Post Office Limited — Strictly Confidential
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POLB 13(9")
POLB 13/59-13/75
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 16 July 2013
Present:
Alice Perkins
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Susannah Storey
Paula Vennells
Chris Day
Apologies for Absence:
Neil McCausland
In Attendance:
Alwen Lyons
Sue Barton
Lesley Sewell
Nick Kennett
POLB 13/59
POLB 13/60
at 148 Old Street, London EC1V 9SHQ.
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer
Senior Independent Director
Company Secretary
Strategy Director (items 13/61-13/62)
Chief Information Officer (13/61 only)
Director of Financial Services (13/64)
INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
BOARD EFFECTIVENESS REVIEW
(a) The Board received the report of the Board Effectiveness review
carried out in June/July 2013.
(b) The Chairman thanked the Board for their time and explained the
process for one to one feedback. The Board discussed the balance
between challenge, rigour and support and the CEO stressed that
the Business expected to be challenged. She would be
disappointed if the Board did not support through challenge while
being open to the Executives challenging back where they thought
appropriate.
(c) The Board discussed the papers received from the Executive
Committee members and agreed that in future the content of the
papers would not be presented at the Board meeting so as to free
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up time for discussion. The papers needed to be clear, not overly
optimistic, and commercially focussed so questions of fact would
ACTION: not be necessary. They should also arrive in good time. The
The Board Chairman asked the Board to contact the ExCo member
responsible for a paper before the meeting if they were unclear or
didn't have the necessary detail. The Board also asked for earlier
warning when risks and issues arise to ensure that they were not
‘blindsided’.
(d) The Board thought that it would be valuable to have some
discussions with the minimum of paperwork where the NEDs
shared their own thinking rather than reacting to the Executives’
proposals e.g. on strategic risk.
(e) The Board discussed the use of their time and agreed that the
frequency and length of Board meetings was right and where
possible Sub Committees should not be held on the same day as
Board meetings.
(f) I The focus on risks at the September meeting could help form the
forward agendas for the following year. It was also agreed that the
Board could help with stakeholder engagement, with more
exposure to the unions and the shareholder. The Chairman
reminded the Board that Mark Russell was to return to a meeting in
the autumn and that she had invited Robin Budenberg, Chairman
of UKFI and formerly with UBS where he oversaw the banks’
relationships with HM Treasury, to the November Board.
(g) The Board asked for more exposure to the network and expressed
a need to understand the economics of the different network
models. The Company Secretary was asked to organise individual
branch visits for NEDs if required. The Board agreed that a future
ACTION: meeting would be held at the Camden Branch including a
Company Secretary discussion with the Branch Manager about the economics of
running a Crown Office.
ACTION: (h) The CFO was asked to produce a piece of analysis to explain the
CFO economics of the network models and set up a workshop for those
NEDs who would find it helpful.
{i) I The Board discussed the use of advisors and the CFO was asked
ACTION: to provide a paper highlighting the processes in place for
CFO monitoring the use of advisors, procuring advisors and negotiating
their terms.
(j) I The Board's relationship with the ExCo and the SLT was discussed
and it was agreed that Board members would be advised of the
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ACTION: dates of SLT Quarterly Business Updates and they would be
Company Secretary welcome if they wanted to attend but no other formal SLT
engagement would be put in place.
(k) The Board noted the Board Effectiveness Review and agreed the
actions in the paper along with:
« the Board would continue with 2 away days a year
« the Board would be offered opportunities to attend NT
openings or meetings with stakeholders if they were
available
ACTION: ¢ the production of a forward look for future agendas
Company Secretary «the addition of an index for the Reading Room and a log of
decisions taken at the end of the Board minutes.
POLB 13/61 IT SUPPLY CHAIN PROCUREMENT ACTIVITY
(a) Sue Barton, Strategy Director, and Lesley Sewell, Chief Information
Officer joined the meeting.
'T&C Transformation Programme
(b) Lesley Sewell updated the Board on the current status of the
procurements for a Service Integrator (S!) and a Strategic Data
Centre. The Board asked if the proposed solution would enable
further outsourcing in the future. Lesley Sewell explained that the
change would reduce the headcount by 50% whilst giving a
foundation for further outsourcing and enable the Business to move
to more stable suppliers. The Board questioned the timing and
whether the Si could be in place before the sub-contracts are
awarded. Lesley Sewell explained that the Business was being
pushed by RMG separation deadlines and this was the reason that
the SI and sub-contractor had to be done concurrently.
(c) The Board would be asked to approve the award of contracts for
the Data Centre and Service Integrator/Strategic Data Centre to the
Post Office's selected bidders at the September 2013 meeting. It
was noted that the Service Integrator award would also require
approval from the Shareholder Executive.
Transitional Support Services with Fujitsu
(d) Lesley Sewell presented a paper on the Transitional Support
Services supplied by Fujitsu. She explained that there were few
options apart from remaining with Fujitsu in the short term.
(e) The CEO flagged two risks to the Board - the first around RMG and
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the preparedness for separation and the second the Horizon risk
around Fujitsu. She explained that the legacy contract had to be
normalised through proper public procurement but that there were
short term issues which were difficult to resolve such as IP,
ownership of which was mixed between the two businesses.
(f) Before it could make a decision on the extension of the contract for
two years the Board asked for more detail on the economics of the
deal being negotiated with Fujitsu, the changes from the current
contract, and its impact on the Strategic plan numbers. Lesley
Sewell and CFO were asked to circulate a paper seeking
ACTION: agreement by correspondence once the Board members were
CFO/Lesley Sewell comfortable.
POLB 13/62 PROGRESS REPORT ON GOVERNMENT FUNDING AND
STRATEGIC PLAN
(a) The Board received a verbal update from Sue Barton and the CEO
on the progress with the Government funding and Strategic Plan.
The CEO explained that the meeting with Secretary of State (SOS)
and Minister had enabled the Business to explain that inaction or
delay was not an option. The feeling was that if the Minister would
support mandated exit the SOS would also do so.
(b) Sue Barton assured the Board that BIS and the Minister realised
that a mandatory approach as set out in the strategic plan was still
the Board's and the Business’s preferred option. She explained that
the alternative approach, which the Business had considered after
pressure from the NFSP and the shareholder, could have some
benefits. Ministers would need to be advised as to whether to
alternative approach has the Board’s backing before their meeting
with officials the following day.
(c) Sue Barton explained the alternative approach as set out in
appendix A of these minutes. The Board agreed to the following
recommendations provided they stayed within the Board mandate
and were positioned as a last resort:
1. To continue to position £218m as the amount necessary to
deliver a mandated exit option
2. That no deferral be offered as part of the solution, as this
would leave the Business exposed in the later years of the
plan and put breakeven back by a year.
3. To position the incremental cost of this alternative option as
investment which BIS would need to fund.
(d) The Board agreed to the principles of the alternative approach
subject to the conditions that:
¢ There is a cliff within the alternative solution. This is
transparent, clearly communicated both at a national and
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individual sub-postmaster level, backed by Government.
Individual letters would be sent out to sub-postmasters
« Cost of the option is covered by additional Government
funding. A shortfall can be covered by the business within
the agreed mandate
« NFSP support must be clearly set out ina MOU and must
include agreement to support openly and unconditionally
« Must have a mandate fo exit sub-postmasters.
(©) The CFO confirmed that he remained comfortable that the
headroom of £40m in 2015/16 and 2016/17 would be available and
therefore supported the mandate.
(f) Sue Barton would write to BIS setting out the alternative approach
as agreed by the Board. The Chairman offered to write to the SOS
at an appropriate time to explain that while the Board understood
ACTION: the political difficulties, this alternative was not our preferred
Sue Barton approach and the risks it brought to the business.
(9) The Board: discussed the protection of community offices and Sue
Barton explained the conflict for the NFSP as some of their
members who run offices which will be designated ‘community’
would be restricted from exiting. This was still being worked
through with the NFSP.
(h) The CEO explained that the Business was working on the proof of
concept for network extensions and that although this was
politically very attractive there were many interdependencies which
needed to be understood and it would be the last quarter of the
year before the Business could sign up to any targets.
(i) The Board asked whether the Business could sign up to a
conversions target by 2014/15, either a number or percentage of
branches converted. Sue Barton said it would be difficult to suggest
a target without NFSP co-operation to the programme. The NFSP
were calling a special conference to agree any proposal so any
agreement was likely to be at the beginning of September.
() The Board agreed to weekly Board calls over the summer whilst
ACTION: the negotiation continues and requested a paper 24 hours before
Company Secretary any call setting out an update and the substance of any discussion.
. (k) The Chairman asked for a note setting out the expected timeline
ACTION:
and milestones over the next two months.
Sue Barton
() The Chairman thanked Sue Barton for some excellent work and
Sue Barton left the meeting
(m) The Chairman asked the CEO to consider additional support for the
Strategy Director during the negotiations. The CEO explained that
things had been moving very quickly but accepted that the
Business needed to be better at anticipating and ‘horizon-
scanning’.
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POLB 13/63 HORIZON UPDATE
(a) The CEO explained that although the Second Sight report had
been challenging it had highlighted some positive things as well as
improvement opportunities. The Business had been praised in
Parliament for setting up the independent review; the
proportionality of the tiny number of cases had been emphasised;
and no systemic issues had been found with the Horizon computer
system. However there were cultural issues which had to be
addressed to improve the support we gave to sub-postmasters.
The CEO stressed that this was now a catalyst to make changes in
the Business.
(b) The Board were concerned that the review opened the Business up
to claims of wrongful prosecution. The Board asked if Susan
Crichton, as General Counsel, was in anyway implicated in the
prosecutions. The CEO reported that, up until eighteen months
ago, Royal Mail Group Limited (RMG) had run the criminal law
team and many of the cases in the review had arisen before
separation. The CEO explained that the Business was a
prosecuting authority and as such brought its own prosecutions.
However since separation the General Counsel had proposed
moving to the more normal position of using the CPS for
prosecutions; this was being explored.
(c) The Board expressed strong views that the Business had not
managed the Second Sight review well and stressed the need for
better management and cost contro! going forward.
(d) The Board accepted that this was an independent review and
therefore things could happen that were beyond the control of the
Business.
(e) However the things that could be managed by the Business
needed to be well managed with strong leadership and the Board
asked the CEO if she had considered changing the person leading
for the Business.
(f) IThe CEO had considered this and recognised that the Business did
not have good governance in place around Second Sight, but that
the independence of the review, and the input from MPs and
Justice for Sub-Postmasters (JFSA) had made this complicated.
ACTION: Susan (g) The Chairman asked for a review, a post mortem, to report to the
Crichton ARC explaining how we awarded and managed the contract. This
should be put in hand swiftly.
ACTION: CEO
ACTION: CFO
POLB 13/64
ACTION:
Nick Kennett
ACTION:
Nick Kennett
ACTION:
Nick Kennett
POLB 13/65
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(h) The Board asked the CEO to decide on the way forward in terms of
the leadership of this work based on the option which had least risk
for the Business.
(i) IThe CFO was asked what the insurance position was. He
promised the Board a note on this. He was also asked to ensure
the both RMG and the Business’ insurers were given notice of the
review findings.
FINANCIAL SERVICES STRATEGY UPDATE
(a) Nick Kennett, Financial Services Director, joined the meeting and
took questions on the Financial Services Strategy update paper.
(b) The Board asked for a noting paper setting out the Mercer
recommendation for the new Financial Services Sales incentive
scheme.
(c) The Board congratulated Nick on the pace at which things were
changing and suggested that, because of the scale of the
contributions to the strategic plan and the reputational risk of the
manner of delivery, a Board Sub-Committee be convened to
support the executive team.
(d) Nick Kennett was asked to work with the Company Secretary and
the CFO (with input from Tim Franklin and Virginia Holmes) to draw
up Terms of Reference for the FS Board Sub-Committee.
(e) Nick Kennett explained the work being undertaken to enhance the
Brand and make the Post Office a destination point for FS
products.
(f) IThe Board asked when the Business would know if the strategy to
move up the value chain with its additional benefits, costs and risks
was working. Nick Kennett suggested it would be Autumn 2015
before this was clear.
(g) Nick Kennett was asked for a note to be circulated to the Board
explaining the impact on the strategic plan in 2015/16 and 2016/17
of the transition from Junction for general insurance, and the effect
‘on the bottom line.
The Directors noted the Financial Services Strategy update, and
the Success Criteria for Project Polo.
FINANCIAL PERFORMANCE UPDATE
(a) The Board received a financial performance update for period 2
2013, and the flash results for Period 3 from the CFO.
(b) The CFO explained that the results for period 3 had seen an
ACTION: CFO
POLB 13/66
ACTION: Kevin
Gilliland
POLB 13/67
POLB 13/68
ACTION: CFO
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improvement on period 2, although the greatest risk to the plan
remained in mails income. The Mails team were still comfortable
that they would recover the position after what had been a
significant downturn in small packets after the price rise.
(c) The CFO explained that the risk to income has put more pressure
on cash and the need to reduce the cost of service delivery support
functions by 20% over the next 3 years. He explained that the
ExCo were going through a reforecasting exercise and this would
make it clearer how much pressure would need to be put on
reducing spend.
(d) The Board asked for visibility of the decisions being taken by the
ExCo. The CFO was asked to produce a note to the Board by the
end of July beginning of August showing the reforecast and the list
of optional spend decisions which the Business has taken, or could
take if required. This would be spend which didn’t drive revenue
this year or next year.
CHIEF EXECUTIVE’S REPORT
(a) The Board noted the Chief Executive’s report and discussed the
following specific items:
(b) The CWU had called a half day strike on the 17" July and were
holding a rally, with MPs invited at Portcullis House. The feedback
has been that, so far, this is not causing any lasting detriment to
customers or the Business. There will a full report to the September
Board with options on the way forward.
@) I I
(b) I
. Irrelevant
GROUP STRUCTURE
(a) The Board received a paper on the planned changes to the
structure of the wider Group to facilitate an IPO of RMG.
(b) The CFO was asked to check with the corporate insurers to ensure
this had no detrimental effect to the cover or cost.
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(c) The CFO was asked for a note to the Board explaining the
ACTION: CFO implications for Tax and VAT of any structure changes and
subsequent total separation
(d) The Board:-
(i) noted the planned changes to the structure of the wider
Group to facilitate an IPO of RMG;
(ii) noted the anticipated changes to the operation of Royal Mail
Holdings plc (RMH);
(iii) noted the additional duties that were likely to become Post
Office Limited's responsibilities and that they would incur
additional cost; and
{iv) approved delegation of authority to Alwen Lyons, the
Company Secretary, and/or Susan Crichton, HR &
Corporate Services Director (in the form set out in Appendix
1) to approve and execute any documents necessary to
remove the references to the RMG Special Share and the
ACTION: RMH Special Share in the Company's Articles of
Association and to do any act or thing required to be done
by the Company to give full effect to, or in connection with,
the actions outlined in the Board paper.
POLB 13/69 MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
Company Secretary
(a) The minutes of the Board meeting held on 21 May 2013 were
approved for signature by the Chairman.
(b) The noted of the discussions and actions from the Board Awayday
held on 18 and 19 June 2013 were noted.
The CFO reported that the work on outsourcing, discussed at the
Awayday, was progressing and the India visit was set for
September. This would be brought back to the September Board.
POLB 13/70 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of the Remuneration Committee
meeting held on 1 May 2013.
POLB 13/71 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous
Board meetings, was noted.
POLB 13/72 ITEMS FOR NOTING
(a) The Board noted the Health and Safety report.
The Board asked if there was a reason for the increase in Road
Traffic accidents. The CEO explained that this had already been
identified by the Business and the issue was being reported back to
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the September ‘Road Forum’ for investigation. Any actions would
be reported to the Board in a future Health and Safety report.
(b) The Board noted the Significant Litigation report.
(c) The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents
set out against items numbered 1040 to 1058 inclusive in the
seal register was hereby confirmed.
POLB 13/73 PROPOSED BOARD DATES 2014 AND Q1 2015
(a) The Company Secretary tabled proposed Board, and some
Committees, dates for 2014 and Q1 2015. The Board members
ACTION: ALL were asked to feed back any issues by 19" July.
POLB 13/74 ANY OTHER BUSINESS
The CFO reported that the Report & Accounts had been signed
with a target date of the 7" August for publication.
POLB 13/75 CLOSE
There being no further business, the meeting was then closed.
Post Office Limited — Strictly Confidential
POST OFFICE LIMITED 16 JULY 2013 BOARD ACTION LOG
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REFERENCE
ACTION
BY WHOM
twork Transformation and Crown Offic
ull report on Strike Action to September Board.
Kevin Gilliland
Produce analysis to explain economics of the network models and set up a workshop for those
July 2013 Chris Day
POLB 13/60(g) NEDs who would find it helpful.
July 2013 Note to the Board by end of July/beginning August showing the reforecast and list of optional I Chris Day
POLB 13/65 spend decisions which the Business has taken, or could take if required.
July 2013 Check with corporate insurers to ensure that the planned changes to structure of the wider Group I Chris Day
POLB 13/68(b) to facilitate an IPO of RMG had no detrimental effect on the cover or cost.
July 2013 Note to the Board explaining implications for Tax and CVAT of any structure changes and I Chris Day
POLB 13/68(c)
July 2013
Provide more detail to the Board on the economics of the deal being negotiated with Fujitsu, the I Lesley Sewell/
POLB 13/61(f) changes from the current contract and its impact on the Strategic Plan numbers. Circulate a I Chris Day
paper seeking agreement by correspondence once the Board members were comfortable,
July 2013 Write to BIS setting out alternative approach for the strategic plan. Sue Barton
POLB 13/62(f)
July 2013 Weekly Board calls over the Summer whilst the Government funding and strategic plan I Alwen Lyons
POLB 13/62(j) negotiations were on-going. Papers to be circulated 24 hours prior to any call.
July 2013 Provide note to the Board setting out the expected timeline and milestones over the next two I Sue Barton
POLB 13/62(k) months.
July 2013 Noting paper to the Board setting out the Mercer Recommendation for the new Financial Services I Nick Kennett
POLB 13/64(b) Strategy update paper.
July 2013 Draw up Terms of Reference for FS Board Sub-Committee with input from Tim Franklin and I Nick Kennett/Alwen
POLB 13/64(d) Virginia Holmes Lyons/Chris Day
July 2013 Note to be circulated to Board explaining the impact on the strategic plan in 2015/16 and 2016/17 I Nick Kennett
POLB 13/64(g)
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July 2013 Review of Second Sight report to be provided to ARC explaining how we awarded and managed I Susan Crichton
POLB 13/63(g) the contract. This should be prepared asap.
July 2013 Decide on the way forward in terms for leadership for the Horizon work based on the option which I Paula Vennells
POLB 13/63(h) had least risk for the Business.
July 2013 Ensure both RMG and the Business’ Insurers were given notice of the Second Sight review I Chris Day
POLB 13/63(i)
findings.
joard Effectiveness
July 2013 Organise individual branch visits for NEDs if required. Alwen Lyons
POLB 13/60(f) A future Board to be held at Camden Branch Alwen Lyons
July 2013 Advise Board members of dates of SLT Quarterly Business Updates Alwen Lyons
POLB 13/60(i)
July 2013 Board to continue with 2 awaydays a year Alwen Lyons
POLB 13/60(j) Board to be offered opportunities to attend NT openings or meetings with stakeholders Alwen Lyons
Production of a forward look for future agendas Alwen Lyons
Addition of an index for the Reading Room Alwen Lyons
July 2013 Provide a paper highlighting the processes in place for monitoring the use of advisors, procuring I Chris Day
POLB 13/60(h) advisors and negotiating their terms.
Ee os “Other Actions : UENO e USE
July 2013 Update POL Articles of Association to remove references to the RMG Special Share and RMH I Alwen Lyons = and
POLB13/68(d)(iv) I Special Share Susan Crichton