shareholder Executive] Board formally came into existence in 2019. It met six times a year and initially comprised three executives and six non-executives, including the Chair. The Chair reported jointly to BIS and HMT Ministers. The non-executives reported to the Chair. Two of the executives reported to the CEO and the CEO, in turn, reported to the BIS Permanent Secretary. [The Shareholder Executive] was not a company, and so its Board was not a corporate board (and its Directors did not have fiduciary duties under the Companies Act 2006). Its key functions were helpfully set out in a Board note”, and you give the reference for that.
You summarise those functions as:
“… overseeing the work of the Shareholder Executive; setting strategic direction in light of Ministerial objectives; periodically reviewing the delivery of objectives as set out in the Business Plan; and considering any specific issues referred to it by the Executive Committee.”
You add that the AO – is that the Accounting Officer?
Mark Russell: (The witness nodded)
Ms Price: The AO for the Shareholder Executive was the BIS Permanent Secretary?
Mark Russell: Yes.
Ms Price: As Chief Executive Officer of the Shareholder Executive, did you sit on the Shareholder Executive Board?
Mark Russell: Yes.
Ms Price: Is it right that the Shareholder Executive Board was disbanded and joined with the former board of UK Financial Investments to form the board of UK Government Investments in 2016?
Mark Russell: Correct.
Ms Price: You describe your reporting responsibilities as CEO of UKGI at paragraph 48 of your statement. Can we go to that, please, it’s page 20. You say:
“As CEO of UKGI, I was a member of the Board and reported to the Chair of UKGI. I would provide CEO Reports to the Board of UKGI which would provide a high-level overview of key workstreams. These reports would refer to and be accompanied by the dashboard for each of the Shareholder/Corporate Finance or other workstreams. The dashboards would include summary risk assessments for each workstream.”
We will come shortly to oversight and risk management of Post Office Limited specifically but this is probably a convenient point at which to ask you to explain, in general terms, how you compiled your reports to the UKGI Board?
Mark Russell: So the dashboards, if I start with those, these, I think, came into existence in 2015, partly driven by my desire to make sure we accurately recorded the activity that we were engaged in. The Shareholder Executive was set up and remained, and UKGI remained, essentially a Whitehall resource and one that quite deliberately was a flexible resource. It sought to meet the occasional demands of departments and I think that has been one of the great features: it is very flexible. As and when issues arise within the departments, we can potentially turn our hand to help. But there is a balance. What you also need is some sort of oversight as to what are the activities – what are the core activities that were we’re undertaking, so these 40 activities: 20 corporate finance, 20 portfolio activities?
And that we can socialise that, socialise that within the group, within the Executive Committee, within the Board. So they have a good side as to what are the activities that we’re actually doing.
Secondly, I was very conscious, taking over as Chief Executive, that I couldn’t possibly be across all of these. So I did want some mechanism to ensure that a senior person did have responsibility and accountability for each activity. So that was another key reason for the dashboard.
And I suppose a third one was a mechanism at a very high level to summarise the risk profile, the relationships, the profitability, the balance sheet position of our various assets. And going right back to the start of the Shareholder Executive, which pre-dated me, they established what they called the sort of traffic light mechanism that just gave, against seven or eight different criteria, an idea of what an asset looked like in terms of risk profile, in terms of balance sheet, in terms of profitability, shareholder relationship, et cetera. Those traffic lights continued, they still continue, and were incorporated into the dashboard.
So I wouldn’t say it was a very – and you’ll have seen copies of it – it’s not a massively detailed document and, of course, like any of these high-level documents, they’re only as good as how well people are summarising activities, scoring traffic lights, and often those aren’t particularly good.
But what the traffic – what the dashboard did do was give everybody a good sight as to what it is we’re doing and what our activity is. So that was a key document.
I suppose the other documents, key documents, would be risk registers, which, as I say in my statement, developed – indeed continued to develop – from the start of the Shareholder Executive. Typically risk reporting in the early days was into the department – into the department’s risk registers, depending on what the asset and activity was. But, increasingly, we thought it quite important to take a holistic view, and a kind of consistent view of risk across our portfolio of both corporate finance activity and shareholder activity.
So risk reporting was a further way of monitoring and then I suppose the other point to note would be the regular cycle of board papers, which again would give another snapshot at any particular time of what the activity of the Shareholder Executive was, not always comprehensive but these always started, as you’ll see in most corporate boards, they always started with a piece from the Chief Executive, which I always thought was very important, that although it may not be wholly comprehensive, it gives a good picture to board members as to what is on the mind of the Chief Executive.
So I think I’d probably point to those three series of documents.
Ms Price: Focusing on the CEO reports, which provided a high-level overview of key workstreams, how often did you report in that way to the UKGI Board?
Mark Russell: Sorry, the –
Ms Price: So the reports you refer to here at paragraph 48, which you say provided a high-level overview of key work streams, was that a regular identifiable report, or are you talking in general terms?
Mark Russell: Yes, this would feature in every Board report.
Ms Price: So every single Board meeting would involve a report by you –
Mark Russell: Correct.
Ms Price: – as to the high-level overview of key workstreams?
Mark Russell: Correct.
Ms Price: Did you report in the same way to the Shareholder Executive Board before this, when you were CEO?
Mark Russell: Sorry, can you repeat the question?
Ms Price: Did you report in the same way to the Shareholder Executive Board, prior to the UKGI Board?
Mark Russell: Yes, I think so. I’m pretty sure that the Board papers for the Shareholder Executive followed a similar pattern and had a Chief Executive summary at the start. Again, common with practically any Board.
Ms Price: You say in the penultimate sentence at paragraph 48 that you were ultimately accountable for this internal reporting but also accountable for external departmental reporting.
Again, we will come on to external reporting in relation to Post Office Limited specifically but, in general terms, what was the process by which you discharged your external departmental reporting function?
Mark Russell: Well, I think it varied. It depended on what the department whose activity – either shareholding or corporate finance activity, depend – it very much depending on what their needs were. So there was not necessarily a consistent way of reporting to each of the departments.
Whitehall remains a very federated structure, departments do things quite different ways and part of what we had to do was make sure – and continue to have to do – was to make sure we feed in, in a way that is useful to a particular department but it is rarely consistent.
Ms Price: Was there any difference in the way you discharged your external departmental reporting function as you being CEO of the Shareholder Executive, and later UKGI?
Mark Russell: Not really, no. Not in substance.
Ms Price: You explain at paragraph 49 that you also became Accounting Officer reporting to Her Majesty’s Treasury’s Principal AO, although AO responsibilities only covered UKGI and its operations –
Mark Russell: Correct.
Ms Price: – and you had no AO responsibility for any other Government entity that UKGI involved; is that right?
Mark Russell: That’s right. I mean, a very important point which I hope comes out of my statement is that shareholdings/ arm’s-length bodies are owned by secretaries of state, secretaries of state of individual departments. The Shareholder Executive/UKGI never had ownership of any asset, as far as I’m aware. We were essentially advising the shareholder. So if you don’t have ownership, then it’s unlikely the Accounting Officer responsibility would follow.
Ms Price: Was the AO role new when you became CEO of UKGI or did you hold an AO role when you were CEO of the Shareholder Executive as well?
Mark Russell: No, it was new, because UKGI was constituted as a fiduciary, as a company, and Government requires companies to have Accounting Officer responsibility. But, in essence, and I think I explained, that essentially was about the stewardship of the resources of the Shareholder Executive – sorry, UKGI, and, if I’ve got my numbers correctly, our revenue, which was essentially from the Treasury, but it might be from some departments as well, was of the order of 20 million and our expenditure would be something like 18 million on wages, and about a million on accommodation.
You know, that is the – so it was not a – and as Accounting Officer, I was responsible for making sure that the propriety of those numbers – not complicated, in fact quite simple, but it sort of illustrates the fact that we’re actually quite a small and contained organisation.
Ms Price: Turning then, please, to Post Office Limited specific oversight by the Shareholder Executive and UK Government Investments, could we have on screen, please, paragraph 23 of Mr Russell’s statement, that’s page 9. Scrolling down a little, please, after paragraph 23, you say this:
“Under [Post Office Limited’s] updated Articles of Association dated 2 April 2012, the Secretary of State was the sole shareholder of [Post Office Limited] and had certain rights, including to receive information from [Post Office Limited], and to appoint or remove [Post Office Limited’s] directors, including CEO and chair. The Secretary of State is also ultimately accountable and responsible for [Post Office Limited].”
Going over the page, please, towards the bottom, paragraph 26, you deal here with how the Secretary of State is supported in the task of accountability, and responsibility for Post Office Limited, and you say:
“… the Secretary of State is supported in this task by other Ministers in the Department, and the Permanent Secretary for the Department is their principal policy advisor. The Secretary of State, Ministers and Department are aided by internal reporting from UKGI, which includes reporting on [Post Office Limited]. This was also the case at the times relevant to this Inquiry”, and you deal with that further below.
Is this a reference to the internal reporting from UKGI, for which you were responsible?
Mark Russell: Sorry, you’re referring to?
Ms Price: So if we go back, please, to the bottom of the last page, you deal with two ways here that the Secretary of State is supported in the task, and one is the support from the department, the Secretary of State’s department –
Mark Russell: Yeah.
Ms Price: – and the other is being aided by internal reporting from UKGI. So my question is whether this is the internal reporting, the external departmental reporting –
Mark Russell: Yes.
Ms Price: – that you said you were accountable for as CEO?
Mark Russell: Yes, yes.
Ms Price: You deal in the next paragraph with the Shareholder Executive and UKGI representation on the Post Office Limited Board. Is it right that it was not until April 2012, when Post Office Limited separated from Royal Mail, that the Shareholder Executive had a seat on the Post Office Limited Board?
Mark Russell: Correct.
Ms Price: But, since then, the Secretary of State has appointed an official from the Shareholder Executive, then UKGI, to the Board of Post Office Limited as a Non-Executive Director?
Mark Russell: Correct.
Ms Price: Since 2014 – you cover this at the bottom of paragraph 27 – the Shareholder Executive/UKGI Shareholder Non-Executive Director on the Post Office Limited Board has been the Head of the Shareholder Executive/UKGI shareholder team; is that right?
Mark Russell: Correct.
Ms Price: That document can come down now. Thank you.
You deal with the rationale behind a Shareholder Executive/UKGI official being appointed as a Non-Executive Director on the board of a Government asset in general terms at paragraph 15 of your statement. Without putting that up on the screen, is it a fair summary of the position that this was not common practice when the Shareholder Executive was established, as ministers felt this could interfere with the autonomy of the arm’s-length body model but, after instances of arm’s-length bodies not engaging sufficiently with the wishes of ministers and departments, this practice became more common?
Mark Russell: Yes.
Ms Price: You describe two benefits to this practice in your statement. Again, is it a fair summary of those benefits that, first, it ensured that ALBs understood and acted in accordance with the objectives and wishes of ministers and their departments – if you can just say, yes, for the transcriber’s benefit?
Mark Russell: Yes.
Ms Price: Thank you. Second, it brought a greater understanding of what was being discussed at Board level?
Mark Russell: Correct.
Ms Price: Having eyes and ears on the Post Office Limited Board should, in theory, have permitted the Shareholder Executive and the UK Government Investments actively to seek out and receive adequate relevant information on risk, should it not?
Mark Russell: Correct.
Ms Price: Combined with the Shareholder Executive/UKGI external departmental reporting process, it made the Shareholder Executive and UKGI the key source of information relating to Post Office Limited risks, didn’t it?
Mark Russell: Correct.
Ms Price: Looking, please, to paragraph 16 of Mr Russell’s statement – that’s page 6, please – you say here:
“The appointment of Shareholder NEDs complements but does not replace the primary points of Departmental contact. In the case of [Post Office Limited], the key contacts were between the [Post Office Limited] CEO and (i) the Minister and (ii) the Permanent Secretary/Accounting Officer. Such meetings provide senior members of the Department with a direct line of sight into the ALB, and are a key mechanism for reinforcing departmental objectives for the ALB.”
Are you saying here that the Minister and the Permanent Secretary, rather than the Shareholder Executive or UKGI officials, were the primary or key contacts for Post Office Limited, or are you simply saying that there were occasions on which the Post Office Limited’s CEO would meet directly with the Minister and the Permanent Secretary?
Mark Russell: Yes, it depends on the circumstances and it depends on the Minister and Permanent Secretary. So, particularly for a large organisations like the Post Office, we’ve always felt having direct contact with the senior people of organisations, with the principal Accounting Officer, so typically the Permanent Secretary, and with ministers, is really important. It complements anything they might be hearing from us. It might actually throw up something that is different but – so it depends on the circumstance and it depends on the organisation.
If you look at Post Office and, in particular, Horizon, you will know that increasingly ministers got directly engaged themselves, not Secretaries of State but the ministers responsible for the Post Office, and that is absolutely as we’d want the system to work, particularly in circumstances where there were fine judgements to be made. We always take the view ministers should hear directly to the extent that they can.
Ms Price: So was this, in essence, providing a different form of insight into –
Mark Russell: Yes.
Ms Price: – the affairs of the arm’s-length body?
Mark Russell: Yes, yes.
Ms Price: But you’re not saying here that these contacts were primary, in the sense that they were more important in some way than the UKGI official information?
Mark Russell: In general no, on occasion, yes.
Ms Price: In terms of access of the Shareholder Executive and UKGI to Board level information, could we have on screen, please, paragraph 92 of Mr Russell’s statement. That is page 42 and four lines down in this paragraph you say:
“I do not think that I knew, then, that Susannah Storey had been prohibited from sharing Board papers with [the Shareholder Executive] and I cannot say how much that prevented the flow of information from [Post Office Limited] to the shareholder team.”
Susannah Storey was the Shareholder Executive Non-Executive Director sitting on the Board from April 2012 to March 2014; is that right?
Mark Russell: Correct.
Ms Price: You say you were not aware at the time. Did you subsequently become aware that Susannah Storey had been prohibited from sharing Board papers with the Shareholder Executive?
Mark Russell: Yes, yes.
Ms Price: How did you become aware?
Mark Russell: I can’t remember. I think I’d have been told by Susannah or by her successor or by the shareholder team.
Ms Price: Can you help at all with when you became aware of that?
Mark Russell: When? I – the answer is I can’t remember when I became aware. What I – and, again, the context is important here – Royal Mail, of which Post Office was part, was a very independent arm’s-length body. I mean, if you were to ask me what was the most independent I’d ever seen it would be the Royal Mail. And what does that mean? It means it resisted Whitehall engagement as much as it could, in part because it felt it could do its work better unhindered by civil servants.
There was no member of the Shareholder Executive on the Board of Royal Mail, and I’m absolutely confident that they would have resisted it tooth and nail.
Now, ultimately, ministers decide and they could have forced it if they had wanted, but that situation never happened.
So that’s the context where we have the Post Office spinning out from Royal Mail, an institutional reluctance to have a member of the Civil Service on the Board and I’m sure, as part of that, an institutional reluctance to have Board papers shared. Now, some of that reluctance would have been legitimate, for instance, as you’re aware, there were two or three occasions where there were some significant funding negotiations that took place between the Post Office and the Government and, for a Shareholder Executive Director sitting on the Board, that’s a difficult place to be. In those sort of situations there would be, on the face of it, a conflict of interest.
So you could see, in certain circumstances, why they might be reluctant to have a Shareholder Executive on the Board.
I – sorry, to answer your question when precisely I became aware, as I’ve said, I don’t know. What I did know was the reluctance of Post Office to have anyone on the Post Office Board from the Shareholder Executive and I think it was the sort of two-step approach, well, I think the Secretary of State was very clear he wanted somebody from the Shareholder Executive on the Board. I think probably what was agreed was – and these would have been legitimate concerns of POL, I’m sure. It would have been agreed that the Board papers wouldn’t be shared.
I say legitimate because I think they probably did have legitimate concerns about potential conflicts of interest. But, eventually, that unwound, and I have to say, personally, I didn’t have any time for this – and we had other instances of this where shareholder – where Board papers weren’t shared with the shareholder team.
To the extent that there was ever a potential conflict of interest, then my view was you always deal with that at the time, and you would – the director would have recused themselves, or whatever.
Ms Price: Did you ever come to understand who in particular had been responsible for the prohibition on the sharing of Board papers?
Mark Russell: I think saying “prohibition” is wrong because they can’t prohibit; the Secretary of State can demand. Who was nervous about it? I think it was the first Chair, Alice Perkins.
Ms Price: Did this cause you any concern at all when you found out?
Mark Russell: Not significant concern, in part because it was unwound pretty quickly and the shareholder teams did get the Board papers. Indeed, I can’t just remember how long it took for those papers to be available to the shareholder team. It may not actually have been very long.
Ms Price: To your knowledge, did the Shareholder Executive inform ministers or the Department about barriers, perceived or real, to sharing Board-level information?
Mark Russell: No, I can’t remember that being shared. That doesn’t mean to say it wasn’t shared but I can’t remember it having been shared.
Ms Price: Can you recall why it was not considered necessary to share that?
Mark Russell: Because I don’t think it was considered particularly significant and I think that a danger we overdo this – I think the shareholder teams would probably say they were receiving as much information as they need to receive, absent Board papers. I think they’d probably have said that. Without knowledge of precisely what they were receiving and without knowledge of the Board papers themselves, it’s difficult for me to judge.
Ms Price: Was there any pushback at all that you can recall? You say that this was ultimately resolved. How was it resolved?
Mark Russell: I think there was – yes, I think there was a healthy debate but ministers were very clear – well, ministers were certainly very clear about board appointments. They would have been – and I am answering your last question, I can’t just remember if we said to them the Board papers aren’t being shared but I’m entirely confident that, had we said that, they’d have said, “Well, do you want us to tell them?”
Ms Price: You say in your statement, the section that I’ve just read out, that you cannot say how much that prevented flow of information from Post Office Limited to the shareholder team. Did anyone on the shareholder team ever raise a concern about not getting enough information because of it?
Mark Russell: Not that I can remember.
Ms Price: That document can come down now, thank you.
You refer in a number of places in your statement to the Shareholder Executive and UKGI unusually holding both the shareholder role and the policy role for Post Office Limited and you say that was a situation which persisted until 2018. Can you explain, please, who would usually hold the policy role?
Mark Russell: The owning department.
Ms Price: How would you define the policy role?
Mark Russell: Well, the – providing the primary advice on to ministers on the policy objectives for the asset, I suppose that’s the task number 1. And then also typically providing stakeholder liaison, particularly with respect to Parliament. I’d say those are probably the two key tasks of a policy team.
Ms Price: Why is it better practice for the shareholder and policy roles to be held separately?
Mark Russell: Why is it? I think probably two reasons why it’s important: one is there can be a tension between policy objectives and commercial objectives, and I think in one of the documents you’ve seen written by Anthony Odgers, one of my Shareholder Executive colleagues, captured this quite well, that it’s quite important where there is a potential conflict between the policy objective and a commercial objective, then the issue is exposed.
I mean, it’s ultimately for ministers to decide what they want to do but to the extent, for instance, that a policy objective has a commercial cost, it’s very important that that cost is exposed to ministers and ministers can make the right decision on the back of it.
So the most obvious example, with respect to the Post Office, is the policy objective to maintain 3,000 post offices that maybe commercially wouldn’t be viable. I would suggest it’s important the cost of that is understood, up to ministers what they want to do, but – and you could argue, having separate teams analysing that, advocating that, is probably a healthy dynamic.
So I’d say that is actually the main reason.
Ms Price: You refer at paragraph 17 of your statement to part of the reason for the situation persisting until 2018 being departmental resourcing constraints. What were the departmental resourcing constraints and how did they bear upon the decision to keep the dual role as it was?
Mark Russell: Well, it won’t surprise you, there’s resourcing constraints all the time in every department, so this is something we have to deal with all the time. I think it comes down to prioritisation, as decided typically by the Permanent Secretary. Where did they allocate resource? I think this situation probably persisted for longer than we would have wanted because the Permanent Secretary would have come to the view that, actually, the Shareholder Executive was doing this to task perfectly adequately, and had been doing this task perfectly adequately. If you remember – well, if you go back in history, when the Shareholder Executive inherited the Royal Mail activity, they took the whole team, which substantially included the policy people as well. So things like activities, such as Parliamentary engagement, et cetera, that all came into the Shareholder Executive, which was unusual for us because we wouldn’t typically do that sort of thing.
Ms Price: That knowledge and experience, was that Royal Mail level knowledge and experience?
Mark Russell: Knowledge and experience of the policy role? It would have been – it would have developed there, that is correct. But remember, our model is a model of combining private sector people and civil servants, and absolutely key to the model working is that we had a regular flow of civil servants. So, at any one time, there would be a cadre of civil servants who may have been acting in other departments who would absolutely understand what a policy role was.
Ms Price: Aside from departmental resourcing constraints, what were the other reasons why the dual role was maintained until 2018, if there are any over and above –
Mark Russell: Yeah, I don’t think there are. I think – I don’t think it was seen to be a particular priority. I should say, I did say there was potentially two reasons you would want to split the two, and this has become very clear as a result of Horizon. It does potentially provide another set of eyes on the situation. I mean, I would absolutely acknowledge that and, had we split the team earlier, it might have been the case that that other set of eyes was quicker to the issue than we were.
Ms Price: We will come in due course to your reflections on that in your statement.
You explain in your statement at paragraph 74 that in April 2018 UKGI assessed Post Office Limited as Red, using the traffic light system, for departmental relationship and you say that was on the basis that you were increasingly anxious for the policy role for Post Office Limited to return to the Department. Are the consequences which may have flowed from the failure to separate out these roles sooner, that which you’ve already referred to, the situation where you don’t – you don’t have two eyes from the policy and the shareholder side of things, and the potential conflict? Are those the two main things?
Mark Russell: Yes, I mean, would it have made a difference? I just don’t know. It might have made a difference but I certainly couldn’t definitively say it would have made a difference. And do remember, even if we had a policy team that, as indeed we do now – it is a fairly small team it’s couple of people, so one – if that. So we shouldn’t inflate the importance of that, I don’t think.
Ms Price: Finally on that point, is it fair to say that, in the same way departmental civil servants and ministers do not have the expertise to deal with or oversee the operational affairs of a company like the Post Office, the Shareholder Executive and UKGI officials were not experts in public policy issues?
Mark Russell: Well, is that fair? We had civil servants who were very experienced in doing policy work. So I don’t think you can make that observation.
Ms Price: I’d like to deal next, please, with the individuals with responsibility for Post Office Limited or Royal Mail, from 2013. You explain at paragraph 51 of your statement that the teams within the Shareholder Executive and UKGI responsible for Post Office Limited and Royal Mail were distinct. To the best of your understanding, had this always been the case?
Mark Russell: Yes.
Ms Price: Could we have on screen, please, paragraph 52 of Mr Russell’s statement, that’s page 21. You explain here that:
“From December 2013, Anthony Odgers became the [Shareholder Executive] Director with responsibility for [Post Office Limited] and for the Government’s remaining RM shareholding. In October 2015, this responsibility passed to Justin Manson and, in January 2018, to Tom Cooper. ED [is that Executive Director] responsibility for Post Office Limited (reporting to [Royal Mail] Directors) was Richard Callard (January 2013-April 2018), and Tom Aldred (May 2018-February 2020).”
You go on to explain that on separation from Royal Mail in April 2012, Susannah Storey joined the Post Office Limited Board. We’ve covered that already, that she was the Non-Executive Director from the Shareholder Executive on the Board and she remained on it until March 2014:
“From this point, [the Shareholder Executive] Shareholder NED had responsibility for [Post Office Limited’s] shareholder team within UKGI. These positions were occupied by Richard Callard … from April 2014, and Tom Cooper … from March 2018.”
You deal with who line managed Susannah Storey at paragraph 54 and you explain that she reported to Stephen Lovegrove up to March 2013, at which point she reported to you on her Post Office Limited position but continued to be line managed by Stephen Lovegrove on other matters; is that right?
Mark Russell: Yeah.
Ms Price: Given that Susannah Storey reported to you from March 2013 on her Post Office Limited position, was she a direct source of information for you when you were compiling reports covering the Post Office Limited for the Shareholder Executive and later UKGI Board?
Mark Russell: Yes. But the primary source would be the shareholder team.
Ms Price: Did the fact that you line managed her make any difference to the information flow?
Mark Russell: No, no.
Ms Price: In terms of lines of responsibility, is it right that the relevant Executive Director was responsible to the Shareholder Executive Director for delivering the shareholder role –
Mark Russell: Yeah.
Ms Price: – and the director was in turn responsible to you as CEO?
Mark Russell: Correct.
Ms Price: Within the Shareholder Executive, is it right that the Executive Committee was the committee comprising the senior members of the Shareholder Executive responsible for day-to-day running of the organisation?
Mark Russell: Correct.
Ms Price: Could we have on screen, please, paragraph 60 of Mr Russell’s statement, that’s page 24. Is this paragraph, paragraph 60 – and if we can just scroll up, please, to see the paragraph before, so paragraph 59 deals with the Executive Committee and going down, please, to paragraph 60.
Is paragraph 60 still addressing the Executive Committee?
Sorry, if you can just give an answer for the transcriber?
Mark Russell: Sorry, please ask your question again.
Ms Price: Is paragraph 60 continuing to discuss the Executive Committee?
Mark Russell: It is.
Ms Price: Here you say:
“There was discussion on specific portfolio and transaction matters if there was a significant issue or event, especially if there was a need to socialise the matter. With respect to [Royal Mail] and [Post Office Limited], [the Executive Committee] would be aware of major strands of activity and any associated problems and issues. It would also regularly review the Traffic Lights/Dashboard entries relevant to [Post Office Limited]. Absent particular issues of concern, the [Executive Committee’s] primary focus would be the resourcing of our governance and whether this was sufficient.”
How would the Executive Committee be informed about a significant issue or event?
Mark Russell: In part through the risk register, in part the directors who ultimately had responsibility for every strand of activity would all be members of ExCo, so partly through the directors themselves, raising issues with other ExCo members. I think those would probably be the two major ways and, of course, I would be sighted on particular issues and I would socialise them at the ExCo. So there would be multiple ways of information feeding to the ExCo.
Ms Price: It may follow from your answer but who would decide whether an issue or event warranted report to the Executive Committee?
Mark Russell: There would be no clear decision. I mean – and your question suggests slightly more rigour than perhaps there would be. The whole point of an Executive Committee is that it should be a forum where you air issues, concerns. There would be a pattern of reporting through the dashboard, through the risk registers, which of course is a formal way of sighting ExCo members but a good Executive Committee wouldn’t just be bound by those. They’d be listening to what colleagues were saying, even if they’re somewhat ad hoc. That really is the point of the Executive Committee.
Ms Price: Just while we are on this paragraph, you’ve used the term “socialising” a number of times in your oral evidence and in your statement.
Mark Russell: Yeah.
Ms Price: Can you just explain for clarity what you mean by that?
Mark Russell: It means sharing the issue, yeah. And when we – if we come on to risk registers, it’s I think a very important feature of risk registers.
Ms Price: Sir, I have finished one topic. Perhaps that might be a convenient moment for the first morning break.
Sir Wyn Williams: Yes, certainly. What time shall we resume?
Ms Price: 11.15, I think, would be ten minutes.
Sir Wyn Williams: All right, fine.
Ms Price: Thank you, sir.
(11.07 am)
(A short break)
(11.17 am)
Ms Price: Hello, sir. Can you still see and hear us?
Sir Wyn Williams: Yes, I can thank you very much.
Ms Price: I’d like to turn, please, Mr Russell to process for risk identification and management. You explain at paragraph 65 of your statement that the Shareholder Executive oversaw Post Office Limited through its portfolio review process and its risk management processes. You describe this as being in addition to overall supervision of the Shareholder Executive Director portfolio reviews, project monitoring, performance management and risk processes.
Starting, please, with the traffic light monitoring mechanism, is it right that this was established early in the life of the Shareholder Executive?
Mark Russell: Correct.
Ms Price: Can you explain, please, the thinking behind it?
Mark Russell: I think nothing more sophisticated than giving a snapshot to other senior colleagues as to the kind of state of a portfolio organisation, along certain key metrics.
Ms Price: Traffic light assessments were produced on a quarterly basis by the asset shareholder teams?
Mark Russell: Yes.
Ms Price: It appears that the traffic light analysis was included in some of the quarterly reviews the Inquiry has seen.
Mark Russell: Yes.
Ms Price: By way of example, could we have on screen, please, UKGI00041969. This is the April 2012 Post Office Limited quarterly review and, going to page 5, please, we can see the traffic light analysis here. On this particular traffic light analysis, would you agree that there’s fairly limited information recorded next to the colours, the “Green” and “Amber” to the right?
Mark Russell: Yes, I would, but that is a feature of traffic light analysis. It is very high level, and I should also say it is rarely accurate. It very much depends on a view being taken as to – because a lot of these measures are highly subjective – a view being taken by the shareholder team. And the accuracy of it actually bothered me less because I like to get discussion behind these and that people have thought about them. So you will find there’s some inconsistencies that go through and, ideally, you wouldn’t have inconsistencies, but we shouldn’t pretend that these are an exact science. They are absolutely not an exact science. I am far more interested in the conversation they prompt.
Ms Price: There are six different criteria or things that are being assessed by the traffic lights there. Are those set and unchanging?
Mark Russell: I think so, yes, and I think we still use these, yeah.
Ms Price: So those are: first, shareholder relationship; second, implementation of shareholder model; third, quality of management team and Board; fourth, strategy; fifth, financial performance; and, sixth, balance sheet and risk.
The wider document we have here, the quarterly review, is five pages long. Is this a portfolio review of the type you describe at paragraph 67 of your statement, or is it something different?
Mark Russell: I’m not absolutely sure. We – I think the answer is yes. On a quarterly basis, we tended – and I don’t know if this is a quarterly review – on a quarterly basis we –
Ms Price: Apologies, if we can go back to page 1, it might just help you.
Mark Russell: Yes, quarterly review. These tended to be more high level than the annual review.
Ms Price: You describe the quarterly reviews, the quarterly portfolio reviews, as providing considerably more detail on performance objectives and risk than the traffic light assessment alone.
Mark Russell: Yeah.
Ms Price: So going, please, to page 2 of this document and just scrolling, please, to page 3 and page 4. So we can see, just going back to page 2, please, that the quarterly update spans two pages there, with a number of different topics that are being addressed.
Mark Russell: Correct. You’ll see these developed even further. So I think quarterly reviews two years on were more detailed than this.
Ms Price: Yes. This is quite an early review in the piece –
Mark Russell: Yeah.
Ms Price: – putting it in the context of separation. Who, within the Shareholder Executive, considered the portfolio reviews, the quarterly reviews?
Mark Russell: Do you mean who were they presented to?
Ms Price: Yes.
Mark Russell: So we would have portfolio review sessions and one of the purposes, probably the key purpose of those sessions, would be what I’d call peer review. So it would be senior – actually, not necessarily senior. We certainly would want senior people there but more junior colleagues would be encouraged to come as well. It would be a way – I go back to the phrase “socialise” – a way to socialise some of the issues of a particular organisation and also for the shareholder team to be challenged on issues by their peers.
Ms Price: Would you, as CEO, consider the quarterly portfolio reviews when you were reporting to the Board at that high level, across-all-work-streams report?
Mark Russell: Possibly, but remember we’ve – we may have 20 of these. So considered is probably the – is probably right but we certainly wouldn’t include all of these.
Ms Price: As a matter of practice, did you read all of the –
Mark Russell: No.
Ms Price: – quarterly reviews –
Mark Russell: No.
Ms Price: – before reporting to the Board?
Mark Russell: No.
Ms Price: It simply wouldn’t have been manageable?
Mark Russell: Correct, and this is the point of having Delegation Directors, Executive Directors, to do that.
Ms Price: That document can come down now, thank you. You refer in your statement at paragraph 67 to there also being an annual review which was intended to provide a more in-depth view of the asset and you say that this annual review included commentary on the asset’s long-term strategy and objectives for the upcoming year.
Again, taking an example of an annual Post Office Limited review, can we have on screen, please, UKGI00017385. This is a much more detailed document, and the traffic light analysis is also more detailed in this one. The document itself runs to some 60-odd pages. If we can go to page 58, please.
Apologies, I should just say, before we go, this is the annual review for December 2012.
Going to page 58, please, the traffic light analysis is a section, it’s section 9, and there we have the shareholder relationship, implementation of shareholder model, those same six things being addressed.
We can see by the “Shareholder Relationship” this summary:
“There is a good and constructive relationship with the new Chair and a strong relationship with the CEO who has demonstrated her clear commitment to [Post Office Limited’s] strategic plan. The new NEDs are challenging management, and this has been further improved by the recent appointment of Tim Franklin (who brings with him Financial Services and mutual experience).”
There is no mention that I can find, either in this traffic light analysis, or anywhere else in this review, to any challenges to the integrity of the Horizon system. This is December 2012. Second Sight had been instructed to conduct its investigation in July 2012, some five months before. Do you find it in any way surprising that there is no reference in this document, in its 60-odd pages, to challenges to Horizon integrity?
Mark Russell: Yeah – no, is the answer. I don’t find it surprising because, at the time, we absolutely didn’t understand the significance of the Horizon issue and this is a theme I’m sure we’ll come back to, but it doesn’t surprise me at all that it isn’t in there.
Ms Price: Are you saying that the Shareholder Executive was aware that Second Sight had been instructed but didn’t understand the significance of that instruction, or is that something that isn’t present in this review because the Shareholder Executive had not been told? Do you know the answer to that?
Mark Russell: I am pretty sure the shareholder team would have been aware of the appointment of the Second Sight. Just as they’d be aware as to the reason why Second Sight was appointed, but they wouldn’t have considered it of sufficient importance to be putting into the traffic light analysis.
Ms Price: That document can come down now. Thank you. As with the quarterly portfolio reviews, who received the annual reviews?
Mark Russell: Well, they’re available to all members of ExCo. In fact, they’re available to anybody in the Shareholder Executive who wants to read them. But the primary recipient would be the portfolio review, whenever that was taking place. So attendees would receive that document.
Ms Price: So would that be the Shareholder Executive Director?
Mark Russell: It would – well, the Director would be there, the whole team would be there. But other Shareholder Executive colleagues would be there. That’s, as I say, the purpose of it, and they –
Ms Price: So you’re referring to the review meeting itself?
Mark Russell: Correct. So they’d all be recipients of that, yeah.
Ms Price: You describe the addition in 2015 of dashboard reports to the risk documents at paragraph 68 of your statement. Could we have that on screen, please, it’s page 27. At paragraph 68, you say this:
“In addition, from 2015, Dashboard reports were produced, to support the UKGI Board and ExCo in tracking the performance of [the Shareholder Executive]/UKGI’s main activities, and in challenging teams for individual assets as required. These included a summary of the top priorities for each asset, their Traffic Light assessment, and the relevant extract from the [Shareholder Executive] risk register. The Board and ExCo would receive regular Dashboard updates as part of their briefing packs.”
Were these dashboard reports the dashboard reports you referred to earlier as being the documents which would accompany your report to the Board with your overview?
Mark Russell: Correct. They were a mechanism to pull all of this together.
Ms Price: Taking one Shareholder Executive dashboard by way of example, again, could we have on screen, please, UKGI00020145. This is a January 2016 Shareholder Executive dashboard. Going to page 2, please, we can see here a mission statement. Is that general to the work of the Shareholder Executive?
Mark Russell: Yeah.
Ms Price: Then on page 3, please, we can see the information provided about Post Office Limited. So in the middle of the page, the “Asset” is identified on the left, then there is “Governance – Top Priorities”, and there are six bullet points there. Then we see the assessment: is that the traffic light assessment, the third column there?
Mark Russell: Sorry?
Ms Price: Is that the traffic light assessment?
Mark Russell: It is, it is.
Ms Price: Okay. We see the “Lead” person, is that the lead person involved with Post Office Limited?
Mark Russell: Correct. Justin Manson, yeah.
Ms Price: Okay, was that the Executive Director?
Mark Russell: No, that was the Director.
Ms Price: Okay. So in terms of the top priorities that are recorded here, we have:
“Ensure [Post Office Limited] on track to break even …
“Reconfirm timescales for consultation with Ministers and SpAds by end [of 2026]
“Conclude the Network Transformation Programme before March 2018 …
“Protect 3,000 rural branches as per the Government’s manifesto commitment.
“Minimise HMG and POL exposure (financial and reputational) to alleged Horizon IT issues …”
So this dashboard was communicating in one bullet the issue of Horizon IT issues and the challenges or the allegations in relation to that: minimise HMG and Post Office exposure. Was that the shareholder objective or was that the policy objective?
Mark Russell: Well, I don’t know that it was – I would say it was an objective. As you can see at the top it says, “Top Priorities”, in terms of governance. So I think that is probably what it is: a priority of governance.
And what I comment on this, I mean, two things: one is, as you’ve said, these are summaries and necessarily, they won’t be capturing everything; but more important, even at this stage, which I think was early 2016, the Horizon risk was not properly understood and I don’t think we can shy away from that. It was not properly understood by the Shareholder Executive.
So, for sure, knowing what we know now, this would have been written differently.
Ms Price: Is there a risk that in reducing the governance top priorities to a handful of bullet points in this way, the significance of things, and of potential risk, is lost?
Mark Russell: Completely.
Ms Price: Is that something you consider was necessary because of the need for an overview or is that something, looking at it now, that you think was not right?
Mark Russell: It’s a trade-off, isn’t it? I mean, I still think there’s merit in trying to flush out the key issues of a portfolio organisation because, if we go back to what we’re tying to achieve here, we’re trying to socialise what the key objectives are for colleagues who perhaps aren’t particularly involved. So necessarily we must summarise but we can do that badly.
Ms Price: Is this all the information – and just to confirm, the text beneath which is marked as “Irrelevant” does not relate to the Post Office – is this all the information which the dashboard being provided to the Shareholder Executive, and later the UKGI Board, would contain for each asset?
Mark Russell: No, they’d see also risk registers and –
Ms Price: We’ll come on in due course to the overarching Shareholder Executive risk register.
Mark Russell: Yeah.
Ms Price: But just in terms of the dashboard that you’ve referred to as going with your report to the Board, this was the kind of level of information being provided?
Mark Russell: It was. Sorry and just to answer your question, was this all they were seeing, they were seeing this, they were seeing risk registers, they were seeing Board reports, as well, which would include my CEO summary and ad hoc reports on particular assets.
Ms Price: That document can come down now. Thank you.
Sir Wyn Williams: Before it does, can you just explain to me what I should understand by the use of the word “exposure” in bullet point 5?
Mark Russell: Um, “exposure”. Well, I didn’t, Sir Wyn, write this.
Sir Wyn Williams: No, no.
Mark Russell: I presume what was meant was that it didn’t directly involve the Department and ministers on the day-to-day basis. I think that’s probably what they’re trying to get at there.
Sir Wyn Williams: I understand that if it stopped at “HMG” but it goes on to say “and Post Office Limited”. So I’m struggling, really, to make sense of what it means.
Mark Russell: Sorry, can we put it back up again?
Sir Wyn Williams: I mean, on a simplistic level, once you’ve got it back, it could mean to minimise publicity about these things; is that what it means?
Mark Russell: Yes, I think there must be an element of that and, again, I think this Inquiry is showing that there was a concern about publicity around the Horizon system, completely misguided but on the basis that we had an organisation who had complete faith in this and felt that great publicity around its faults would be damaging. I don’t think we can deny that. That definitely was happening.
Sir Wyn Williams: All right, thank you very much. It’s back now but I think we’ve – I’ve at least had answers to the questions I’ve asked there, Mr Russell. Thank you.
Ms Price: Thank you, sir.
Mr Russell, was there anything you wanted to add now that is back up on the screen?
Mark Russell: No. Thank you.
Ms Price: That can come down again now.
You have set out some key steps in the evolution of the Shareholder Executive and later UKGI’s risk reporting management at paragraph 69 of your statement.
The first of these was reintroducing a group risk register in January 2013. Can you explain the rationale behind that, please?
Mark Russell: Yes. I think – I can’t just remember but I think, prior to this point, most of the risk reporting went up through the Departments whose assets we were engaged on or whose corporate finance activities we were engaged on. As I think I explained earlier, every department would have their own way of doing things. I think in 2012/2013, we came to the view that we needed a Shareholder Executive consistent view across all our portfolio activities, across all our corporate finance activities, so we were better able to judge the relative issues between the portfolio organisations and the corporate finance activity, otherwise it’s quite difficult.
Ms Price: You go on to explain that the Shareholder Executive Risk and Assurance Committee was established in July 2013 and that was chaired by the Chief Operating Officer of the Shareholder Executive?
Mark Russell: Correct.
Ms Price: Is it right that the purpose of the Risk and Assurance Committee was to review key risk across the portfolio and ensure consistency of approach?
Mark Russell: Yes. The other thing I was very keen on was that somebody fairly independent, and the person who was chairing that, had a deep background in portfolio management in the private sector. I was very keen that she had the ability to just call things out. If she saw something she didn’t like, or wanted more explanation for, she could just call in a review.
Ms Price: Sorry, who is –
Mark Russell: So it also provided that kind of ad hoc ability, outside the system of regular reporting, to be able to just focus on something that one of our colleagues might want more explanation behind.
Ms Price: Who is the lady, the “she” that you were referring to?
Mark Russell: Fiona-Jane MacGregor.
Ms Price: The Risk and Assurance Committee reported to the Executive Committee on the outcome of the group’s discussions; is that right?
Mark Russell: Correct.
Ms Price: You say the Risk and Assurance Committee would conduct deep dives into the project once or twice a year, bringing the outcomes to the Executive Committee for review?
Mark Russell: Correct.
Ms Price: Can you recall being aware of any deep dives into Post Office Limited during the time that you were CEO?
Mark Russell: I can’t recall individual instances – well, I can recall one, which was a deep dive into the management capability, and I think I was present at that particular committee. I can’t recall other individual deep dives but I’m pretty sure there were some.
Ms Price: As far as you’re aware, were challenges to the integrity of Horizon, Post Office prosecutions or debt recovery actions covered ever by such a deep dive?
Mark Russell: Not that I can remember.
Ms Price: In terms of risk registers, is it right that an individual risk register template was created in February 2014 for use in relation to each asset?
Mark Russell: Yes, I think this was the introduction of heatmaps, is that –
Ms Price: So we can deal with it in your statement. Paragraph 69, it’s page 29 of the statement, please. Subparagraph (e) at page 29. So you describe here in February 2014 that the Executive Committee agreed a new risk review process template and it seems to be saying that was for the purpose of ensuring consistency in approach across all assets but they were for use for each individual asset; is that correct?
Mark Russell: Correct.
Ms Price: Each individual risk register was aggregated into an overarching Shareholder Executive risk register?
Mark Russell: Yeah.
Ms Price: This overarching risk register, you say, included a summary heatmap?
Mark Russell: Yeah.
Ms Price: That showed the risk across the portfolio on one page?
Mark Russell: Correct.
Ms Price: Again, by way of example, could we have on screen, please, UKGI00016850. Is this front page here a heatmap for all Shareholder Executive assets?
Mark Russell: Yes, it looks like it, it is.
Ms Price: You’ll see “GRO” appearing in all the bubbles apart from Post Office Limited. So if you look towards the top of the page in the top squares there, in the middle, you’ll see “Post Office Limited”, and then the others are all redacted in terms of the names of the other assets?
Mark Russell: Yeah.
Ms Price: But is this the one-page heatmap showing all assets across the portfolio?
Mark Russell: Yeah, and maybe just a minute on why we had the system, and I seem to remember this idea of heatmaps, we did get a couple of people from private sector organisations to give us some advice on what is the best way of capturing risk register. The trouble with risk register – risk registers for organisations are very important because they alert people to where we should be focusing attention and, going back to my word, they get individuals to think hard about the risks in their portfolio, they are a mechanism to socialise the risks, so we all know about them, and they’re a mechanism to demonstrate how you’re mitigating against those risks.
So risk registers in all organisations are really important. But the trouble with risk registers is they become process, and people just see them as – and I have lots of experience of seeing this in private sector organisations. So you need a way to get individuals constantly engaged with, and see that this isn’t just process, this is something active. And I remember when we introduced this, looking down our floor, because we’re all on one space and seeing many of the screens with this on, and I thought, “Well, we’re doing our job here because people are engaging with this process”.
So this was not a – the aim of this was something that was very active, it wasn’t a passive bit of process and, most important, we wanted teams to engage with it and, of course, most important, it was only as good as what was being produced by the teams.
So I would maintain this was a good system but it didn’t capture one of our biggest risks, as we’ll come on to.
Ms Price: So this front page has the heatmap on and then the individual risk registers are incorporated, aren’t they, into this overarching document?
Mark Russell: Yeah.
Ms Price: So we can see the tabs at the bottom and one of those tabs is Post Office?
Mark Russell: Yeah.
Ms Price: So we click on that, please. We can see here that there is another heatmap and this time what does the heatmap include; can you help with that?
Mark Russell: I think this is the risk register – well, it is the risk register of the Post Office itself – sorry, our version of it, it’s not put together by the Post Office – and it’s designed to capture what the team believed were the key risks within the Post Office.
Ms Price: And putting each of those things in a location on the heatmap, again to show what is more risky as an area than another?
Mark Russell: Yes, and, as I’m sure you know, essentially it’s a matrix of where people try to score what is the probability of one of these risks occurring against the impact, should it occur.
Ms Price: Looking down below the heatmap, we can see a list of items and topics being addressed. Looking, please, at item 11, we can see reference here to Project Sparrow, can’t we? It’s a little difficult to read all of the wording but, if we click on column D, I think that does show the full text. In this column it’s recorded:
“The Working Group is unable to progress cases and the process is publicly criticised by applicants and the JFSA.”
If it helps to scroll up, what was that column addressing?
Mark Russell: I think that was the definition of the risk or the characterisation of the risk.
Ms Price: So if we can just scroll up, so we can see the headings, please. So we have “Risk Overview” then “Impact of Risk”, the “Type of Risk” and, as you’ve described there, both probability and impact being identified in the percentages, and “Mitigation Overview”, “Mitigation Ratings”, “Further Mitigating Actions” and “Current Status”. So scrolling back down, please, to item 11, you can see in column E there’s identification of reputational and brand risk due to perception that Post Office Limited has not supported subpostmasters with accusation from JFSA that the process was flawed and not sufficiently transparent.
We can see “Probability” is assessed as 1 there. That’s 1 out of –
Mark Russell: 5, I think.
Ms Price: “Impact” is assessed as 4. So does that essentially mean the probability is low but the impact would be high?
Mark Russell: Correct.
Ms Price: Then we can see in the next box:
“Shareholder Executive is ensuring Post Office Limited engages with members of the Working Group and seeks to address issues over the operation of the Working Group if they arise.”
Then going, please, to column P we have:
“Provide robust responses to queries about the Working Group stating the findings of the initial review that there are no systemic issues and that that there is an independent Chair. Caution needs to be exercised to ensure that the independence of the Chair is not undermined.”
Then the final column there:
“Terms of reference have been agreed by the Working Group, which is independently chaired but Second Sight are unable to process cases and JFSA wish to exit the group. An interim report published in July 2013 found there was no systemic issues with the Horizon.”
I don’t know whether it’s missing a word there but it seems to end on “Horizon”, if we can see in the long readout of the box.
Mark Russell: Yes.
Ms Price: Was this the Post Office Limited risk register, which you deal with at paragraph 124 of your statement, which you say was considered at the Shareholder Executive Risk and Assurance Committee on the 19 February 2014?
While we’re on this risk register, can we have on screen, please, UKGI00042124. These are said to be the minutes of a meeting on 19 February 2014. It appears to have been specifically convened to consider the Shareholder Executive’s major risks in relation to Post Office Limited; is that right?
Mark Russell: That’s right.
Ms Price: We can see you were at the meeting, along with Fiona-Jane MacGregor, the Chair, Guy Mason and Tim Martin, and the presenting team was Richard Callard, Katrina Lidbetter and Tim McInnes?
Mark Russell: Correct.
Ms Price: Much of the meeting, if we scroll down, appears to be dedicated to discussions about the performance of the CEO of Post Office Limited but going, please, to the bottom of page 2, paragraph 14, we have this:
“The committee asked what Project Sparrow was – Risk 11. TMc explained that this is with regard to a financial system that is used by subpostmasters. Some of whom have received criminal convictions for misuse, however the subpostmasters are suggesting that the actual system was at fault. All the [Post Office Limited] investigations so far have shown that the system is working correctly. However, the risk is that if the system were to show up as defective then potentially the criminal convictions could be overturned and compensation from [Post Office Limited] sought.”
So this was in February 2014.
Did you or anyone else at this meeting suggest at this stage that Project Sparrow and the issues raised there in response to the query should be raised specifically with the Shareholder Executive Board?
Mark Russell: I don’t believe we did.
Ms Price: Can you help with why?
Mark Russell: Well, I think because we didn’t consider – and weren’t we wrong – we didn’t consider this to be a significant risk. I think it’s as simple as that.
Ms Price: That document can come down now. Thank you.
Mark Russell: Sorry, I say a “significant risk”: a significant risk that the system was at fault.
Ms Price: What part did the assurances given at that meeting play in you not considering it a risk that the system was at fault?
Mark Russell: I can’t remember but I am sure the shareholder team were there, so they would have given us some assurances on that.
Ms Price: In general terms, you address what risk register information went to the Shareholder Executive Board at paragraph 69(f) of your statement. Could we have that on screen, please, it’s page 29.
That’s 69(f). So, from what you say here, is it right that the whole overarching Shareholder Executive risk register was not provided to the Board, so we see here:
“By May 2014, Risk Registers were included as a standing item on the [Shareholder Executive] Board agenda. Risk updates included the overall [Shareholder Executive] Heatmap, and a summary of each asset’s ‘Overall Risk’ rating and ‘Reputational Risk’ rating. The top risks for each project continued to be included in the core pack as part of project updates and discussed during ‘deep dives’ conducted by the Board …”
So is this in essence saying that the whole risk register did not go to the Board, ie not each individual risk register, but higher level information instead did?
Mark Russell: Correct, and it illustrates, amongst other things, the danger of, like, the bullet points of summarisation. But then, the counter to that is you do want Board members to engage on it and, if you provide them with 60 sheets, the chances are they won’t.
Ms Price: The top risks you refer to, are those the ones contained in the dashboards?
Mark Russell: Sorry are they the ones?
Ms Price: Contained in the dashboards; are they the bullet points we see in the dashboards?
Mark Russell: Yes, that’s what I was referring to, yes.
Ms Price: The deep dives you refer to, are those separate deep dives conducted by the Board or are those the same deep dives done by the Risk and Assurance Committee?
Mark Russell: No, I think conducted by the Board. That’s certainly what I’ve got there.
Ms Price: Do you recall the Board conducting a deep dive into matters at Post Office Limited?
Mark Russell: Not at that time, no. Possibly later but not at that time.
Ms Price: You deal in your statement at paragraphs 69(g) and (h) with further changes to the approach to risk management in 2016 and then again in 2018 at paragraph 69(i). The change in approach in 2018 led to the Board focusing their risk discussions on those assets with risks in the top right hand corner of the heatmap and with any significant changes in reputational or delivery risk; that’s how you describe it, is that right?
Mark Russell: Correct.
Ms Price: Was there a risk, which we’ve touched on already, inherent in this approach in focusing on the top right-hand corner of the heatmap in that it relied too much on the ability of the heatmap to flag up where the focus should lie?
Mark Russell: For sure.
Ms Price: In terms of your external reporting to the Department, you deal with this at paragraph 71 of your statement. Could we go to that, please. It’s page 32.
Without taking you through it all, can you explain, please, the reporting process and, in particular, what information from the various reviews and risk registers went through to the Department?
Mark Russell: Yes. I’m – the Department did have its own risk register, which we would definitely have fed into, to the extent it was a Business Department related risk. There was then, for the Business Department, there was delivery reports, which were pretty high-level reports that focused in particular against – again, very high level – the key goals of each department and so of each asset. But for something like Post Office, it would be very high level.
Ms Price: Lastly, before we turn to oversight of specific issues for Post Office Limited, I’d like to deal, please, with the applicable governance principles, and you deal with this at paragraph 72 in your statement, if you need to refer to it.
Am I correct in summarising the position in this way: although Post Office Limited was not formally required to report on its compliance with the UK Corporate Governance Code, it was treated as a benchmark for reporting on corporate governance by the Post Office Limited Board.
Mark Russell: Correct.
Ms Price: More generally, as set out in the 2007 Shareholder Executive handbook, is it right that governance of government-owned business should, wherever possible, reflect commercial best practice?
Mark Russell: Yes.
Ms Price: The Corporate Governance Code for Central Government departments, you say would have been applicable?
Mark Russell: Yeah.
Ms Price: Is it also right that you did not believe there were any material differences between governance in a publicly listed company and a publicly owned company, other than the latter is accountable to the Minister, who is accountable to Parliament?
Mark Russell: Correct.
Ms Price: That can come down now, thank you.
Turning now to oversight of specific issues with Post Office Limited, and starting with oversight of Post Office Limited pre-separation. You explain in your statement that your direct role in oversight of Post Office Limited before its separation from Royal Mail, was very limited. Although you were at various meetings where matters relating to Royal Mail and Post Office Limited were discussed, including Shareholder Executive Board meetings.
Mark Russell: Yeah.
Ms Price: You recall the most prominent issues concerning Royal Mail and Post Office Limited in 2010, relating to the privatisation of Royal Mail; is that right?
Mark Russell: Correct.
Ms Price: You refer at paragraph 77 of your statement to a Shareholder Executive Board Briefing on Royal Mail, which was sent to you in June 2010, and it had a relatively short section on Post Office Limited. If we could have that on screen, please, the reference is UKGI00041941 – forgive me, I think I may have the wrong reference there.
If we could have UKGI00041943, please. So we can see there “Royal Mail – [Shareholder Executive] Board Briefing”. This paper sets out the history of the 2008 Hooper Review, which recommended introducing a private sector strategic partner to inject private capital into Royal Mail, whilst keeping Post Office Limited in public ownership.
If we go to page 3, please, about halfway down the page, the penultimate bullet point there in section 7:
“Although the Post Office will remain in public ownership, we need a strong creditable story, underpinned by funding, on the Government’s commitment to the network. Public concern about the impact on local post offices has derailed previous efforts to sell [Royal Mail].”
So the focus here was on what was necessary to ensure that public concern about the impact upon local post offices was allayed, given that this had derailed previous efforts to sell Royal Mail; is that a fair summary?
Mark Russell: Yes.
Ms Price: Shareholder Executive resourcing is dealt with in the next section down and, as you say, in your statement, the Shareholder Executive Post Office Limited team was made up of one senior Civil Service grade, one grade 6, one grade 7, one fast streamer and one higher executive officer with ongoing recruitment for a further G7 and higher executive officer.
The view expressed in the paper was that the Royal Mail, Bill Team and the Post Office Limited team were probably adequately resourced. Was this a view with which the Shareholder Executive Board agreed?
Mark Russell: I can’t remember. I have no reason to think they wouldn’t have agreed with that.
Ms Price: Is it right that you were not directly involved in the work being done to enable Post Office Limited’s separation from Royal Mail, although you received updates through the Shareholder Executive Board?
Mark Russell: Correct. My involvement with Royal Mail only – apart from the sale of the pension assets, my involvement in Royal Mail only really commenced when I became Chief Executive and, in that capacity, I was very involved in the privatisation.
Ms Price: You deal with preseparation plans for Post Office Limited governance from paragraphs 83 to 87 of your statement. That document can come down now. Thank you.
You described the intention, as proposed by Anthony Odgers, for the Shareholder Executive to take a more significant direct role in the Government governance of Post Office Limited, including by selecting a new Chair of the Post Office Limited Board and taking a seat on the board; is that right?
Mark Russell: That’s right.
Ms Price: By November 2011, at the point of the Shareholder Executive Post Office Limited Annual Review, the strategy was said to be to strengthen the Post Office Limited Board, including a new Chair and Non-Executive Directors to give increased levels of oversight and challenge, and you also say that you do not think you had any direct involvement in the NED appointments?
Mark Russell: No.
Ms Price: But you say you were not surprised that the Shareholder Executive had highlighted this as a priority, that is the appointment of Non-Executive Directors?
Mark Russell: Yes.
Ms Price: Why were you not surprised?
Mark Russell: I think at the time, there was – I mean it was clear that Post Office was going to be independent, it was going to remain owned by Government. It was inheriting a management team. So I don’t think any of the senior people, as it became independent, had been recruited in to the Post Office, post-separation. So I think there was a strong desire to ensure that the Board, which would be a new Board, was a strong, independent, new set of eyes on the organisation.
Ms Price: Was there any particular concern which NED appointments were intended to address?
Mark Russell: Not that I’m aware of, no. Other than the kind of strategic challenges at the organisation were pretty enormous and, you know, two things in particular was driving the – or increasing the revenue, increasing the Transformation Programme, making it a more commercial organisation. I think commercial skills was certainly something we were very conscious of.
Ms Price: You have noted at paragraph 78 of your statement, in the context of the Royal Mail and Post Office Limited Shareholder Executive teams in place in 2010, that the Shareholder Executive had no role in overseeing the conduct of prosecutions by Post Office Limited or Royal Mail. Why was that?
Mark Russell: Because it was – I think we would absolutely have taken the view it was an operational matter for the Post Office and Royal Mail.
Ms Price: If there were operational problems which impacted risk, shouldn’t those operational problems be on the Shareholder Executive’s radar?
Mark Russell: If – yes, if they were considered significant.
Ms Price: But how would the Shareholder Executive come to know there were problems, if there was no oversight of those operational matters?
Mark Russell: Well, I think while Post Office was part of Royal Mail, we wouldn’t really have much sight. I think that sight only came when Post Office became independent. Just as our visibility on Royal Mail was limited and we had no seat on the Board of Royal Mail.
Ms Price: Prior to separation, were you personally aware that private prosecutions were being brought against subpostmasters, their staff and Post Office employees?
Mark Russell: I don’t believe I was.
Ms Price: When do you think you became aware of that?
Mark Russell: I’m not sure. I think it was – certainly it would be post-our shareholder NED (unclear) Susannah Storey, but I would guess – when exactly after that, I don’t know. But it wouldn’t have been before that.
Ms Price: We’ve seen the minutes of the meeting in February 2014, which made reference to criminal prosecutions, criminal convictions. So, presumably, you were aware by that point; is that right?
Mark Russell: I don’t know. I – that’s a fair presumption but I can’t absolutely be certain I was aware then.
Ms Price: Do you draw a distinction between knowing that there were convictions and knowing that there were private prosecutions?
Mark Russell: Yes.
Ms Price: Again, prior to separation, were prosecutions discussed at the Shareholder Executive Board level to the best of your recollection?
Mark Russell: No, I can’t remember them having been discussed.
Ms Price: Do you recognise an inherent risk in bringing private prosecutions against its agents and staff, the Post Office being simultaneously victim, investigator and prosecutor?
Mark Russell: For sure I do now.
Ms Price: Is that something that you appreciated at the time when you became aware of the history of prosecutions?
Mark Russell: I don’t think I did and I know I definitely – and one’s memory of these things, because it’s a decade ago, I definitely remember taking clearly false comfort in the fact that independent courts were coming to views on prosecution of subpostmasters. But did I see the – once I knew about the ability or the practice of Post Office to privately prosecute, did I see the risk of false prosecutions? I don’t know, is the answer.
Ms Price: Because this was a risk which could eventuate going forwards, wasn’t it, even if prosecutions, at the point you were considering it, were no longer proceeding?
Mark Russell: Yes.
Ms Price: Is that something you can remember discussion of at all at any point?
Mark Russell: No, I can’t. I can’t. And, sorry, I was going to say, when – of course, one knows a lot more about the situation now, but I – when the Board, in 2013, effectively came to a decision to cease prosecutions or at least look at the policy for prosecutions, I don’t think I was aware of that.
Ms Price: With no Shareholder Executive Non-Executive Director on the Board, what mechanisms existed prior to separation for ensuring that the Shareholder Executive was alerted to risks such as this arising from operational matters?
Mark Russell: Well, the reporting regime of Royal Mail to the Shareholder Executive, and so the Department, that would be the only mechanism, or that mechanism and individual conversations that would be taking place with officials in the Department and with ministers. I think those can be the only two mechanisms.
Ms Price: At paragraph 88 of your statement you address the extent to which the Shareholder Executive exercised oversight of the pilot or rollout of Horizon Online. You say that you did not oversee this and that you do not think that the Shareholder Executive would have been closely involved, as this was an operational matter that would be left to Post Office Limited and Royal Mail to implement in line with the ALB model?
Mark Russell: Correct.
Ms Price: Again, if there were operational problems which impacted risk, wouldn’t that put an operational issue on the Shareholder Executive’s radar?
Mark Russell: Well, in theory, yes. But I am not familiar with the Royal Mail reporting in to the Shareholder Executive. This was absent a board member. I’m not familiar with the detail of that reporting. I would like to think that there was risk reporting and that big operational issues would be picked up, but I can’t be sure of that.
Ms Price: Sir, I wonder if that might be a convenient moment for our second morning break, just for ten minutes until 12.30, please?
Sir Wyn Williams: Yes, certainly.
Ms Price: Thank you.
(12.20 pm)
(A short break)
(12.30 pm)
Ms Price: Hello, sir. Can you still see and hear us?
Sir Wyn Williams: Yes, thank you.
Ms Price: Turning, please, Mr Russell to oversight post-separation. You say you became aware that the Horizon IT System had actual technical faults, later named bugs, errors and defects, at around the time you became aware of the Second Sight Interim Report. In your statement you say you cannot say exactly when that was, so I just want to try and place that in time a little, if I may.
You became permanent CEO of the Shareholder Executive in April 2013. The Interim Second Sight Report was published on 8 July 2013. Were you provided with the Second Sight Interim Report in 2013 when it was published?
Mark Russell: I can’t remember that I was. I think, though, I’d have been provided with a summary of it.
Ms Price: That was going to be my next question. Do you think you were ever provided with the full Interim Report?
Mark Russell: I can’t remember having been provided with it.
Ms Price: Do you recall who the summary of it came from?
Mark Russell: Well, I don’t even – there’s no document that shows the summary. So I think it was probably an oral summary and, even that, I’m not certain of but I’d have seen there’d have been references to it in submissions. I’m sure I’d have been aware of it.
Ms Price: How soon after becoming CEO in April 2013 do you think you were made aware of the Interim Second Sight Report: within the year, within months?
Mark Russell: Yes, within months, probably.
Ms Price: The Interim Report confirmed that two Horizon bugs had led to erroneous branch accounts and it made number of other criticisms of Post Office Limited. Do you think that this should have been flagged up to you, as CEO of the Shareholder Executive, immediately?
Mark Russell: Well, knowing what we know now, yes. What we knew then, in terms of the significance of those conclusions, I don’t know that it was obvious. I mean, clearly over the course of this Inquiry, I’ve looked pretty carefully of these documents and, if you read paragraph 8.2 of the Second Sight Interim Report, you don’t come away thinking there’s a profound problem here.
Now, we know there was and we know that the reference to bugs was a significant point. Would the reader then have known that and would that then have been escalated to me? I don’t know. I don’t think it’s obvious.
Ms Price: Do you consider that the detail of that report should have been discussed at Board level within the Shareholder Executive Board in 2013?
Mark Russell: Well, it could have been. I’m pretty sure it never was.
Ms Price: Do you think it should have been?
Mark Russell: Well, what – on the basis of what we know now, yes. At the time, no, I don’t think it was obvious at all.
Ms Price: 2013 was also the year in which the Simon Clarke Advices brought a halt to prosecutions because the Fujitsu expert who had been providing reports could no longer be relied upon. You say you were not aware of the Clarke Advice until after the GLO; is that right?
Mark Russell: That’s right.
Ms Price: Again, is this something you should have been made aware of, as CEO?
Mark Russell: Yes.
Ms Price: Something that should have been discussed at Shareholder Executive Board level?
Mark Russell: Yes.
Ms Price: Where do you consider the fault lies for that not reaching you and the Shareholder Executive Board?
Mark Russell: Well, from what I can see, the Board of POL weren’t made aware of it. So I’d certainly expect them to be aware of it and for them to inform us.
Ms Price: Also in 2013, there was discussion of what should and should not be included in the Royal Mail prospectus. Could we have on screen, please, POL00381730.
Starting on page 2, please. There is an email dated 16 September 2013. from Jorja Preston to Alice Perkins. The middle paragraph of this reads:
“I asked Martin Edwards for a briefing re your meeting with Mark Russell but Martin just wanted to know if there is anything specific you need included in the brief please? I was hoping to get it to you Wednesday morning when you are here but Martin and Paula are seeing Will G Wednesday afternoon so it might be sensible for Martin to send a few bullets after that meeting should anything come from it you need to be aware of? Are you happy …”
So it appears from this there was a discussion in this email ahead of a meeting planned between Alice Perkins and you. Going back, please, to the bottom of page 1, and Alice Perkins says:
“Hi Jorja,
“My main question [relates to] Strategy and Funding?”
There’s reference here:
“I also need to be on top of the industrial action so I’ll have another look at the presentation for the Board Deep Dive.”
So there’s some suggestion there that there was a deep diver into industrial action:
“Also the update on where we are on Second Sight etc. And the latest on the [Royal Mail] prospectus. So basically all the current hot topics.”
Were you aware at the time that the Royal Mail prospectus was being viewed as a “hot topic”?
Mark Russell: I can’t remember that, no, and, actually, I can’t remember any of this. I’m not particularly surprised I can’t remember it because, in the scheme of things, I was very involved in the Royal Mail privatisation, this would not feature very high up the list.
Ms Price: Could we have on screen, please, UKGI00002057. Starting towards the bottom of page 3, please, the email from Alex Dunn to Jonathan Lewis, 18 September 2013, and the subject is “Prospectus – [Post Office Limited] comments”, and we can see there in the middle paragraph:
“I will look through your mark-up in detail but please note that the Horizon point was raised specifically by one of the Non-Executive Directors who was adamant that a reference to this must appear in the prospectus. We had drafted the revised paragraph so that it was consistent with the report and [Post Office Limited’s] press release. [Post Office Limited] have reviewed this section and had no comments on it (as it is now drafted) so I am surprised that it should now be of concern to the [Post Office Limited] team within BIS. I think that is will need to stay as drafted.”
Then the reply to this above, it says:
“Tim – I explained to S&M the POL points and sent the attached mark-up. Please see the two emails below from S&M setting out the [Post Office Limited’s] position. Could you look at these and let me know your thoughts? With the strength of this opposition, given it is RM’s prospectus after all, there is only a limited amount of further pushing I think we can actually do. From a legal perspective, I would not advise pushing further.”
Then the email above this, the email is sent to Tim McInnes from the Shareholder Executive, this time, also on 18 September 2013. It says – apologies, this is from Tim McInnes to Jonathan Lewis.
I’m sorry, we’re too high up in the email, so if we can scroll down a little, please.
So that email below is from Jonathan Lewis to Tim McInnes in ShEx, then going up again, please:
“Thanks for this and for fighting our corner. I’m not sure I agree with any of their points – in particular certainly not around [Post Office Limited] signing off any wording …”
There are number of emails which follow on page 1 and, please, towards the bottom of page 1, we have Tim McInnes to Will Gibson:
“Yes. And I just had Martin on the phone … Alice is properly up for a fight. I’ve bought some time but let’s see what Emma can set up.”
Then the email above from Will Gibson to Tim McInnes. Then we can see there discussion, again, of that issue.
Going up again – apologies, going further down – that email which is highlighted:
“Alice coming in to see Mark tomorrow – this will be raised.”
Can you remember being made aware that Alice Perkins was properly up for a fight over the wording of the RM prospectus?
Mark Russell: No, I can’t remember that.
Ms Price: Can you recall being aware that there was any issues or dispute about the wording of the Royal Mail prospectus, vis à vis Horizon issues?
Mark Russell: I can’t remember it. This suggests I was aware but I can’t remember it.
Ms Price: Could we have on screen, please, paragraph 126 of Mr Russell’s statement, that’s page 56. Here you deal with a meeting which appears to have taken place between you and Alice Perkins on 3 June 2014, at which you appear to have offered some assistance in relation to Deloitte. We can see the section of the email that is set out there. I won’t read through that all now, unless you need me to.
In relation to Deloitte, you deal with this at paragraph 127. You explain here that you don’t have any recollection of the meeting with Ms Perkins but, with reference to that paragraph, what were you offering in relation to Deloittes work on Project Zebra?
Mark Russell: Well, as I say, I don’t have a memory of this but it appears – and this would seem logical – that Alice Perkins was at the stage of hoping for a Deloitte report that was fairly positive, and wanting this to be capable of being put into the public domain and it appears Deloittes, at that stage, weren’t prepared to do that and I could only deduce that they weren’t prepared either because, as is almost certainly the case, they wanted to do further work on the system or what often is a reason is that, in the original engagement letter, it isn’t clear that a report is going to be publicised, and professional services firms like Deloittes hate these things coming up at a later time.
What was I offering? I think just to test Deloittes as to whether they wouldn’t attach their name.
Ms Price: At paragraph 129, a little further down the page, you make the observation that it appears that the reassurance that was given to the Board by Deloitte meant that, regrettably, the full Project Zebra report was not scrutinised by the Board or by the Shareholder Executive; is that right, is that your understanding?
Mark Russell: Yes.
Ms Price: So you personally didn’t see the Project Zebra report; is that right?
Mark Russell: No.
Ms Price: You say at paragraph 203 of your statement that you did not know until the GLO that Fujitsu could insert data into branch accounts without the consent of subpostmasters –
Mark Russell: Correct.
Ms Price: – or that Fujitsu may be able to delete and replace Horizon audit files containing transaction data?
Mark Russell: Correct.
Ms Price: Where do you think the fault for this state of affairs lies?
Mark Russell: Well, this should have been known by the Board, I would say. Even though, you know, my subsequent understanding is Deloittes didn’t do a detailed analysis of the system. They – in one of their reports, they clearly had raised this issue. That should have been communicated clearly to the POL Board and the POL Board should have communicated it to us.
Ms Price: In relation to testing the option of bringing in alternative investigators, which was referred to in that email?
Mark Russell: Yeah.
Ms Price: That is alternative investigators to Second Sight; is that right?
Mark Russell: Correct.
Ms Price: Did you tell Alice Perkins that you were interested in the option of bringing in different investigators?
Mark Russell: Again, I can’t just remember how the discussion went. My memory of Second Sight was – and when I first heard that Second Sight were involved in this review my first question was: are these the sort of people who can do this type of work? Are they resourced correctly? I’d never heard of Second Sight and, as time went on, what I did hear, principally through my Shareholder Executive colleagues, was the complaint that they were struggling in terms of dealing with the various cases.
Now, this may not be an accurate summary of what the problem was but that was certainly what I was hearing. So I presume this conversation with Alice reinforced that point, that they were losing confidence in Second Sight and in their ability and capability to progress this bit of work. I think I’d have been of the view that the work was important and the suggestion of Grant Thornton would have simply been, as I think I say, my first port of call would have been get one of the Big Four professional services firms more directly involved. But, at the time, I was quite focused on the fact that, almost from a policy point of view, Government should try to get more Big Four type work into the next layer down and I think that’s why I would have suggested Grant Thornton.
Ms Price: Did you personally have any reason to think that there was a problem with either the quality of Second Sight’s work or the speed at which it was being produced or were you reliant and on what others told you?
Mark Russell: Completely on what others told me.
Ms Price: I’d like to come, please, to your detailed reflections, which are set out at paragraphs 208 to 227 of your statement. Starting, please, with paragraph 208 on page 92. You say here:
“… my involvement in the Horizon issues, and how these issues were addressed during my time as CEO of the [Shareholder Executive]/UKGI, was not material, and not nearly as material as I wish now it had been. As CEO of the [Shareholder Executive]/UKGI, various levers were available to influence (and, where appropriate, direct) actions to be taken, either through my [Shareholder Executive]/UKGI colleagues, through my relationships with the Chair and CEO of [Post Office Limited] and thorough the shareholding Department and its Ministers.”
Put simply, do you wish now you had been more involved in Horizon issues?
Mark Russell: Yes.
Ms Price: There is a lot of information you were not aware of at the time, as is evident from your statement. Do you think that the information you were aware of should have prompted you to become more involved than you were?
Mark Russell: Well, possibly, but I think you can say that about a number of people, if we’d understood the significance of what we were seeing.
Ms Price: Going, please, to paragraph 211 over the page. You deal here with some specific moments when there could have been more probing and persistence and you list the Deloitte Project Zebra report, the final Second Sight Report, the Panorama whistleblowing allegations and the Parker review. Are these moments that you think, on reflection, the Shareholder Executive and UKGI should have become more involved and questioned the Post Office Limited narrative further?
Mark Russell: Yes, I do. I do. And it is those specific instances. You know, I go back to the Interim Second Sight Report, which people still attach a lot of importance to, and I look at, as I say, paragraph 8.2 and I think after a year, after a year of work, if those are the conclusions, this not sort of earth shattering. So it was the final report – again, not particularly well presented, I would suggest – it was the final report that had quite a lot in it that absolutely should have been raising alarm bells.
Ms Price: Did you ever feel a sense from within the Shareholder Executive or from the Department or ministers that it was too difficult to contemplate subpostmasters being right, the consequences of that being too catastrophic?
Mark Russell: Emphatically not. Emphatically not. I’d go so far as to say I’d have relished – we would have relished – uncovering this.
Ms Price: At paragraphs 212 to 2014 you discuss UKGI’s failure as an organisation to appreciate the scale and the significance of the Horizon problem and you discuss the initial focus on what you believed were major issues, such as long-term financial and commercial sustainability. Then five lines up from the bottom you say this:
“Critically, I was not aware (and to the best of my knowledge nor were the [Shareholder Executive]/UKGI Board or ExCo) of the cumulative number of prosecutions and convictions until well into the GLO. I also didn’t understand the significance [and, again, you don’t believe the Board and ExCo understood the significance] of [Post Office] led prosecutions. Finally, neither [you] nor the [Shareholder Executive]/UKGI board and ExCo were aware of the many and fundamental failings of the way in which [Post Office Limited] conducted its prosecutions.”
Going down, please, to 214, you deal with where you took comfort but you say:
“Wrongly, I did not consider the risk of unsafe convictions as a result of failings in the Horizon system to be significant, in large part because of the repeated and categorical assurances that [Post Office Limited] had provided to [the Shareholder Executive]/UKGI and others about the Horizon system.”
If you had known the true position in respect of bugs, errors and defects in the Horizon system and the scale of the prosecutions and other action taken against subpostmasters, their staff, and Post Office employees, what would you have done differently?
Mark Russell: I – what would I have done differently? I think lots of things differently. I think I’d have escalated it to our Board, to – I’d have had conversations within the Department, I’d have gone to see ministers. I think there’s a variety of things I’d have done.
Ms Price: At paragraph 215 over the page, you deal again with the assurances that you were given and at 216 you say:
“In spite of the above, had we had more scepticism and curiosity on our own part, such that we interrogated further, we might have concluded that a much fuller investigation of the system should have taken place sooner. The fact that [Post Office Limited] was a relatively autonomous ALB would not have stopped us recommending a comprehensive, independent investigation if we had felt this to be necessary albeit that this would have signalled a loss of confidence in the POL Management and Board.”
Can you help with why the Shareholder Executive and UKGI did not have more scepticism and curiosity at the time?
Mark Russell: I don’t think easily. I mean, this is clearly a hindsight point and you crawl over the – I wouldn’t even say they were necessarily red flags but indications that we could have latched on to, and I don’t have any easy explanation as to why we didn’t latch on to them, other than they, at the time, didn’t appear significant, profound, and we had – you know, we had such strong assurances from the Post Office itself, and from the Board, who we had no – actually no reason to doubt.
Sorry, I don’t think I can answer your question clearly as to why we didn’t.
Ms Price: You describe at 217 the strong assertions made to ministers in submissions around the integrity of Horizon as being wrong and making for uncomfortable reading now. Can you explain what the submissions should have done but did not, and why this was important?
Mark Russell: I think they should have been clearer that – and they were clearer in some, but really not all of them. They should have been clearer that this was information that we were receiving from the Post Office, and I think the way it reads is this was a kind of balanced view, which clearly it wasn’t. Now, there was an absence of other detailed data points to counteract that and there was clearly a very active campaign by the subpostmasters but, beyond that, I think we should have just been clearer as to where the information was coming from and the veracity of that information.
I mean, in part, it is the reason why we were very glad when ministers engaged directly in this because these were difficult judgements to make. So the fact that Baroness Neville-Rolfe, who you will hear from, engaged absolutely directly on some of this, I think – I’m very glad that happened. Of course, we all would have liked to have engaged much earlier on it but that was an indication of the difficulty in producing balanced submissions. It was – you had to hear the evidence yourself and make your own judgements.
Ms Price: In terms of governance, does it remain your view that the arm’s-length body model for Post Office Limited is not the problem, the issue is the execution of that model?
Mark Russell: Absolutely. Absolutely.
Ms Price: The Inquiry may hear evidence that it would be appropriate to legislate to create a new form of government-owned entity, outside the strictures of the Companies Act, conferring a discretion on ministers to intervene directly where necessary. What is your view of that suggestion?
Mark Russell: Well, I’d want to see the detail. Ministers can intervene directly now and they do. The question is: what are the triggers to do that? And the argument that we’ve got, particularly in an organisation like this, “We’ve got very restricted shareholder rights”, is, to my mind, a red herring. It is very clear the Government owns this business and it wouldn’t – to the extent ministers or officials feel there needs to be greater operational involvement, they can do that and they almost certainly don’t need to remove boards to do that.
Ms Price: The Inquiry may also hear evidence that it may be appropriate to give ministers or their direct representatives observer status in the board meetings of government-owned companies. Do you agree, in whole or in part, with that suggestion, or not?
Mark Russell: Not really. I think observer status is a very weak way of attending a board. I think you should be either a director or not.
That said, I mean, an important point that hasn’t really come out is this point about us putting our own directors onto boards. It really is important to understand, we don’t do that, or very rarely do that, on the basis that we are putting a particular skillset on to the board. We don’t have that sort of capability. We do it so that the arm’s-length bodies understand that – what ministers priorities are and we do it so we get information back again. But I don’t see any advantage at all in weakening the director role to an observer role.
Ms Price: Sir, those are my questions for Mr Russell. There are some questions from Core Participants, which I think we’ll now need to deal with after the lunch break.
Sir Wyn Williams: Right.
Ms Price: I wonder whether, looking over at the transcriber we could come back at 1.50 rather than at 2.00 to ensure we get through those questions and our next witness today.
Sir Wyn Williams: What is the transcriber indicating to you, Ms Price.
Ms Price: There is a nod.
Sir Wyn Williams: Thank you very much, especially to the transcriber, for facilitating the Inquiry in this way. So we’ll resume at 1.50.
Ms Price: Thank you, sir.
(1.02 pm)
(The Short Adjournment)
(1.50 pm)
Ms Price: Good afternoon, sir.
Sir Wyn Williams: Good afternoon.
Ms Price: We have questions from Ms Page, Mr Jacobs and Mr Chapman. Ms Page will be ten minutes, Mr Jacobs five minutes and Mr Chapman five minutes.
Sir Wyn Williams: Fine, thank you.
Ms Price: Thank you.
Mr Jacobs: Sir, I think I’m going first.
Sir Wyn Williams: All right.
Questioned by Mr Jacobs
Mr Jacobs: Good afternoon, I ask questions on behalf of a large number of subpostmasters who are Core Participants in this Inquiry.
I think we have established from your evidence this morning that it’s your view that the arm’s-length model of governance was not a bar to ministerial intervention, and you have given examples, for example, with the Nuclear Decommissioning Authority the Government would intervene because it is important to do so.
What our client are particularly interested to know, is what mechanisms within the arm’s-length body governance mechanism were there for detecting and dealing with situations such as, in this case, where senior executives acted in bad faith and covered up matters?
Mark Russell: I think the principal answer to that has to be the Board because – the Board of the Post Office.
Mr Jacobs: The Post Office Board?
Mark Russell: Correct, because they are our oversight, they are our – they have the time, they have the capacity, they have the knowledge and their function is to hold the executive to account. If they miss it, then we might just catch it but I have to say it’s sort of luck, if we, you know, if we can pick up on something like this. I mean, that said, we have missed things here and it was a catastrophe.
Mr Jacobs: We’ve heard there were mechanisms in place?
Mark Russell: Yes.
Mr Jacobs: Shareholder Executive non-Executive Directors sitting on the Post Office Board, risk registers, traffic light analysis –
Mark Russell: Yes.
Mr Jacobs: – heatmaps, the Shareholder Executive’s Risk and Assurance Committee. With these checks and balances, why was it missed and who do you blame; what individuals do you blame for not bringing that to your attention?
Mark Russell: I – it’s really not for me to blame individuals but I go back to the point that we do have these various mechanisms but you then remember the scale of what it is we’re looking after here: 20 organisations, some of them really complex organisations, 20 in corporate finance but, you know, corporate finance project might be the privatisation of Royal Mail. Big, big things. So no matter how good we are, for us to pick up something like this by ourselves, without any prompting from people closer to the organisation, of course it could happen and I deeply regret it didn’t happen.
But the reason we promulgate the idea of an arm’s-length body, as I go back to what I was saying this morning, is in part because of the governance structure of a board. They have the time, capacity to be able to dig in in areas that are definitely more difficult for us. You know, my interaction with the Executive over six years, six meetings, maybe. You know, I would need to be a genius perhaps – well, perhaps not – but, I mean, I would certainly need to be pretty lucky to pick up on some of these points. So there has to be a reliance on other systems.
Mr Jacobs: Well, isn’t this the very reason why the Shareholder Executive put Non-Executive Directors on the Post Office Board, to pick these very things up?
Mark Russell: Only in part, and I go back to the point that the reason we populate these boards with subject matter experts is so they can dig in to a financial issue, perhaps an IT issue – although on the Post Office Board we didn’t have anybody particularly steeped in IT. We have people reasonably experienced in IT but not steeped in IT. We don’t put people on our Board – we don’t put our people on boards with particular subject matter experience. They’re there, as I explained earlier, primarily to do the function of making sure the organisation doesn’t drift off and start doing things that the Department doesn’t want and to make sure we’ve got full sight of the discussion.
Yes, of course they are still full board members and they are part of – to the extent that there has been a failure of board governance, they’re a part of that. You can’t get away from that.
Mr Jacobs: Thank you. You answered questions from Ms Price before lunch when you say, referring to paragraph 211 of your statement, that there was information that the Shareholder Executive knew about or ought reasonably to have known about, the Parker review, the Second Sight final report, and you said that you would have, if you’d been more curious, if you’d taken it as a critical issue, you would have escalated it to the Board, you said, you would have had conversations within the Department and you’d have gone to see ministers.
What our clients are interested to know is when a government-owned body goes rogue, as has happened here – and this can be any other organisation could do the same thing, Nuclear Decommissioning, for example –
Mark Russell: Yes.
Mr Jacobs: – what can the Government actually do? Would it go in, would it dismiss the board? Would it take over? How do you deal with the sort of crisis that we’ve got here?
Mark Russell: So what was the missed opportunity here? The missed opportunity, I believe, and of course this is hindsight, this is having learnt about this in so much detail, post-the event, the missed opportunity was – back in 2013 was not putting a big professional services firm into the organisation in place of Second Sight, to have done a complete review of the system, not just the computer system the software system, but everything because, as we know, this was far more than just the system: it was the treatment of subpostmasters, it was the way people were being dealt with. That was the missed opportunity.
Now, could it have been done later? Of course it could have been done later. And would it have bothered me if I’d known the significance of this, that, you know, I might have had Post Office or even the Board saying, “This isn’t necessary”? Not at all. If we thought this was necessary, we would have done it. Well, we would have done it, we’d have instructed the Post Office to do it.
Mr Jacobs: I think you’ve accepted, haven’t you, there was a failure in governance here?
Mark Russell: Yes.
Mr Jacobs: I think your answer is that a professional services firm would have been a check that could have been inserted?
Mark Russell: Well, I mean given how long it took the GLO to really uncover the issues here, I don’t think there’d have been any alternative to something like that because, of course, we wouldn’t – we couldn’t possibly have wanted to have gone through all that litigation, it would have been far better to have got to the bottom of it. And because it was very complex, in so many respects, you have to have someone in who is capable of getting to it.
Mr Jacobs: I think –
Mark Russell: I don’t know of any other solution.
Mr Jacobs: Thank you for that. I think I’m about to or I have exceeded my time. I just have one other point.
Mark Russell: Yes?
Mr Jacobs: You said, in answer to questions from Ms Price before lunch, that you weren’t aware of the sort of Post Office prosecuting in circumstances where it was the victim, the investigator and the prosecutor.
Mark Russell: Yes.
Mr Jacobs: Ron Warmington of Second Sight gave evidence on 18 June this year and one of his criticisms of the way that the investigation was governed, effectively, was that the Post Office was the principal subject of the investigation but it was also the paymaster.
Mark Russell: Yes.
Mr Jacobs: He said that Andrew Bridgen, I think, raised that and he said the Treasury said “We haven’t got any money and therefore the Post Office is going to have to pay for it, and it was a daft decision”, which is what the witness said.
Why didn’t the Government spot that, and deal with it at the time?
Mark Russell: I don’t know, is the answer. I don’t know. Because although I’ve been slightly disparaging of certainly the – part of the interim report, clearly Second Sight did get on to some fundamental points there but we didn’t pick them up.
Mr Jacobs: I think I have come to the end of my time. I’m just going to have if I have any more questions to ask?
I don’t, so that’s all from me. Thank you.
Mark Russell: Thank you.
Sir Wyn Williams: Ms Page?
Questioned by Ms Page
Ms Page: Thank you, sir. Mr Russell, oversight involves the balance of support and challenge; do you agree?
Mark Russell: Yes.
Ms Page: What I want to look at is you team’s approach towards POL, Post Office, and whether there was really anything like challenge in the attitudes that you brought towards your task. So if we could start, please, by going to UKGI00042124. This is a document that you looked at with Ms Price but I want to ask you some different questions on it. If we could go, please, to page 2 when we get there. This is the February 2014 ARC meeting note when you were in attendance.
Mark Russell: Yes.
Ms Page: Mr Tim McInnes gave a summary of Project Sparrow. So, if we go down to paragraph 14, please, and if we just go over what it says there:
“[Tim McInnes] explained that this is with regard to a financial system that is used by subpostmasters. Some of whom have received criminal convictions for misuse, however the subpostmasters are suggesting that the actual system was at fault. All the [Post Office] investigations so far have shown that the system is working correctly. However, the risk is that if this system were to show up as defective then potentially the criminal convictions could be overturned and compensation from [Post Office] sought.”
Now, what I want to ask you about is this: at one level, this summary of Project Sparrow is very incisive because it doesn’t have any of the flummery that we sometimes get from Post Office that was really just, one might argue, a distraction to do with mediation, to do with support for subpostmasters and those other issues because really it focuses very, very tightly on the criminal convictions. What it says is that, if the system proves to be at fault, then they may be overturned.
Now, that is a matter, surely, of very, very high importance because what we’re talking about here and what actually is missed here is that the risk, the real risk, is not whether compensation may be sought; the real risk is that the organisation that you’re overseeing may have wrongfully convicted its trusted business partners and sent them to jail. That was obvious at the time, that’s not just a hindsight observation; that’s something that any person of integrity should have been able to identify from what was being expressed there by Mr McInnes. Do you accept that?
Mark Russell: I completely accept that.
Ms Page: Now, you tell us that you and your team would have relished uncovering the fact that the subpostmasters were right. Why do you think that this transparently somewhat misguided summary about compensation didn’t get you thinking, didn’t get you wondering: why is nobody wondering about the possibility that the postmasters have been sent to prison wrongly?
Mark Russell: I think the answer to that is we had no idea of the scale of what was going on here.
Ms Page: It doesn’t matter the scale, if one person has gone to prison wrongly, that is a miscarriage of justice.
Mark Russell: It is a matter of – no, I completely agree with that. I completely agree with that. But I’d say it is, in part, scale. I agree, just one person going – being convicted wrongly is a matter of serious concern and I’d acknowledge that that – and, you know, I can’t remember the discussion, I was there. But that, in itself, I completely agree, we should have jumped on that. I can only say, in mitigation, if this had been – if the indication had been that (a) this was likely, right – so this is an allegation at the moment – if this was likely and it was on any scale at all, I would like to think we would have jumped on it. But your point is well made. Just one incidence, we should have jumped on it.
Ms Page: Thank you. That document can come down. If we could have a look, please, at UKGI00006883. This is one of the risk registers which uses the heatmap, and you’ve explained that for us, so I won’t dwell on that. What I’d like to look at is some of the wording in the way that the risk is described. Thank you, if we could go to tab 2 and look at risk 6, which is the Project Sparrow risk. A little further down, please. If you could just keep going up a little to 6. There we go.
I don’t know how well you can read that but it says on the left “Project Sparrow” and what we can see in column D is a description that I think we may have seen similarly before, so if we go across to E, what it says there is:
“Post Office’s reputation and brand are damaged by accusations, costs spiral out of control, particularly if legal action is taken. Government risks being drawn closer into the scheme or our level of involvement being made public.”
Then if we go a bit further across to K, it says:
“Responsibility rests with Post Office to manage both the Mediation Scheme and stakeholders generally. Post Office Chair undertaking review with independent QC. We are managing ministers’ involvement with the intention of keeping the issue independent of Government.”
Then, finally, across to the one before Q, it doesn’t have a heading:
“Ensure Post Office are proactively managing interests and noise and are aware of ministers’ expectations. Manage interest and wobbles from ministers or the centre, including preparing fallback options if current arm’s-length position becomes untenable.”
Now, what that says, surely, is the arm’s-length stance was something of a sham?
Mark Russell: No, I don’t think that’s right. I mean, I’ve a number of comments on this. First of all, and this is common to all our risk registers on Horizon Sparrow, the risk was not properly articulated. The real risk was there was a problem in the system and that was not captured. This is primarily – and my memory is the concern of the team was that the mediation process was given its best possible chance. You know, if you go back, there was always some sort of process going on to try to resolve this, and we can argue about the adequacy of the process, but there was always some sort of – Second Sight, Mediation Scheme, Parker.
And I think there was a legitimate concern here that either if Government got too close to the Mediation Scheme or it proposed something alternative, then that was the end of the Mediation Scheme.
We know, in the end, the Mediation Scheme did collapse and that is one of the reasons that led to the Parker Review. But I think there was a legitimate concern here of the team against the background that the risk was not properly the – captured here but, in terms of the risk of the Mediation Scheme falling over, I think there’s something quite right here, that the Mediation Scheme depended upon Government keeping at a distance, and there being no alternative, you know, judicial investigation or whatever that would absolutely have cut the Mediation Scheme dead.
Ms Page: A private company couldn’t have entered into the sort of expensive ruinous litigation that the Post Office did without a great deal of challenge from its owners, could it?
Mark Russell: No. Sorry, couldn’t have ended up – entered into a –
Ms Page: The sort of expensive, ruinous litigation that Post Office entered into, in a private company, the owners of that business would have been all over it, not leaving it at an arm’s length and hoping to be able to get away with that?
Mark Russell: Yes. I mean, I don’t think the Post Office entered into the litigation on the basis of, well, it doesn’t really much matter because the Government will be there to bail us out. I think there was a very big concern the Government wouldn’t be there to bail them out. You know, my memory of this is they entered into that litigation absolutely certain that right was on their side.
Ms Page: I’m not so concerned about their position. I’m concerned, really, about the Government Shareholder position, in which it’s being – the risk is being articulated as, “Well, we’ll only get involved if our arm’s-length stance becomes untenable”, and, surely, that just doesn’t take responsible ownership of the business?
Mark Russell: Well, I don’t know if I agree with that. I think the Mediation Scheme that the greatest chance of success if the Government was on the sidelines of that, ie not involved, not trying to arbitrate, not coming up with its own decision. So I think it was appropriate, as an arm’s-length structure.
Ms Page: Well, thank you, Mr Russell, I’ve taken up my time so I’ll end there.
The Witness: Thank you.
Sir Wyn Williams: Thank you, Ms Page.
Mr Chapman?
Questioned by Mr Chapman
Mr Chapman: Mr Russell, I have a handful of questions on behalf of the Department of Business and Trade concerning the Post Office’s arm’s-length status and the Government’s powers to step in and issue directions or otherwise exert its powers.
To set the scene, earlier today Ms Price took you to paragraph 23 of your witness statement, which refers to the 2012 model of the Articles of Association, where you explain that the articles give the Secretary of State particular rights, including the right to receive information from POL, and the power to appoint or remove the Post Office’s directors including its Chair or the Chief Executive.
In paragraph 193 of your statement you discuss the Government’s reaction to the Common Issues judgment and specifically the Government’s reaction to POL’s response to the judgment, so the recusal application, and so on. You say at paragraph 193 – there’s no particular need to get it up on screen, I’ll read it out:
“I have reflected on whether the Government could or should have stepped in to insist that the recusal application was not made. This would have been a very serious step to take and would have risked either resignations or dismissals of Board members and possibly others. The Board had received legal advice supporting a recusal application from extremely eminent legal figures, including a former president of the Supreme Court. In those circumstances, I do not think that it would have been realistic to have expected the Government to have stepped in to prevent the application.”
So the necessary implication of that is that, in your view, the Government that the powers to step in and prevent the application from being made. You said in your evidence shortly before lunch words to the effect that you have no doubt that ministers, as effectively the shareholder, had the power to step in if they wanted to.
First question: so far as you know, was that understanding shared by both ShEx and ministers?
Mark Russell: That they could step in if they needed to?
Mr Chapman: Could step in?
Mark Russell: Yes, I think so. I mean, by stepping in, ultimately, you can remove a board. The ministers knew that.
Mr Chapman: That’s my next question. What do you mean by “stepping in” and what are the specific powers, as at this time, mid-2019, for ministers to step in, short of dismissing the Board?
Mark Russell: Well, the actual part is dismissal of the Board. The practical power is the threat to dismiss the Board.
Mr Chapman: Right. Now, were you aware in 2019, at the time of the proposed recusal application and the appeal thereof, that ShEx officials had calls with ministers and the Secretary of State –
Mark Russell: Yeah.
Mr Chapman: – at which the Secretary of State and ministers made very clear their distaste for the idea of a recusal application being made, of an appeal being made, et cetera, et cetera; was that communicated to you?
Mark Russell: I think so, yes. Yes.
Mr Chapman: Were you aware, thereafter, that the Secretary of State asked for advice on the various options available to him to stop the Board from carrying through on this idea and in particular on the nuclear option of, in fact, dismissing the entire POL Board?
Mark Russell: That’s right, I don’t think I was aware of that.
Mr Chapman: Could you explain now what the downside to dismissing the Board of a body like POL would have been at that time?
Mark Russell: Well, it would be a pretty high-profile event. I can’t think of any instance – I can’t think of any instance where Government has dismissed the board of an arm’s-length body, so it would have been a pretty rare event.
Are there downsides? Well, you’d have to find a new board, for sure, that may not be straightforward. But no, not – I mean, if ministers felt strongly enough about it, and my understanding was they did feel strongly, but they respected the – what the directors believed were their own duties at the time. They respected that point and were not prepared to, you know, take the nuclear option of replacing the Board.
Mr Chapman: So for ministers at that time it was really an all-or-nothing?
Mark Russell: Well, as I say, there’s this practical point that you could go to the Chair and say, “We want this stopped and, if you don’t stop it, we’re going to remove you”, and the chances are they will stop it.
Mr Chapman: Now, in March 2020 new Articles of Association were adopted for the Post Office, which, for the first time, gave the Secretary of State a power to issue directions to the Post Office. We don’t need to turn it up. Were you aware of that?
Mark Russell: To be honest, I can’t remember. I can’t remember.
Mr Chapman: Would that –
Mark Russell: This is in the new Articles?
Mr Chapman: This is in the March 2020 Articles?
Mark Russell: Articles, yeah, yeah.
Mr Chapman: Would that sort of halfway-house provision have been the sort of provision that could have enabled Government to step in to prevent the application, short of –
Mark Russell: Without threatening the nuclear option? Yes, I think it probably would be and, indeed, I think this is probably the solution. You have – as I say, I don’t think you should be constituting a new type of company. I think, if anything, what you should be doing is you should be extending the rights of the Shareholder so that you don’t have to threaten the nuclear option. I happen to think that’s probably the answer.
Mr Chapman: To conclude that circle, are there also potential risks to threatening the Board or the Chair with removal?
Mark Russell: Yes, yes, yes. You need to exercise that very carefully, and we have already seen from some of the – the way ministers look at this, I think there were certainly ministers who absolutely understand the need to have mechanisms in place to ensure that it is actually quite difficult for ministers to get involved, ie the bars are quite high. So all of this is a balance.
Mr Chapman: Thank you very much. Those are all my questions.
Sir Wyn Williams: Thank you, Mr Chapman. Is there anyone else, Ms Price?
Ms Price: No, sir. That’s it.
Sir Wyn Williams: Well, thank you, Mr Russell, for making your detailed witness statement and for answering questions from a variety of people this morning and this afternoon. I’m very grateful to you.
The Witness: Thank you, sir.
Sir Wyn Williams: Right. So I will remain online while you do some manoeuvring, Ms Price?
Ms Price: Thank you, sir. Yes, it’s Mr Swannell next.
Sir Wyn Williams: Yes. Well, I’ll just remove myself from the video, but I’m still here, so to speak.
Ms Price: Thank you, sir.
(Pause to change witnesses)
Mr Stevens: Sir, can you see and hear us?
Sir Wyn Williams: Yes, thank you very much.
Mr Stevens: Thank you. If I can call Mr Swannell, please.
Robert Swannell
ROBERT WILLIAM ASHBURNHAM SWANNELL (sworn).
Questioned by Mr Stevens
Mr Stevens: Thank you, please can you state your full name?
Robert Swannell: Robert William Ashburnham Swannell.
Mr Stevens: Thank you for attending the Inquiry today and thank you for preparing a written statement, which I want to turn to now. For the record, the statement is Unique Reference Number WITN10800100.
Do you have that statement in front of you?
Robert Swannell: I do.
Mr Stevens: Now, before we turn to the signature, there are two corrections which we need to address. Firstly, could we turn, please, and have on screen page 34, paragraph 87.
Thank you. At paragraph 87 you refer to the first reference you have been able to find to Horizon, as it appears in the ShEx dashboard within the pack produced for the UKGI board meeting on 27 January 2016.
I understand, since signing this statement, you’ve come across some other documents and wish to clarify that position?
Robert Swannell: Correct. These are all documents that the Inquiry already has but the first reference I would have seen in a ShEx dashboard to a reference to Horizon came via an email dated 28 October, to which was appended the October 2015 dashboard for a meeting on 3 November, with the incoming members of the UKFI Board, who were then going to come on to the UKGI Board. So that meeting happened on 3 November.
We think that that same dashboard was shown to the November 2015 Board but we haven’t been able to verify it. In any event, the dashboard dated January 2016 went to the January Board meeting and the wording is exactly the same in the October 2015 dashboard that I saw in November, as the January 2016.
Mr Stevens: In essence, in this paragraph at 87 you refer to a dashboard which includes the quote there, “minimising HMG and POL’s financial and reputational exposure to the alleged Horizon IT issue”, and what you’re saying today is that you found an email dated 28 October 2015, which effectively included a dashboard with that line in it.
Robert Swannell: Correct, and the dashboard is dated October 2015.
Mr Stevens: Sir, for the purpose of the record, the URNs to which Mr Swannell has just referred are UKGI00045534 and UKGI00045535.
If we could turn to page 38, please, and at paragraph 97, it says “on 8 November 2017”, I understand you wish to correct that to 7 November 2017 –
Robert Swannell: Correct. The meeting was on the 7th. My note of the meeting was on the 8th.
Mr Stevens: Thank you. If I could ask you to turn to page 67 of the statement, the statement on the screen can come down; do you see a signature?
Robert Swannell: I do.
Mr Stevens: Is that your signature?
Robert Swannell: It is.
Mr Stevens: Are the facts stated in that statement true to the best of your knowledge and belief?
Robert Swannell: They are.
Mr Stevens: I am going to ask you some questions about that statement, which will be shortly published on the website, but I’ll start with your background. Your career history is set out in your witness statement, so I’m going to take this relatively quickly. I understand you initially qualified as a chartered accountant before being called to the Bar?
Robert Swannell: Correct.
Mr Stevens: You then spent nearly 30 years in investment banking?
Robert Swannell: Certainly more than 30 years.
Mr Stevens: From 1999, you acted as a Non-Executive Director for several listed companies?
Robert Swannell: While I was an investment banker, correct.
Mr Stevens: You were the Chairman of Marks & Spencer between January 2011 and September 2017?
Robert Swannell: Correct.
Mr Stevens: You joined the Shareholder Executive as a Non-Executive Director in January 2014?
Robert Swannell: Correct. That was my first Board meeting, yes.
Mr Stevens: You became Chair of the Shareholder Executive in September 2014?
Robert Swannell: Correct.
Mr Stevens: Were you given a briefing on the Post Office as a business when you joined the Shareholder Executive?
Robert Swannell: Not that I recall.
Mr Stevens: I want to first look at the role of the Shareholder Executive. Please can we bring up UKGI00045953. Thank you. This is a draft letter in November 2013 from Patrick O’Sullivan, who was then Chairman of the Shareholder Executive, to you, with your appointment as a Non-Executive Board Member and attached to it, we see at page 3, are the Shareholder Executive Board’s terms of reference.
Can we please then go to page 4 and down to the bottom, it says:
“The designated purpose of the [Shareholder Executive Board] is to act as an Advisory Board, providing assistance and support to the CEO and helping him assure that the Shareholder Executive adopts best practice with regards to governance.”
There’s then split three main areas of activities, effectively. You see we have “Strategy”, the first point is:
“To monitor strategic operational risks faced by [Shareholder Executive] in relation to all its activities …”
Then if we could go over the page, please “Leadership of specific projects”. Now, the reference to specific projects here would include shareholding business such as managing the shareholder function for Post Office?
Robert Swannell: Of course.
Mr Stevens: We see there are two bullet points there, which I want to take in reverse order. The first is:
“To consider and regularly review the ShEx Risk Register, responsibility for which lies with the CEO.”
So that requires the Board to look at the overall risk register for ShEx, yes?
Robert Swannell: Correct.
Mr Stevens: Where it says “responsibility for which lies with the CEO”, was it the Board’s responsibility to hold the CEO accountable in respect of the risks that were included on the risk register?
Robert Swannell: It was to ensure that the processes in place were sufficient to provide risk registers that recognised the underlying risks –
Mr Stevens: You –
Robert Swannell: – and I think you’ll find, in my statement, that in my first Board I specifically honed in on the nature of the risk register, and I think I’m right in saying that, as a result of that, the shape of the – from that first Board meeting – the shape of the ShEx, as it then was, risk register, changed.
Mr Stevens: We’ll come to those in due course. The first bullet point is:
“To assess individual high priority and/or high risk transactions, projects or other situations where ShEx is actively involved …”
So that’s slightly different, isn’t it? Is that where the Board takes a deep dive into a particular asset?
Robert Swannell: Correct.
Mr Stevens: Was that to ensure that the asset was being appropriately overseen by the executive of ShEx?
Robert Swannell: It was particularly where the risk register showed that there were particular high risks, either in impact or probability, or mainly – or both, that the Board of ShEx but more particularly UKGI – because I think the governance of UKGI progressed a good deal from the Advisory Board at ShEx, had a good handle on what was going on within the organisation.
Mr Stevens: So I think this is a point you made repeatedly in your witness statement, that those deep dives would be driven by what was included in the risk register?
Robert Swannell: Exactly.
Mr Stevens: But when a deep dive was then carried out, was that to ensure that the Executive of the Shareholder Executive were appropriately overseeing the asset?
Robert Swannell: Well, I think the best illustration of that is the point at which I became aware that everything we’d been told about Horizon was incorrect, which was in March 2019. At that point, you will see that the cadence of deep dives into POL is extraordinary, and it goes from, as it was, not being high on the risk register, to being the focal point of the Board’s attention.
And you’ll see, I think, four deep dives which is way more than any other organisation, if you think there are 20-plus of them, plus a whole lot of other projects. I mean, remember, at the same time, I think during this process we were undertaking about £50 billion worth of disposals for the Government.
So alongside those projects, the Post Office had become the most critical aspect and that’s exactly when you saw the Board do precisely what it should be, which is taking a high-risk project and having a succession of deep dives.
Mr Stevens: As I say, those deep dives – and the reason in March 2019 onwards there were the deep dives, was so that the Board could satisfy itself –
Robert Swannell: Correct.
Mr Stevens: – that the shareholding interest was being appropriately managed?
Robert Swannell: Correct.
Mr Stevens: The Board included very senior civil servants, including the Permanent Secretary to the predecessor departments to the Department of Business and Trade?
Robert Swannell: Correct, and the Second Permanent Secretary of the Treasury and, as an observer, the Permanent Secretary of the Cabinet Office.
Mr Stevens: So the risks or deep dives that were discussed at Board meetings would be considered by civil servants at the highest level?
Robert Swannell: Correct.
Mr Stevens: They could be very instrumental in shaping Government action in respect of the individual assets?
Robert Swannell: Indeed, and were.
Mr Stevens: Can we look, please, at UKGI00044314 and go to page 2, please. This is a document that Mark Russell describes in his statement as the ShEx handbook, published in 2007. If we can go further down the page, please, thank you it says under “The Shareholder Executive model of corporate governance”:
“The Government intents to operate as an intelligent and informed shareholder.”
Then over the page, please. If we can go down, please, thank you. So under the title of “How the Government intends to operate as shareholder”, there’s the box, “The Basic Shareholder Model”, and the very last point there is that:
“The shareholder monitors the performance of the business to satisfy itself that the strategic plan is on track and ensure that any interventions requiring are well informed and appropriate.”
The Post Office was managed as an arm’s-length body, wasn’t it?
Robert Swannell: Correct.
Mr Stevens: This morning, Mr Russell agreed that ultimate accountability and responsibility for the activity of an arm’s-length body rests with ministers; would you agree?
Robert Swannell: I would.
Mr Stevens: You say at various points of your witness statement that the level of government intervention in the operations of an arm’s-length body can vary depending on the circumstances?
Robert Swannell: Correct.
Mr Stevens: So here, where it says, “and ensure that any interventions are required, are well informed and appropriate”, is that obliquely referring to this position of the Government and arm’s-length bodies that it can be further away at points and more involved in some decisions at others?
Robert Swannell: Yeah, and again, if you want to turn them up, I think you can see this in my – the three last meetings I had with Tim Parker as Chairman of Post Office. I think you’ll see from those notes of meetings that, in each of the meetings, he says that the UKGI Non-Exec is being too interventionist and I’m telling him that he’s got to be dreaming and that, in the circumstances in which he now found himself, he should expect the length of the arm to be shortened.
Mr Stevens: We’ll come to those – well, we may come to those meetings –
Robert Swannell: I am trying to make the point to you.
Mr Stevens: I appreciate that. Can we turn the page, please, of this document. It says “What Government expects of its businesses” and:
“Principle 1. Businesses should seek an honest, open and ongoing dialogue with the Government as shareholder.
“Principle 2. Businesses should operate a ‘no surprises’ policy ensuring that the government as shareholder is informed well in advance of anything potentially contentious in the public arena.”
So as an intelligent and informed shareholder, should the Government have taken steps to satisfy itself that the businesses it owned were following those principles?
Robert Swannell: I believe that that’s exactly what they were doing. We can come on to whether that was achieved or not –
Mr Stevens: But as a matter of principle, it’s something that the Government should have been doing?
Robert Swannell: Of course.
Mr Stevens: We know the Post Office pursued criminal prosecutions and carried out work in relation to post-conviction disclosure as part of the operation of its business, yes?
Robert Swannell: I didn’t get the last part.
Mr Stevens: I’m so sorry. I’ll break it down into two questions. We know that the Post Office pursued criminal prosecutions –
Robert Swannell: Correct.
Mr Stevens: – against subpostmasters.
Robert Swannell: Correct.
Mr Stevens: We also know that I carry out work in respect of post-conviction disclosure, so whether or not documents should be disclosed to subpostmasters who had been convicted of criminal offences?
Robert Swannell: I’m not sure what the question is. I know that now but I had no idea of any of that at that time.
Mr Stevens: So when did you become aware of that?
Robert Swannell: The second part?
Mr Stevens: Yes.
Robert Swannell: During preparation for this Inquiry. I’ve said that in my statement. But that’s a sort of compendium. Are you referring to the Clarke Advices, that sort of –
Mr Stevens: No, I’m not referring to that yet. I’m just asking, as a matter of generality, you’re aware of those two –
Robert Swannell: Well, I’m aware of the first point but I had no conversation nor was I aware of what I think is the second part of your question.
Mr Stevens: Do you think that both of those matters were serious matters of which the Government ought to have been given adequate information by the Post Office?
Robert Swannell: Of course.
Mr Stevens: I want to look at your role as Chair now, please. Can we bring up UKGI00045955.
Unusually, this is a letter from you to Mr Russell on 25 September. But, if we go to page 3, as it’s been provided, it sets out your terms of reference as Chairman of ShEx. In paragraph 4, please, if we could have that in shot, it says:
“As Chairman, your key role will be to provide high level strategic direction to the Shareholder Executive.”
The first point is:
“Lead the Board of Directors, ensuring their effectiveness in all aspects of their advisory role …”
Then fourth:
“Develop a constructive, frank and open relationship with the Chief Executive, holding him/her accountable with the effective implementation of decisions.”
In respect of risk management and the completion of the risk register, what did you see your role as being in overseeing the Chief Executive?
Robert Swannell: I think there’s the formal and there’s the informal. As far as the formal is concerned and, again, if you don’t mind, I think we should continue the ShEx through UKGI because it was a continuum – I mean, if you recall, the start of UKGI was only nine months after my – thereabouts, my appointment as Chairman of ShEx, so if we can sort of treat them as a continuum.
As far as the risk process was concerned, that was something that, within UKGI, was the prime responsibility of the Risk and Assurance Committee, and we made sure there were frequent conversations about those processes and, indeed, about the underlying risks.
As far as the UKGI Board is concerned, again, as a continuum, you will see that, actually, I placed risk right at the heart of the UKGI Board and, in my memorandum of February 2018, you’ll – you can bring it up, if you like – I placed – and there was a real purpose to this – I placed risk as being one of the first items to be discussed at every UKGI board. So that the Board meeting would start with the Chief Executive’s report, there would be a people report because people were at the heart of what UKGI did – it was a small organisation with a very particular culture that needed to be nurtured – and then there was risk.
And the risk part of the UKGI Board would be every risk that over the previous month had changed in character, would be highlighted for the Board, and then the whole of the risk register, the composite risk register, would be set out for the UKGI Board.
And I did that because I saw that as the best way, in an organisation looking after a whole portfolio of interests, that you can best direct the Board’s time to the things that have been flagged, hopefully appropriately as the highest risk aspect. That’s why, post-2019, when we appreciated what we had been told was incorrect by the Post Office, it became the overriding aspect of the UKGI Board’s time.
Mr Stevens: Well, let’s look at some stages on that as you’ve described it, as a continuum from ShEx to UKGI. Can we start, please, with UKGI00016718. It’s a Shareholder Executive Board meeting on 16 July, chaired by Patrick O’Sullivan. You’re in attendance, it would be as a Non-Exec Director. If we can go down, please, to risk registers. Paragraph 2.1 significant improvements to a risk register and Patrick O’Sullivan is recorded as saying that he:
“… summarised that the key aim of the risk registers should be to provoke questions and cautioned against making further significant changes.
“RS [that’s you] agreed that it was key that the registers were used to challenge teams as to their understanding of identifying relevant risks and their mitigants and added that it [would] be helpful to identify other organisations with a similar risk profile and to learn how they recorded risks.”
So from this, is it your position that one of the uses of a risk register is actually to challenge the Executive Team on whether or not it is identifying the appropriate risks?
Robert Swannell: Correct. In fact, just to go to 2.1, the revisions is what I was referring to earlier. So I’ve been on the Board now since January and, hopefully, we’ve already got a better risk register. I don’t know why it said, “RS agreed”. I don’t know what I was agreeing to, I think I said.
Mr Stevens: That document can come down now. Thank you. Moving forward to 24 November 2014, I think that’s your first Board meeting as Chair. When I say Board meeting, Board meeting of Shareholder Executive. Can I, at that stage ask a couple of questions about your knowledge of various matters. Can you remember if you were aware of Second Sight’s Interim Report?
Robert Swannell: Absolutely not.
Mr Stevens: Were you aware about the Post Office and governance announcements in relation to the Mediation Scheme?
Robert Swannell: I wasn’t.
Mr Stevens: Were you aware that the CCRC had been corresponding with Post Office regarding past convictions?
Robert Swannell: I wasn’t.
Mr Stevens: I was about to ask about a review of past convictions and disclosure. You’ve already said you weren’t aware of that?
Robert Swannell: (The witness shook his head)
Mr Stevens: Do you think you should have been made aware of those matters?
Robert Swannell: I think, to say that I should have been aware – made aware – means that you have to have assessed that the people who should have made me aware were themselves aware or should have been aware. And, obviously, it’s quite difficult for me, looking back to 2014, to know whether those people should have been aware or, if they weren’t aware, should have made themselves aware. I mean, I can give you a longer answer to this because it’s right at the heart of the whole issue. But how you want to –
Mr Stevens: Let’s break it down. The first question is: if everyone in the chain from is acting in the way they should have been acting from the Post Office Executive Team to the Board, should you have been made aware?
Robert Swannell: Yes.
Mr Stevens: Yes. Where do you think the problem that led to you not being aware of that issue?
Robert Swannell: I think – if you ask me about what I think went wrong, you’ll hear this – these two words mentioned a number of times. I think it was a mixture of culture and curiosity and, by culture, I mean, in my view – and again, if you look at all of the Board discussions of UKGI after the period that we had really got stuck into this, because we became aware of it after the March 2019 judgment, there is a lot of discussion about culture, and there’s even a discussion between me and Tim Parker at one of our sessions about culture. It’s clear to me – it was clear to us then, and by then, I mean in 2019 – that the culture at the Post Office was shocking.
And, by that, I mean that it was a closed, defensive culture that was not in the business of giving information. I can’t tell you whether information was withheld deliberately or whether they simply didn’t give it but, whatever the reason, there was – there were a whole range of things that should have been known to the Board of the Post Office and then, therefore, to the ShEx/UKGI Board member and, as a result of that, to the UKGI Board and, had it happened, you would have seen exactly what you saw in March 2019. We would have been on it, in spades.
And, sorry, the second point is curiosity, and I’m afraid that when an incomplete curiosity, if I can put it that way, meets a toxic culture, bad things happen.
Mr Stevens: When you say lack of curiosity, do you mean in the Post Office alone?
Robert Swannell: I didn’t say a lack of it; I said incomplete.
Mr Stevens: Okay, the criticism you have regarding curiosity is your criticism solely of Post Office or is it internal within ShEx as well?
Robert Swannell: Well, it’s of the – it’s of the Post Office, but we have to acknowledge that ShEx had a member on the Post Office Board.
Mr Stevens: Well, we’ll explore those matters as we go through the timeline as well. So as we go to the 24 September Board meeting, can I look at the spreadsheet, please, which I think is UKGI00016864.
Sorry, I say I think it’s a spreadsheet, some of these are spreadsheets as documents, that’s why it might take some time to get them on screen.
We see in the very top left this is a document for the ShEx Board, 24 September 2014. It’s been zealously redacted. I think if you don’t see the redactions here, what you see is on the heatmap, as it were, there will be other UKGI or ShEx assets listed at various points of the register; is that right?
Robert Swannell: Correct.
Mr Stevens: When you refer to the risk register at the Board in your statement, are you referring to a document like this?
Robert Swannell: Correct. I’m quite surprised, looking at that one, at the absence in the top right-hand corner. It must have been a particularly good month.
Mr Stevens: What we see left is, we have a scale of impact. What does that measure?
Robert Swannell: The impact of whatever the risk is.
Mr Stevens: The bottom is probability –
Robert Swannell: Correct.
Mr Stevens: – so that’s the likelihood of it happening?
Robert Swannell: Yeah.
Mr Stevens: If we can zoom in, please, on the narrative box at the sort of bottom left centre. Thank you. So it says “[Post Office] Overall Risk Profile, RA”, that’s Red/Amber. It says:
“If not managed successfully – collectively the risks have potential to significantly impact the commercial strategy and financial sustainability of [Post Office Limited], jeopardising the long-term policy objectives of transformed network, reduced [Her Majesty’s Government] funding and mutualisation.”
So this says what the potential effects of risk are broadly but it doesn’t expressly identify what the risks are, does it?
Robert Swannell: No.
Mr Stevens: From reading this, the potential risks do seem significant?
Robert Swannell: Well, not especially, in the way that it’s positioned in the risk register matrix, no. I mean, it’s clearly much less of a risk with impact than many other of the ShEx entities.
Mr Stevens: Pausing there, on that point, is it fair to say that Shareholder Executive managed – the assets it managed were, generally, high-risk assets?
Robert Swannell: They were, by definition, normally high-risk assets, because assets that were in a steady state, like Companies House, went back to the department from which they’d come.
Mr Stevens: Is there a problem with focusing on the relatively highest-risk assets within that pool, because assets which, by ordinary standards, would be high risk, aren’t given attention?
Robert Swannell: Not really. I think all of the assets in the ShEx portfolio got attention.
Mr Stevens: Under “Reputational Risks”, it says:
“There is a significant political interest in the Post Office Network and there are number of policy objectives in connection with the network which need to be delivered by the end of the current Parliament. The ShEx POL team are aware of the pressures and are working collaboratively with Post Office Limited to manage the risks away.”
Again, this doesn’t identify any risk expressly, does it?
Robert Swannell: No, it doesn’t.
Mr Stevens: It doesn’t say how the Post Office team are mitigating the risks?
Robert Swannell: It doesn’t.
Mr Stevens: So does this risk register raise more questions than it actually answers, in respect of Post Office’s risk?
Robert Swannell: It certainly raises questions, yes.
Mr Stevens: Were questions asked about Post Office’s risk at this board meeting?
Robert Swannell: I’m afraid, 10 years later, I can’t answer that.
Mr Stevens: That can come down, thank you.
Robert Swannell: I suppose the only point I’d add to that is that – and there’s no question that we improved the governance of UKGI over the period from there, which is my first – I think that – was that before the –
Mr Stevens: Your first as chair.
Robert Swannell: My first board as chair, to the period where we started to focus more particularly on Post Office and risk, and you can see it – I mean the discussion of risk would have been explicit because of the way each of the Board papers on risk were set out, so it would have been almost impossible to have such a, if you like, imprecisely described risk in the new regime.
Mr Stevens: Can we just look, please, at UKGI00016783. This a board pack for a UKGI Board meeting on 16 May 2018.
Robert Swannell: Yeah.
Mr Stevens: Could we look at page 23, please. It’s another case of zealous redactions. We see on the left, “UKGI Reputational Risk” and on the bottom “UKGI Delivery Risk”. Is that delivery –
Robert Swannell: Delivery of the policy objectives.
Mr Stevens: Just as a broad point, how does the human impact issues of allegations of unsafe convictions fit on to a scale such as this?
Robert Swannell: Sorry, the UKGI – that is delivery of the objective of the underlying entity.
Mr Stevens: Yes, and my question is, if UKGI were presented with the risk of Post Office Limited having secured unsafe convictions –
Robert Swannell: Well, it would be about a 10 on reputational risk.
Mr Stevens: So that would be a reputational risk?
Robert Swannell: Well, and a delivery risk. I mean, delivering the Post Office objectives and convicting wrongly subpostmasters is clearly not compatible, is it?
Mr Stevens: In your witness statement, you refer to this document – we don’t need to turn it up, it’s page 39 of your statement, paragraph 101:
“This is showing the new format of the Board pack with a more prominent risk register shown in its new position.”
This is the document you’re talking about?
Robert Swannell: No, I’m talking about the Board paper, which, if you scroll, up you’ll find.
Mr Stevens: Is that the narrative Board paper which sets out when risks change?
Robert Swannell: It’s the Board paper that comes at about item 4 on the Board agenda and introduces changes in risk, or any other comment on risk, if you want to turn to it.
Mr Stevens: Well, we’ll come back to that shortly. There’s a significant amount of redaction in it, but we’ll double check where it is and come back to that?
Robert Swannell: It is quite important because this, actually – May 2018 – is the first implementation of the new style of Board agenda.
Mr Stevens: We will come to that. Can we please turn over the page, please. And, again, if we can zoom in on the Post Office box. So you’ve got the delivery risk profile, and the reputational risk profile. Reading those, again, those don’t identify expressly what the risks to Post Office are?
Robert Swannell: That is true but you have to take this also in the context of the Board reports that would have been coming to the Board about POL. I think I’m right in saying that, between the time that I went on the Board of ShEx and the March 2019 turning point, there were eight times in which POL was referenced in the Chief Executive’s report. So you’ve – this isn’t in isolation. There would have been discussion and information about POL in other ways.
Mr Stevens: And –
Robert Swannell: And, by the way, all of – pretty much all of those eight references in Board papers were about the funding and commercial agreement arrangements, which were, at that point pivotal – well, they were existential for the Post Office.
Mr Stevens: Yes, and, of course, your evidence is that the Horizon related risks weren’t included on the risk register for the Board until 2019?
Robert Swannell: Correct.
Mr Stevens: Sir, with the transcriber in mind and the early start, I think it’s probably a good time to take our afternoon break there.
Sir Wyn Williams: Yes. Save for this, Mr Swannell, by 2018, the Group Litigation was actually in being. So I was just wondering whether there was any separate process by which your Board, if I can call it that, was being informed of what was occurring in the Group Litigation?
Robert Swannell: It wasn’t.
Sir Wyn Williams: So you knew nothing. Fine, okay.
Yes, we’ll have our break now. What time shall we resume again, Mr Stevens?
Mr Stevens: If we could say 3.15, please, sir.
Sir Wyn Williams: Yes, yes.
Mr Stevens: Thank you.
(3.05 pm)
(A short break)
(3.18 pm)
Mr Stevens: Can you see and there us?
Sir Wyn Williams: Yes.
Mr Stevens: I want to go to the Board briefing pack point, please, and if you can go to UKGI00016783 at page 4. I was asking you questions about the risk register that the Board were relying on. This is the contents of the pack and we see at 6 the Chief Financial Officer’s update; 7, Risk Register review; eight, NDA – Project review.
The Risk Register review is said to be page 23. If we turn to page 23, that is the document we were just looking at. What other document were you referring to?
Robert Swannell: It would be about a three or four-page document which would set out the – any particular issues that needed to be highlighted and any changes to the risk rating of any of the underlying entities. So if you go back to the agenda –
Mr Stevens: Page 4, please.
Robert Swannell: – you will see that it’s a – well, in this case it’s a three-page document.
Mr Stevens: As you see, if we go back to page 23 –
Robert Swannell: I can’t –
Mr Stevens: That is the –
Robert Swannell: I’ve got – I mean, I’ve looked over the last weeks at lots of –
Mr Stevens: Let me ask it in another way. Can we go to UKGI00045959. This is –
Robert Swannell: That’s it.
Mr Stevens: So that’s data for 29 November 2018.
Robert Swannell: Yeah.
Mr Stevens: Just so we’re clear, we can figure out what documents went where on the documents themselves?
Robert Swannell: Right.
Mr Stevens: But that is the type of document you’re referring to?
Robert Swannell: Exactly and I don’t know how long that one is but they’re normally two to four pages.
Mr Stevens: If we look at page – well, let’s just look at this. It’s 29 November 2018, so just before the Common Issues trial. Sorry, the Common Issues trial is effectively upon Post Office. If we look at page 4, please, right at the bottom –
Robert Swannell: I think I refer to it in my witness statement, the – I think the risk was reduced for POL.
Mr Stevens: Yes. We’re just going to look at that now. It says:
“Post Office: Director – Tom Cooper.
“Delivery Risk: Red/Amber (No change).
“Reputational Risk: Medium (Decreased from High).
“Change due to improved performance making [Post Office Limited] profitable and therefore increasingly self-sufficient financially.”
Again, this document wasn’t highlighting expressly what the risks to Post Office were, was it?
Robert Swannell: Correct. I think I made that plain in my witness statement, that the first reference to Horizon is in January 2019.
Mr Stevens: Yes. That document can come down. Thank you.
Why did the Board think that that type of information was sufficient to challenge the Executive on whether it was identifying risks appropriately?
Robert Swannell: Sorry, I don’t know exactly what – normally, there would be some narrative in the reference to the changing of the risk. You took it down before I saw anything. Was there nothing there?
Mr Stevens: Well, we can bring the back up, please. It’s UKGI00045959. Page 4, please, at the bottom, and then if we can go over the page, please. It’s been marked as “Irrelevant”.
Robert Swannell: I can’t answer that. I can’t recall why that would have been sufficient or what the context was at the time or what was said at the meeting. I think it’s a perfectly fair question.
Mr Stevens: But you can’t assist us with –
Robert Swannell: I can’t, no.
Mr Stevens: Just so we can pin down what the Board actually had, please could we bring up UKGI00002488. This is an email at the bottom we see from Emma Lee to James Baugh and Richard Callard cc’d in. It says:
“We are now commissioning updated registers from all teams for September. I have attached your latest risk register for you to update.”
It says:
“Please forward me the update file by close of play on Friday, 3 October.”
Now, earlier I was talking about a Board meeting, your first Board meeting as Chair on 24 September 2014. So this forwarding a Post Office Limited risk register that was in play before your first Board meeting as Chair. I don’t suggest you’ve seen this email before but it’s just to place it.
Robert Swannell: I’ve seen it when you disclosed it a few days ago.
Mr Stevens: Sorry, I’ll rephrase that. You haven’t seen it at the material time?
Robert Swannell: No.
Mr Stevens: Can we bring up the attachment to that email, please, it’s UKGI00002489. Mr Russell’s evidence this morning was that this type of detailed register was not provided to the Board?
Robert Swannell: Correct.
Mr Stevens: Would you have ever seen a detailed register such as this for Post Office Limited?
Robert Swannell: No, the first time I saw this or anything like it was in preparation for this Inquiry.
Mr Stevens: If we could scroll down, please, to risk 11. It says Project Sparrow. At the time, would the words “Project Sparrow” have meant anything to you?
Robert Swannell: No.
Mr Stevens: We see it says “Risk Overview”:
“The Working Group is unable to progress cases and the process is publicly criticised by applicants and the JFSA.”
If we look at “Mitigation Overview”:
“ShEx is ensuring POL closely engages with members of the Working Group and seeks to address issues over the operation of the Working Group if they arise.”
“Further mitigating actions”:
“Provide robust responses to queries about the Working Group stating the findings of the initial review that there are no systemic issues …”
That’s referring to the Horizon Interim Report.
“… and that there’s an independent Chair. Caution needs to be exercised to ensure that the independence of the Chair is not undermined.”
Do you think that ShEx’s involvement in issues like the Mediation Scheme should have been raised with the Board?
Robert Swannell: I think, with the benefit of hindsight and all that we know about what was not known at the time, clearly the answer is yes.
Mr Stevens: Earlier, Mr Russell was discussing the fact that the risk that wasn’t recognised was with the IT system itself, and the risk of unsafe convictions.
Robert Swannell: Correct.
Mr Stevens: Do you think that should have been identified as a risk by Shareholder Executive at this time?
Robert Swannell: Again, I think you’re asking me to put myself in the mind of somebody 10 years ago to know what they should have known and/or did know. I mean, all I’m telling you is, today, looking at the facts that we do know, we should have known about this.
Mr Stevens: At this stage, information about the Interim Report and the Mediation Scheme and ShEx’s involvement in that, what do you think would have happened at Board level if that had been raised?
Robert Swannell: Exactly the sort of thing that you saw raised from March 2019 onwards.
Mr Stevens: So a deep dive?
Robert Swannell: A succession of deep dives. Had we known all of the facts – I mean, the truth is, as far as I can see – and this is what I talk about in complete curiosity – nobody at any point in this had ever come to a conclusion on the totality of the Horizon system, and so when I talk about incomplete curiosity, I include in that not following through to a conclusion as to whether or not Horizon could or should have been relied on.
Mr Stevens: So if this had been raised to your attention at this time, when the Working Group was in action, would you have counselled to see it through, as you describe it, or to try to come to a final conclusion?
Robert Swannell: Look it sounds very clever after the event for me to say that but I would have wanted to know that there was a conclusion and whether I would have commissioned a further – asked for the commissioning of a further independent report, I simply can’t tell you, but that would be the natural thing to see through. And that, as far as I can see, is what did not happen here. So, again, I’ve sort of shorthanded for you the issue of culture and curiosity, but that’s part of the incomplete curiosity.
Mr Stevens: I want to move on slightly now. We’ve looked at what documents the Board had before it. We’ll come back to that in due course but just to creep things chronological, I want to look at some meetings you had with chairs of Post Office. In your statement, you said that you would meet with the Chair of Post Office once a year, roughly?
Robert Swannell: Sometimes more but roughly, yeah.
Mr Stevens: You say that you would not describe it as part of an oversight role. You say it was explicitly intended to get feedback on UKGI performance in its role as shareholder?
Robert Swannell: Correct.
Mr Stevens: In your experience of acting as Chair or Non-Executive Director of other businesses, have you ever had a role like that?
Robert Swannell: Like what?
Mr Stevens: As a Chair in meeting other – well, meeting members of a business you’re overseeing, purely to see how someone you’re responsible for was performing?
Robert Swannell: No, because I’ve never had a role that occasioned it –
Mr Stevens: Could we, please –
Robert Swannell: – and, by the way, the only experience that I could possibly have is as the Senior Independent Director of 3i Group, and 3i Group was a venture capital and private equity organisation with many underlying investments. The Chair of 3i would never have met any of those underlying investments ever. So, in a sense, this is over and above that.
Mr Stevens: I want to turn to your meeting with Alice Perkins on 8 April 2015 and, if we look at your briefing first, it’s UKGI00045533. So if we can just get all of the points considering raising aspect in. We see there are four headings: Board Review; Future Challenges Facing Post Office; CEO and Management Capability; and Post Office’s Relationship with Government. The bold text sets out matters on which you might ask questions, for example, “Board Review”, you might consider asking Alice about her views of the evaluation.
This briefing goes beyond merely this being a meeting for you to ask how UKGI officials are performing?
Robert Swannell: Of course.
Mr Stevens: So this was an opportunity, was it not, for you to discuss business issues with –
Robert Swannell: Of course. I mean, it would be extraordinary to go into a meeting with the Chair of the Post Office and say, “How’s our person doing?”, and then end the conversation.
Mr Stevens: If we look at paragraph 1.2, it says:
“After almost four years as Chair Alice will be leaving in July. It would be useful to ask her for her honest reflections on the challenges going forward, including what she would like her successor to address …”
In your statement – we don’t need to call it up but it’s page 32, paragraph 82 – you say:
“I do not recall any of my meeting with Alice but I think it is unlikely we would have discussed Horizon.”
Robert Swannell: Correct. I think this is the only meeting where I don’t have a meeting note after the meeting, and I regret that, I also, actually, regret that the follow-up meeting that I had suggested never happened and I set that out in my witness statement.
Mr Stevens: So the Chair of Post Office and the Chief Executive, Paula Vennells, had just two months before this meeting appeared before a Select Committee to discuss matters appearing from Horizon. Why do you think it’s unlikely that you wouldn’t have discussed Horizon or she wouldn’t have raised it?
Robert Swannell: Because I think I would remember it – well I think I’d remember it if she had but, I mean, in truth, I can’t remember. So I can’t categorically tell you.
Mr Stevens: Can we look, please, at another one of the more detailed risk registers. It’s UKGI00004686. This is first an email.
Robert Swannell: By the way, the reason that I surmised, I think I said in my witness statement, that I hadn’t talked about Horizon is because Horizon wasn’t mentioned in the briefing note and, therefore, there was no particular trigger for it but that’s the best I can do.
Mr Stevens: This is an email from James Baugh to Richard Callard and others on 25 June 2015. It says:
“We have been asked to provide an updated [Risk Register] by 3 July.”
The latest copy is attached.
We see attached is “Risk Register_June15”. If we could open that risk register, it’s UKGI00004687.
If we could go to page 2, please, we have the same detailed risk register as before and I understand you wouldn’t have seen this at the time. If we can go, please, to risk 11. We have Project Sparrow, if we could make that line bigger, so we can read it. Thank you. It says:
“Increase the tact from JFSA against Post Office and alleged faults with Horizon system including attempts to derail of the Mediation Scheme set up to address individual cases.”
Then on “Mitigation Actions”:
“Shareholder Executive is ensuring Post Office Limited addresses issues as they arise and is seen to take the lead on this matter. Important that the Mediation Scheme remains independent of Government.”
You’ll see at the “Further Mitigating Actions”:
“Respond to queries, especially for MPs and Parliament, maintaining scheme’s independence from Government and the fact that no systemic issues with Horizon have been identified.”
Then it refers to the CCRC, it says:
“Take legal advice on CCRC investigation and ensure all relevant documents are saved.”
We see the risk rating for reputation and finance, the probability and impact is 4 each, you see in the middle. Can you translate that for us as to what that’s saying, with a risk rating of 4?
Robert Swannell: It’s 80 per cent of the highest.
Mr Stevens: Would you have expected this report to be submitted to the audit committee of Shareholder Executive?
Robert Swannell: Again, I think it would depend – it would depend – it would depend on the knowledge of the people compiling this at that time. Are you saying because it’s a four by four, that it should have been discussed?
Mr Stevens: Well, that’s my question, yes.
Robert Swannell: I’m not sure necessarily with the Audit and Risk Committee. The Audit and Risk Committee was responsible for setting the processes and agreeing the processes by which the Risk Registers were compiled. Actually, although, perhaps not in this – which year is this?
Mr Stevens: Sorry, this is June 2015.
Robert Swannell: I mean, there wasn’t – obviously, there wasn’t a Board in 2015 with a – an Audit and Risk Committee. So actually, these issues would come to the Board if they were thought to be of sufficient severity and – I mean, I think I can only give you the answer that I gave to the question that you asked of the previous risk register, is that, if we – if we had known what we know now, or if the people compiling this had known what they – what we know now, then clearly this should have come to the Board. And I say that – I mean, I say that explicitly in my witness statement.
Mr Stevens: Well, yes, this is referring to the CCRC being involved, so involving the investigations into whether convictions were unsafe. Serious issues that are raised, and the probability and impact score has been 4 for each. Now, you’ve reviewed the documents, as you say, and you’ve produced a witness statement to help with lessons learned. In your reflections looking back, what do you think went wrong that meant these risks, quantified at 4, for impact and probability, weren’t raised with the Board?
Robert Swannell: Well, I’m just trying to understand this. There’s probability – it’s – I’m finding it quite difficult to read the writing, but isn’t that a 3 in the risk?
Mr Stevens: No, we can go to the top to show, it’s on the left-hand side, there’s 4 and 4, and then the right, 3 and 3?
Robert Swannell: I think the simple answer to your question is if – I mean, if you’re asking me do I think that, if the scale of the issues then confronting the Post Office had been known to this team, that they should have escalated it in the risk register? The answer is yes and that’s, I hope, what I’ve said in my witness statement.
Mr Stevens: Yes, and –
Robert Swannell: I think I said “could or should”.
Mr Stevens: My question is, having reviewed this in detail, as you have, can you help us with, in terms of the process, why it wasn’t raised when, on the face of it at the time, the unmitigated risk on the left was assessed at 4 for probability and impact?
Robert Swannell: I can’t. I can’t help you, no. I can’t put myself in their minds.
Mr Stevens: Do you think the Board could have taken more steps to ensure that risks such as this were appropriately raised to it?
Robert Swannell: No, because I think the answer is the processes that were in place were – which is a monthly – and, again, I’m happy to go through it – but a monthly evaluation of the risk register was as good a process as you could have, and I think is as good a process as any company that I’ve seen. What is missing here is either the knowledge or the judgement to put that risk in context and that’s why I’ve said in my witness statement, I think quite clearly, “could or should have been drawn to the attention of the UKGI Board”.
Mr Stevens: When you say knowledge and judgement, whose knowledge and judgement are you referring to there?
Robert Swannell: Those who were exercising the judgement on these matters. But I can’t – looking back, I can’t put myself into what their knowledge was, and I can’t tell you in a sort of mathematical way whether every risk that is rated at that number should be escalated to the UKGI Board. If you ask me the question, if you knew that there was a serious risk of wrongful prosecution of one or more subpostmasters then, of course, that’s a matter that should have been raised with the UKGI board.
Mr Stevens: Please can we look at a different document which is UKGI00020145. So this is a Shareholder Executive dashboard. It’s from January 2016. Earlier in your evidence, you refer to it being sent to you in October 2015?
Robert Swannell: Correct.
Mr Stevens: It’s neither here nor there for these purposes, really. If we look at, please, page 3 we see the Post Office “Governance – Top Priorities”, and some bullet points here. For you as Chair, for what purpose did you use this document?
Robert Swannell: Well, as I say in my witness statement, I didn’t use it to calibrate the risks. What I used it for was as a very handy way of looking at what the underlying issues were in the 20 plus entities and many more projects that were being undertaken by UKGI.
Mr Stevens: We looked at the risk registers earlier which didn’t set out the risks in any great detail, so when you read, we see, “Minimise HMG and POL exposure (financial and reputation) to Horizon IT issues”, what did that mean to you?
Robert Swannell: I can’t tell you exactly I what it meant to me in January 2016 but, clearly – well, actually, I say clearly – I don’t think by then I had been briefed for any Chair meeting, including references to Horizon. So I’m not sure what it would have meant to me, and I have to say, I mean, obviously I look at it now, and I wonder whether it should have – and I reference this again in my witness statement – whether this should have had prompted me to ask many more questions but, on the face of it, it didn’t. And, by the way, it didn’t fool one of the most experienced Boards that I’ve had the privilege to work with, including three Permanent Secretaries.
Mr Stevens: That was my next question. At any stage up to this point, had the Permanent Secretaries asked any questions at Board level about Horizon issues?
Robert Swannell: No, nor did that one line which isn’t, you know, isn’t particularly explicit, nor did that give rise to conversation. But, again, remember that the context for this – I think I’ve said already – there would have been eight Chief Executives’ report before we get to 2019, referencing POL but not referencing Horizon.
Mr Stevens: Can we look, please, at UKGI00020297. I want to look now at some of the meetings you had with Tim Parker. This for a briefing for your meeting with Tim Parker on 9 July 2016. UKGI have provided metadata for this document, suggesting it was dated 6 July 2016. At page 3 of the briefing, please, it says:
“Tim may mention legal action being brought against [Post Office] in respect of its IT system Horizon and the claims that it wrongfully prosecuted/sacked a small number of agents. Tim has undertaken to review the matter for the Minister, but in the face of High Court proceedings now being launched they may need to reconsider.”
Knowing what you know now, do you think that accurately reflects the status of the litigation?
Robert Swannell: I mean, the answer has to be, knowing all that I know now, no.
Mr Stevens: In your witness statement, you refer to a briefing with Laura Thompson, Richard Callard, Justin Manson and Tim McInnes on 13 July 2016, yes?
Robert Swannell: Correct.
Mr Stevens: At that meeting or briefing, can you recall discussing the Horizon IT System?
Robert Swannell: I’ve no idea, I’m sorry.
Mr Stevens: Do you think before this you were aware of the allegation that Post Office had wrongly prosecuted/ sacked a small number of agents?
Robert Swannell: Again, I’m sorry but it’s very difficult for me to remember precisely when, in a period over the last eight years, I knew. I say in my witness statement that I have to assume that I knew at this point because that’s the earliest that I probably could have done. Whether I did or not, I don’t know.
Mr Stevens: With you being aware of this allegation, can you explain why you didn’t take steps to see that this allegation of wrongful prosecution, why that wasn’t included on the risk register?
Robert Swannell: I can’t explain, no. I think I would say that this is a three-page note and this is the last item on it, and that puts it in some context.
Mr Stevens: Well, it says it’s an allegation of wrongful prosecution; that’s a serious matter, isn’t it?
Robert Swannell: It is, if I understood what wrongful prosecution meant. And it’s – I can’t tell you whether I knew at that point that the Post Office was a prosecuting authority or not. I can’t tell you.
Mr Stevens: Would you accept, based on being on notice of there being claims of wrongful prosecution, that you should have done more to see that this allegation was put on the risk register?
Robert Swannell: Look, I address that full on in the witness statement. It’s hard to know, in the context of all of the other things within UKGI, whether this is the one that I should have alighted on and didn’t. Obviously, with the benefit of hindsight, as I say, I would wish that I had; I didn’t.
Mr Stevens: Could we go, please, to UKGI00016783. We went to this document earlier, it was the Board papers.
Robert Swannell: Yeah.
Mr Stevens: Could we look at page 101, please. There we see it’s the UKGI dashboard, April 2018. If we can go, please, to 105, and I think it’s third bullet point down. It refers to:
“Civil litigation judges that [Post Office Limited] has acted inappropriately or [I think that will be illegally] on the ‘Horizon case’.”
Can you recall whether this risk on the dashboard was picked up by the Board?
Robert Swannell: It wasn’t, or it would have been mentioned in the minutes. But remember the dashboard was not presented for discussion at the Board; it was presented for information and, as I’ve said to you and I have made clear in the witness statement, it would have been inconceivable to me that a matter referenced at, I think you say, page 100 as a ‘for information’ item in the dashboard would not have been included in the risk register if it was a matter of deep concern.
Mr Stevens: We looked at this document and saw what was in the risk register didn’t actually identify what the risks were, yes?
Robert Swannell: What I’m saying to you is that, for the Board, the Board was given two documents. One at page 100 is the dashboard and, secondly, is the risk register. And it would have been inconceivable to me – looking back, clearly I was wrong – it would have been inconceivable to me at the time that a matter that was of deep concern and a grave risk should be mentioned in the dashboard but not drawn out in the risk register and positioned in the risk matrix.
Mr Stevens: Well, it’s right, isn’t it, that one of the Board’s roles is to challenge the executive and see that the appropriate risks are being identified?
Robert Swannell: Correct.
Mr Stevens: The risk register we went to earlier didn’t expressly set out what the risks were?
Robert Swannell: Correct.
Mr Stevens: There’s a ‘for information’ piece which provides a bit of detail on some of the risks; do you agree?
Robert Swannell: I agree.
Mr Stevens: Was it not a failing of the Board to fail – to not spot this and to see that the civil litigation and the underlying issues were put on to the risk register?
Robert Swannell: I mean, I can tell you that the Board did not, and if you – it was a very experienced Board. If you want to say that was a failing, that’s a matter, obviously, for judgement by the Inquiry.
Mr Stevens: Can we have a look at another meeting you had, please, with Tim Parker. It’s UKGI00008374. You see at the top it says, “Briefing for meeting with Tim Parker, 11 September 2018”. Under “Challenges and opportunities”, it refers to the litigation, and the final sentence of that paragraph says:
“UKGI have not yet been satisfied that the business has done enough to identify, assess and manage the risks.”
Do you recall your thoughts when you read that?
Robert Swannell: I don’t recall my thoughts when I read that, no. I mean, I can – I’ve put some context about this in my witness statement, if you want me to refer to that?
Mr Stevens: Well, we have your witness statement. I ask you directly: what do you think you would have thought, having read that, the fact that UKGI were not satisfied that the Post Office had done enough to identify, assess and manage the risks of the litigation?
Robert Swannell: Well, I was aware, by this point, that Tom Cooper, who was the new Director on the Board, as a result of the – sorry, when I say I was aware, I was aware that there was a much greater degree of engagement by Tom Cooper in relation to this litigation, of which, of course, I was aware, at this point.
Mr Stevens: So if we look at the bottom, is that what this is referring to:
“While we have a strong relationship with both Tim and [Post Office’s] CEO (Paula Vennells) there has been some recent tension with specific individuals pushing back at what they see as undue interference.”
Robert Swannell: Yes.
Mr Stevens: Do you know who the individuals pushing back were?
Robert Swannell: No. Well, I can only assume that Tim must have been one of them because in – whether in that meeting or the two or three subsequent, I think, at various points, he talked about trampling over the undergrowth or excessively executive behaviour of Tom Cooper and I increasingly pushed back on that.
Mr Stevens: Are you effectively being asked here to step in and assist with UKGI satisfying itself as to whether Post Office has identified, assessed, and managed the risks?
Robert Swannell: I don’t think so, no. Do you want – can I see the end of the paragraph?
Mr Stevens: Over the page, yes, of course.
Robert Swannell: No, I mean, at the end of it, it says, “It would be good to get Tim’s take on this”, so I’m being invited to get Tim’s take. Not step in, I think.
Mr Stevens: Did you consider at that point it to be a significant risk to UKGI that it had not satisfied itself as to POL’s identification of the risks in the litigation?
Robert Swannell: I was aware of the escalating view from Tom Cooper and, again, I couldn’t precisely tell you when, that POL were not sufficiently engaging in contingency planning and, in particular, for the possibility of loss.
Mr Stevens: Could we look, please, at UKGI00045945. This is your email of the note of the meeting with Tim Parker.
Robert Swannell: Yeah.
Mr Stevens: Was there no discussion of the litigation at this meeting?
Robert Swannell: I can’t tell you. All I can do is refer to the note. I’m afraid my memory doesn’t go beyond that.
Mr Stevens: So your best recollection is – well, sorry – you’re limited to this note?
Robert Swannell: When was the meeting? I can’t recall.
Mr Stevens: The meeting was 11 September?
Robert Swannell: So it’s three days later. It’s my best recollection.
Mr Stevens: That document can come down. Thank you.
Please could we –
Robert Swannell: But, again, you see his gripe is about the interference.
Mr Stevens: Please can we turn to UKGI00016800. It’s the Board pack for the meeting on 29 January 2019. If we turn, please, to page 55. Actually, can we start with page 50, please, actually. We see this one of the risk register review papers I think you were referring to earlier. And if we just scroll down the page, as – well, you can take it from me, it’s all marked as irrelevant, that paper.
Robert Swannell: Okay.
Mr Stevens: There’s none of relevance in there. Can we then turn to page 55.
We see that’s the risk register with Post Office Limited towards the top right. Then, if we turn, please, to page 61. Under “Reputational Risk”, we now see that it says:
“There is an ongoing [Post Office] litigation case which could potentially generate a high level of negative coverage.”
Do you recall what had happened that led to this being included in the risk register?
Robert Swannell: I don’t and, again, I think it’s surprising but probably just an error that there was no reference in the risk paper to the change in the rating of the risk.
Mr Stevens: Was there any discussion at the Board of the addition of the litigation case on the risk register?
Robert Swannell: No, and, again, as I said in my witness statement, I think, again, that was – it was a very unusual Board. The entire Board of UKGI had gone to Sellafield for that meeting. The great preponderance of the meeting was about the Nuclear Decommissioning Authority, as you would expect, and there was another major item on the agenda. And I think it’s probably the only time in my – that I can recollect, where I don’t – I’d have to go to the minutes to be clear, but I don’t think the risk register was taken in its normal order and context, because it was, in fact, in my entire time at UKGI, the only Board meeting that took place outside the offices of UKGI at Sellafield.
Mr Stevens: We then get to March 2019 and that’s when Common Issues is handed down. In your witness statement, you say that:
“From that point onwards, Post Office and the issues surrounding the Horizon IT System became a top priority for the UKGI Board and also for me as Chair.”
I want to look at a lessons learned document that you refer to in your statement prepared by UKGI, the reference is UKGI00048173.
We see it’s a draft of the document created 28 June 2021, and I understand that you agree with the recommendations within the report; is that right?
Robert Swannell: I was instrumental in its preparation, yes, and in its discussion.
Mr Stevens: Can we look, please, at page 2, paragraph 2.4. At the bottom of 2.4 it says:
“The degree of control and oversight that the Government has over a Public Corporation should be both reasonable and proportionate to the public corporation’s functions and risk profile. Accordingly, what is appropriate in terms of oversight is subject to change; as POL’s risk profile has increased so too has the degree of oversight exercised by government.”
Which I think is the point you made at the start of your evidence. We have seen that the underlying risks of the litigation have been shown by the Shareholder Executive for years; would you agree?
Robert Swannell: Correct.
Mr Stevens: Would you accept that the handing down of the common issues was an example of a risk materialising?
Robert Swannell: It was – for me, it was more than that. It was – again, I haven’t referred to it because, as far as I can in my witness statement and now, I have tried to rely almost exclusively on written evidence because I find it very difficult to know at what particular point in a ten-year period that you knew something. So it’s better rely on written evidence. But, for me, the Common Issues judgment – and I’m making a person statement here – provoked an utterly visceral reaction.
I had heard, for the previous ‘n’ years, there is nothing wrong with Horizon, 6 million transactions happen every year, there are 11,500 branches where mostly it happens, there is never a problem with the Crown. Again, I’m giving you anecdotal stuff here, not evidence by writing but I can tell you that’s what I’d heard.
And I suddenly see this Common Issues judgment, and again, I can show that it’s visceral because, as you know, I got this email about the Common Issues judgment at 8.00 on a Friday when I was on holiday and I replied to it by 9.21, saying what my views on it were. And I can tell you – and anybody who has worked with me understand this – when I start an email saying, “This does not look at all good”, it means a great deal more than that in the sort of language that I tend to use.
I then go into a series of issues about whether lessons had been learned from the Magnox episode and, from that moment on, including the recusal, I was absolutely on it and I could almost say obsessively.
Mr Stevens: In your evidence, you were explaining the visceral reaction because – and you’ve referred to being told – the transcript has gone but I think you said for years that Horizon was okay, it processed 6 million transactions. In what context did you receive that information?
Robert Swannell: Look, I was Chairman of UKGI. Again, I’ve tried in my witness statement only to set forward evidence that is backed by writing but, of course, as Chairman of UKGI, as I set out in my witness statement, I spent a lot of time in the organisation listening, and it would be impossible over that period not to pick up some of that background noise. I can’t tell you precisely which years I would have heard that but I did hear it and, actually, the one thing of all of them that’s stuck in my mind that I would have been told at some point, I can’t recall when, was the view of the National Federation, and, again, I can’t tell you when that was, but at some point before 2019.
Mr Stevens: Did you rely on what you were being told about Horizon being okay and it processing 6 million transactions in deciding whether or not the Horizon related issues should go on the risk register?
Robert Swannell: Do you mean was it background noise in looking at the risk register? I’m sure it would have been. But, again, I can’t tell you exactly. So you showed me the risk register in 2015 and you’ve shown me the risk register in 2016. I can’t tell you at which point I knew or heard a particular thing. It might have been in 2018. I really don’t know.
Mr Stevens: At any stage before the handing down of Common Issues, were you told of the allegation that Fujitsu could remotely access –
Robert Swannell: Never.
Mr Stevens: – branch accounts?
Robert Swannell: Never heard that. Had no reference to it at all.
Mr Stevens: Do you recall having any conversation about criminal convictions with anyone in UKGI or ShEx prior to Common Issues beings handed down?
Robert Swannell: Criminal convictions? I knew – I must have known there were prosecutions.
Mr Stevens: Earlier we referred to wrongful prosecutions –
Robert Swannell: Correct.
Mr Stevens: – but, aside from that meeting I took you to, can you recall any other conversation?
Robert Swannell: No.
Mr Stevens: In your witness statement, you say that it’s significant to note that the role of the shareholder changes when the underlying company has effectively betrayed the trust that its shareholder has put in it.
What role does trust have in a shareholding relationship?
Robert Swannell: It has a huge role, in assessing – I mean, that’s why I started by talking about culture and curiosity. Culture in an organisation, and your feel for it, is utterly pivotal in how you behave as a Board member, and I’ve been being fortunate enough to be involved in a lot of Boards, either as a Board member or as an adviser to a Board and you can – with experience, you can quite quickly get to an understanding of culture and therefore on trust.
And that’s why I think those – the trust that a Board has with its chief executive and a shareholder has with its Board obviously changes over time. What I can’t tell, because I have no experience of it, is what sense of trust the POL Board felt about the executives who were reporting to it and, in turn, because my connection with the POL Board was a once-a-year meeting with the Chairman, it’s pretty difficult for me to give a view on whether there should be trust between the shareholder and the Board but trust is utterly fundamental to the relationship. When trust goes, everything changes.
Mr Stevens: I think it’s important we cover some of the recommendations with you. So there are some factual parts of your witness statement which I’m not going to cover but let’s turn to look at some issues to do with recommendations. Can we please bring up your witness statement at page 22, paragraphs 54 to 55. In fact, if we just get up 55 – thank you – you say that:
“[You] believe that [arm’s-length bodies] have an important part to play in the governance of state assets. It allows [His Majesty’s Government] to set policy objectives and appoint a Board of suitably qualified people to achieve those objectives. Clarity of purpose can be achieved through a framework document and Chairman’s later. Oversight on good governance can be achieved through the role of [His Majesty’s Government] as shareholder and with the framework document, articles of the entity, and through representation on the relevant Board. The most important tools for [His Majesty’s Government] in this arrangement are approval of keyboard appointments and ensuring that the Chair and CEO are rigorously and regularly assessed against their objectives.”
Who within Government was responsible for the rigorous and regular assessment of the Chair and CEO of POL?
Robert Swannell: Amongst other, ShEx/UKGI would have been.
Mr Stevens: Was that a clearly understood role within the Shareholder Executive?
Robert Swannell: It would have been part of the arrangements, yes.
Mr Stevens: Are you aware of what systems were in place to ensure that there were rigorous and regular assessments?
Robert Swannell: Yes, and they reported to the Board, as I’ve set out in my witness statement.
Mr Stevens: From your position looking back, do you think there are any changes that need to be made to those processes?
Robert Swannell: I can’t tell you because I haven’t seen, and wouldn’t expect to see, the appraisal of the Chair or Chief Executive of the underlying entity, and what came out of that and what the consequences were.
Mr Stevens: Can we look, please, at page 65 of your witness statement, paragraph 167. It says:
“The most effective control of any arm’s-length body is through very clear policy objectives and through framework documents and agree strategic plans and agreed objectives/priorities that set out very clearly the way in which the bottom is to operate at arm’s length and how its governance should work.”
Who was responsible for setting the objectives and monitoring whether Post Office met them?
Robert Swannell: It would be a range, I guess, of both policy and financial objectives. So it would be officials from ShEx/UKGI and from the business department.
Mr Stevens: Looking back as you have done, do you think that the setting of objectives and monitoring was satisfactory?
Robert Swannell: It’s quite difficult for me. I mean, the answer is the outcome was clearly wholly unsatisfactory. What I can’t do is put myself in the position of all of the information known to people at the time. I mean, my assumption has to be no, in relation to this aspect that we’re talking about.
Mr Stevens: If we turn over the page, please, to page 66, paragraph 169, the last sentence, you say:
“In my view the most important lesson to be learned is how to properly train Boards and their members to ensure continual curiosity and to develop a culture to allow that curiosity to make a difference in Board effectiveness.”
Can we infer from this that your view is the core issues here was a lack of skills or training on the part of the Directors of Post Office Limited?
Robert Swannell: Well, I’ve – again, let me just go a bit deeper into this. My view, again, and I repeat it because I think it’s utterly fundamental to this, is the culture at the Post Office and on its Board was not good. The result of that was that information flow was imperfect, to put it mildly. I can’t express a view on quite how imperfect it was but it clearly was imperfect and, again, I go back to the central point on curiosity and follow through that, ultimately, the issue here is that nobody ever ultimately bottomed whether or not Horizon was as it had been stated to be, even though there were, as I now know – although was not aware of any of them at the time – there were many studies that looked and talked about things in probably quite imprecise ways that people didn’t fully understand, like systemic, and I could go into more detail.
I think I’d add one other thing, and we haven’t touched on it, but the truth is that, once the Post Office had got into the position where it was faced with this very complex piece of litigation, I think they were – they, as would many Boards, were not well equipped both to understand the technical and legal aspects of that litigation and, if you recall, we haven’t touched on it today, but one of the other things I did immediately after the settlement in December 2019 was to get a further litigation protocol put in place because I thought that was so important.
Now, it isn’t often that Boards are faced with a piece of litigation that’s quite so existential but my observation is they weren’t well equipped to deal with it.
Mr Stevens: On this point here, you’ve identified an important lesson to be learned on properly training boards and developing a culture to allow curiosity to make a difference. In your reflections, have you thought of any practical steps –
Robert Swannell: Yes.
Mr Stevens: – that could – what are they?
Robert Swannell: Putting culture at the heart of every organisation. It’s no accident – and I’m sorry to sound a bit passionate about this, but I am. The first Board meeting of UKGI in January 2016, item 1 on the agenda was culture, and the reason for that is I thought it was so important, and if I talked about culture and openness, ten times, I talked about it a thousand times. I took every opportunity at UKGI to talk about it, and there’s no reason why every board and every company shouldn’t put it at the heart of what it does.
Again, it’s no accident that before every UKGI Board meeting the newest recruits to the organisation came to the Board just with the Non-Executives on their own, and talked about why they were there, what they hoped to achieve, what they’d found good, what they’d found bad, and allowed us to talk about culture.
And, you know, I’ve been going on about this for a decade now, in various different guises and organisations and it’s fundamental to how boards work and, without it, even good curiosity isn’t always successful.
Mr Stevens: You, in your witness statement, you advocate to keep the model of arm’s-length bodies as a model for assets such as the Post Office. The Inquiry is going to hear from a number of witnesses in the coming weeks who make various suggestions on how that may be changed. One suggestion would be that a minister should be empowered to become directly involved in the decision making of a Board and direct the Post Office Board on how to make a certain decision. What would be your view of that?
Robert Swannell: Again, I may not have the precise technicalities right, but it would surprise me that a minister didn’t feel able to get their point of view across, under the current architecture, either by putting it within the framework document or simply by exerting the power that the 100 per cent shareholder of any entity has.
I mean, put it this way: I don’t think that Blackstone or KKR would feel the need for legislation to let their underlying entities know what was going to happen.
Mr Stevens: Finally, when Shareholder Executive became UKGI, the responsible department transferred from the predecessor to DBT to UKGI being accountable to the Treasury, yes?
Robert Swannell: (No audible answer)
Mr Stevens: Do you think anything different would have happened if the body managing the shareholding interest for the Post Office – so UKGI – was accountable directly to DBT or its predecessor?
Robert Swannell: Well, in respect of its work with Post Office, it was accountable to DBT. I don’t think the shareholding of HMT made any difference in that and, throughout, the Permanent Secretary of DBT was on the UKGI Board. So Alex Chisholm – or before that, Martin Donnelly – Alex Chisholm and then Sarah Munby.
Mr Stevens: Thank you, sir. Those are all the questions I have.
I’ll just check in the room if there are …
No. No questions from Core Participants, sir.
Sir Wyn Williams: Well, then, thank you very much, Mr Swannell, for taking the time and trouble to write a detailed witness statement and for answering questions this afternoon at the Inquiry. I’m very grateful to you.
The Witness: Thank you, sir.
Sir Wyn Williams: So we’ll resume again tomorrow morning at 9.45 with Mr Cooper; is that right?
Mr Stevens: That’s correct, sir.
Sir Wyn Williams: Fine.
(4.28 pm)
(The hearing adjourned until 9.45 am the following day)