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POLB 14(5")
POLB 14/64-14/83
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 21 May 2014
at 148 Old Street, London EC1V 9HQ
Present:
Alice Perkins Chairman
Neil McCausland Non-Executive Director
Tim Franklin Non-Executive Director (minutes 14/64-68)
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Richard Callard Non-Executive Director
Paula Vennells Chief Executive (minutes 14/64-71 and 14/76-82)
Chris Day Chief Financial Officer (minutes 14/64-71 and 14/76-82)
In Attendance:
Alwen Lyons Company Secretary
Nick Kennett Director, Financial Services (minutes 14/64-65)
Paul Havenhand Head of Travel and Insurance (minutes 14/64-65)
Chris Aujard General Counsel (minutes 14/64-65 and 14/76)
Martin George Chief Marketing and Commercial Officer (minute 14/66)
Kevin Gilliland Network & Sales Director (minutes 14/66-69)
David Ryan Business Transformation Director (minutes 14/67-69)
Lesley Sewell Chief Information Officer (minutes 14/67-69 and 14/82)
Neil Hayward Group People Director (minutes 14/67-69 and 14/72-75)
Belinda Crowe Programme Director, Project Sparrow (minute 14/76)
Jim Knox PA Consulting, Partner (minute 14/69)
John McAlister PA Consulting, Partner (minute 14/69)
Mark Davies Communications & Corporate Affairs Director (minutes 14/70)
POLB 14/64 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting and
welcomed Nick Kennett, Director, Financial Services, Chris Aujard,
General Counsel, and Paul Havenhand, Head of Travel and
Insurance.
POLB 14/65 f nnn °
I I
heen a cere
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Irrelevant
(d)
ACTION:
Company
Secretary
@ I
(h)
ACTION:
All/Neil Hayward
ACTION:
General
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Counsel/Nell eee eee ———_—_—_—_—_—_—_ OTT i
Hayward/
Company i
Secretary H
(0)
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ACTION:
Nick Kennett
(mn) I
POLB 14/66
(a) I
OF I
(a) I
ACTION: (e) I
Martin George H
/General Counsel i
f) I
@) I
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POLB 14/67 BUSINESS TRANSFORMATION UPDATE
(a) The Board welcomed Neil Hayward, Group People Director, David
Ryan, Business Transformation Director, and Lesley Sewell, Chief
Information Officer, to the meeting.
{b) The CFO explained that the three areas of transformation were being
presented together as they now formed part of the wider scope being
considered for Business Transformation.
(c) The Board received an update on the Business Transformation
Programme. David Ryan explained that the Programme was entering
into the design phase which consisted of three parts: diagnostics of
the cost base; an exercise to determine the target operating model
(TOM) fit for the business in 2018-20; and development of the
transformation blueprint which will describe the plan and journey to
deliver this operating model.
(d) He explained that the Business had chosen McKinsey as the design
partner from six possible candidates and that the contract would be
agreed before the end of the week. It had been agreed as part of the
contract that the Programme would drive costs out of the Business as
quickly as possible, without compromising the long term benefits.
(e) The Board were reassured that sensible assumptions would be taken
in areas where the TOM was less clear, maintaining as much flexibility
as possible in the design.
(f) David Ryan explained that it would not be clear until further into the
design phase whether the Business needed one or multiple delivery
partners, although possible partners were already helping with the
Programme.
(g) The Board sought assurance that the Programme was supported by
the best resource in the Business and David Ryan, backed by the
CEO, promised that this was the case.
(h) The Board noted the progress of the Business Transformation
Programme and thanked David Ryan for his work to date.
POLB 14/68 IT TRANSFORMATION PROGRAMME
(a) The Board considered an update on the status of the IT
Transformation Programme.
{b) Lesley Sewell explained that the Business and Royal Mail were
working well together on IT separation. She stressed that this was a
complicated process, and that the risks were being closely monitored.
Both businesses were moving to new suppliers and once these
suppliers were known the process would be clearer.
(c) Alasdair Marnoch, Chairman of the ARC, reported that a paper on the
lessons learned after the cancelled Data Centre procurement had
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been discussed at the ARC and that a number of changes had already
been implemented.
(d) Lesley Sewell believed that the decision to withdraw the procurement
had been correct and stressed that none of the bidders had needed to
be compensated. The lessons learned review has highlighted a skills
gap in the Business and Neil Hayward reported that he was reviewing
the vacancies with Lesley Sewell, which may need to be discussed at
ACTION: the Remuneration Committee, if the appointments were constrained
Neil Hayward by the salary being offered. He would keep a record of cases where
suitable candidates were deterred by the remuneration on offer.
(e) Lesley Sewell assured the Board that the IT Transformation
Programme was fully aligned with the wider Business Transformation
Programme and that any changes to the IT architecture would
continue to be checked for flexibility to ensure they were consistent
with the new operating model.
ACTION: (f) I She confirmed that each contract would return to the Board for sign off
Lesley Sewell at the point when a preferred bidder had been identified.
(g) The Board noted the progress of the IT Transformation Programme.
(h) Tim Franklin left the meeting.
POLB 14/69 SUPPLY CHAIN REVIEW
(a) The Board welcomed Jim Knox and John McAlister, PA Consulting, to
the meeting.
(b) The Board received the PA review of Supply Chain and the possible
options available to the Business. It discussed the complexity of the
Supply Chain Function and agreed that this was not a future core
competency for the Business, although having reliable cash supply
was a core requirement.
(c) The Board discussed the proposed options and the likely effect of
implementation on the industrial relations environment. {t was
recognised that these proposals would be unpopular with the unions
and employees and Kevin Gilliland reported that a similar proposal
had been suggested and withdrawn in the past.
(d) The Board considered the political environment, the reaction to the
options discussed and the timing of any decision.
(e) The CFO acknowledged that there was a critical path to short and
ACTION: medium term value maximisation. Irrespective of any decision to
CFO manage or outsource, it would be necessary to deliver a separate and
accurate P&L account and balance sheet for the Supply Chain
Business. This would lead to a greater understanding of the
profitability of individual external contracts and internal efficiencies.
(f) The Business recognised the need to review the management
structure and capability in this area. The CEO reported that a potential
individual had been identified to lead the Supply Chain Business; this
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person was currently being assessed. In parallel an external search
had also identified a candidate who will be put through the Hay
assessment.
ACTION: (g) The Board noted the update and asked the Business to analyse the
KG/MD options further with regard to the political and IR landscapes.
The Board asked the Business as part of the Business Transformation
ACTION: programme to consider simplifying the Supply Chain function to see if
KG/DR it could be disaggregated and managed more effectively.
(h) Neil Hayward, Kevin Gilliland, David Ryan, Lesley Sewell, Jim Knox
and John McAlister left the meeting.
POLB 14/70 ANNUAL REPORT AND ACCOUNTS
(a) Mark Davies, Communications and Corporate Affairs Director, joined
the meeting.
(b) The Board received the Annual Report and Financial Statements for
the 2013-2014 financial year and ancillary documents. Alasdair
Marnoch, Chairman of the ARC, recommended the Financial
Statements to the Board. He reported that there were no substantial
issues in the External auditors report; that the Business had received
a completely clean bill of health from Ernst & Young; and that the
Financial Statements were robust.
ACTION: (c) The Board asked for a final review of the first three sections of the
All/CFO/MD report to ensure that the style was consistent with no duplication. It
was suggested that the Financial Services page of the Business
Review be used as an exemplar for the other sections and that the
Mails page needed a considerable rewrite. The Chairman of the ARC
asked the Business to ensure that the clarity and objectivity of the
Budget Briefing Book was carried forward into the front half of the
report as this would help give a clearer message of the Business’
performance.
(d) The Board agreed that this year’s report would encapsulate the ‘spirit’
of fair, balanced and understandable without making a formal
statement, but that the Business would work towards achieving this
standard next year.
(e) The Board were asked to provide any individual feedback to the CFO.
(f) The Board discussed the inclusion of Sparrow in the report and
ACTION: agreed that it should be excluded. However the Business agreed that
Mark Davies it would be appropriate to include a paragraph in the CEO overview to
explain the size of the enterprise risk and the major transformation
programmes being undertaken, referring back to the risks already
highlighted in the CFO report.
(g) With due regard to their individual duties and liabilities, the Board:
* approved the approach to Going Concern and agreed the
Going Concern status for Post Office Limited at the full year;
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ACTION:
Chris Day
POLB 14/72
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* agreed that it was appropriate for the Directors of Post Office
Limited to make the undertakings and statements in the
financial statements;
¢ confirmed that, as individual directors, so far as they were
aware, there was no relevant audit information of which the
auditor was unaware and that each director had taken all
reasonable steps to make themselves aware of any relevant
audit information and to establish that the auditor was aware of
that information;
¢ approved the financial statements;
e delegated authority for reviewing final amendments and
completing the Annual Report and Financial Statements on
behalf of Post Office Limited to a Sub-Committee, the quorum
for which to comprise any three of Alice Perkins, Paula
Vennells, Chris Day and Alasdair Marnoch;
e authorised Alwen Lyons to sign the Directors’ Report and Chris
Day and Paula Vennells (or, in either’s absence, Alice Perkins)
to sign the balance sheet, each acting on behalf of the Board;
and
* approved the Letter of Representation to the auditor and
authorised Paula Vennells or Chris Day to sign and issue it on
behalf of the Board.
(a) I
. Irrelevant.
(a)
: Irrelevant
c
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POLB 14/73 :
(a)
(b);
POLB 14/74
(b);
(a)
(e);
POLB 14/75
POLB 14/76 CHIEF EXECUTIVE’S REPORT
(a) The Board noted the Chief Executive's report and discussed the
following specific items:
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(b) SEPARATION
The CEO reported a meeting with Moya Greene, CEO of Royal Mail
plc, who was concerned about the separation of the two businesses.
To ensure any potential problems are mitigated she has asked David
Ryan to have a look at separation in the context of Business
Transformation. Paula Vennells explained that the Business may need
a COO role whilst separation was finalised and was considering
possible options for that role.
(c) NFSP CONFERENCE
The CEO told the Board that she had received good feedback from
the NFSP conference and that the relationship was in a different place
to last year. Richard Callard concurred that the conference had gone
well but explained that there had been challenge to the Minister
regarding Government Services work, especially DVLA and POCA.
"IRRELEVANT
{e) BBC DOCUMENTARY
The Business had agreed the filming of a BBC documentary to be
aired in the spring. The CEO recognised that any such work had an
element of risk but the Business had been reassured by the editorial
ACTION: constraints negotiated by Mark Davies. The Board asked the CEO to
Mark Davies ascertain if the broadcast could be timed for after the election. The
CEO offered to circulate a brief and film trailer to the Board
(f) SPARROW
Chris Aujard, General Counsel, and Belinda Crowe, Programme
Director Project Sparrow, joined the meeting.
The draft executive summary of the Horizon Assurance Review,
prepared by Deloitte, had been circulated to the Board. The General
Counsel advised that the full Review should be available to the
Business on Friday 23 May. He would circulate it to the full Board as
soon as possible, once he was satisfied with its drafting and the clarity
of expression. It was agreed that he would escalate within Deloitte if
he had concerns about the quality of the product. The Chairman
stressed the importance of this Review and the need for it to give the
Board assurance that there were (if that be the case) no issues with
the system. She also stressed the need for the Review to be written
clearly so that it could be used to give assurance to a wider audience.
The Review would be considered at the next Board Sparrow Sub
Committee (BSSC).
ACTION:
General Counsel
The CEO reported that she and the General Counsel had met Sir
Anthony Hooper to understand his appetite for changing the Scheme.
Sir Anthony Hooper stressed that the Post Office had agreed to the
mediation scheme and believed they now needed to let it run over the
next 12-18 months. With this in mind, the Chairman asked the BSSC
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ACTION: to decide whether there was an option to change the scheme, before
Board Sparrow SC the first case was mediated, which could be as early as the next 4-8
weeks.
The General Counsel explained that ten cases, where the claimant
was an existing sub postmaster, had already been resolved outside
the scheme at very low cost to the Business. The team were
continuing to identify and attempting to resolve cases under the
business as usual processes — this included making settlement
payments, where doing so was unlikely to set precedents or create
problems with either the Working Group or the Network. It was
possible that the first case going through the Scheme could also be
settled prior to mediation.
The Board asked for a paper to the BSSC explaining the caseload, to
AGHON: include:
Belinda Crowe
«the original number of cases;
e those already resolved outside the Scheme;
* an assessment based on information available (as only 22
have been fully investigated) as to how many cases have so
far been identified which could potentially be settled under
business as usual without going to mediation;
¢ identifying the number of criminal cases which Post Office is
unlikely to agree to mediate; and
«highlighting how many applications in the Scheme cite issues
which relate specifically to the Horizon system.
The CFO explained the cost to the Business of the Sparrow was
running at circa £700k a month, excluding payments to claimants.
This expenditure was in line with the budget but still a challenge for
the Business.
The Chairman asked that the next BSSC to consider:
ACTION:
General Counsel/ * the options available for the Scheme;
Belinda Crowe/
Mark Davies ¢ how cases could be removed from the Scheme into business
as usual, based on a narrow definition of Horizon, and how this
would be explained to the sub postmasters and other
stakeholders;
« the likely response from Sir Anthony Hooper, JFSA and
Second Sight to any change; and
¢ PR scenario planning for all the options being considered.
POLB 14/77 FINANCIAL PERFORMANCE UPDATE
(a) The Board received a financial performance update for April 2014.
POLB 14/78 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
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(a) The minutes of the Board meeting held on 30 April 2014 were
approved for signature by the Chairman.
POLB 14/79 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of the Project Sparrow Sub-Committee
meeting held on 9 April 2014.
POLB 14/80 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous Board
meetings, including an update on Telephony, was noted.
POLB 14/81 ITEMS FOR NOTING
(a) The Board noted the Project Maypole update.
The CFO reported that the DWP had asked for a 10 per cent price
reduction in the Maypole contract. The Business has responded by
explaining that it cannot take a 10 per cent hit on the income and that
what has been proposed is the final offer. The CFO warned the Board
that the Business may not be able to negotiate an economic deal.
(b) The Board noted the Significant Litigation report.
(c) The Board noted the Health & Safety report.
(d) The Board noted the update on Cyber Security and Information
Assurance,
(e) 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 1160 to 1167 inclusive in the seal
register was hereby confirmed.
POLB 14/82 ANY OTHER BUSINESS
(a) The Board considered a proposal to separate IT Network Services
from Royal Mail.
(b) The Board agreed that the Business should proceed to award a direct
contract between Post Office and British Telecommunications as
outlined in the paper, and authorised the Business to enter into a
Transitional Services Agreement with Royal Mail covering joint
activities and services necessary to support the commercial
separation.
POLB 14/83 DATES OF NEXT MEETINGS
(a) {t was noted that the next Board meeting would be held on 16 July
2014, and that the Board Strategy Awaydays would be held on 10-11
June 2014
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POST OFFICE LIMITED 21 MAY 2014 BOARD ACTION LOG
REFERENCE ACTION BY WHOM
Strategy
May 2014 Draft necessary amendments to the Remuneration Committee Terms of Reference to enable it I Company Secretary
POLB 14/65(f)
to make recommendations to the Post Office Board on appointments to the POMs Board.
May 2014
POLB 14/65(h)
Provide the names of possible candidates for the position of POMS Chairman to Neil
Hayward, Group People Director, who would manage the recruitment process for the
Nominations Committee.
All/Neil Hayward
May 2014
Provide a paper explaining the milestones to POMS approval, including, in particular, the
General Counsel/Neil
POLB 14/65(i) effect on the Post Office Board Sub-Committees (with input from the Chairman of the Financial I Hayward/Company
Services Board Sub-Committee) and the appointment and ShEx consent process for the I Secretary
POMS Chairman.
May 2014 The Business to submit a further paper in Q3 2014-2015 for ratification, prior to any market I Nick Kennett
POLB 14/65(k) launch of the MGA services.
May 2014 A recap of the MDA to be included as part of the June Away Day papers, including the I Martin
POLB 14/66(e) material adverse change clause and when this might be applied. George/General
Counsel
May 2014 The lessons learned review of the Data Centre procurement highlighted a skills gap in the I Neil Hayward
POLB 14/68(d)
Business. Neil Hayward to review the vacancies with Lesley Sewell, which may need to be
discussed at the Remuneration Committee, if the appointments were constrained by the salary
being offered. He would keep a record of cases where suitable candidates were deterred by
the remuneration on offer.
May 2014
POLB 14/68(e)
Each IT Transformation contract to return to the Board for sign off at the point when a
preferred bidder had been identified.
Lesley Sewell
May 2014.
POLB 14/69(e)
Deliver a separate and accurate P&L account and balance sheet for the Supply Chain
Business.
CFO
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May 2014
POLB 14/69(g)
The Business to analyse the options for Supply Chain further with regard to the political and IR
landscapes.
Kevin Gilliland/Mark
Davies
May 2014 The Business as part of the Business Transformation programme to consider simplifying the I Kevin Gilliland/David
POLB 14/69(g) Supply Chain function to see if it could be disaggregated and managed more effectively. Ryan
Finance
May 2014 Undertake a final review of the first three sections of the report to ensure that the style was I All/CFO/Mark Davies
POLB 14/70(c) consistent with no duplication. It was suggested that the Financial Services page of the
Business Review be used as an exemplar for the other sections and that the Mails page
needed a considerable rewrite. The Business to ensure that the clarity and objectivity of the
Budget Briefing Book was carried forward into the front half of the report as this would help
give a clearer message of the Business’ performance.
May 2014 Include a paragraph in the CEO overview to explain the size of the enterprise risk and the I Mark Davies
POLB 14/70(f)
major transformation programmes being undertaken, referring back to the risks already
highlighted in the CFO report.
Sparrow
May 2014. The full Deloitte Horizon Assurance Review to be circulated to the Board as soon as possible. I General Counsel
POLB 14/76(f)
May 2014. Decide whether there was an option to change the Mediation Scheme before the first case I Sparrow Sub-
POLB 14/76(f)
was mediated.
Committee
May 2014
POLB 14/76(f)
A paper to the Sparrow Sub-Committee explaining the caseload, to include:
the original number of cases;
e those already resolved outside the Scheme;
an assessment based on information available (as only 22 have been fully
investigated) as to how many cases have so far been identified which could potentially
be settled under business as usual without going to mediation;
¢ identifying the number of criminal cases which Post Office is unlikely to agree to
Belinda Crowe
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mediate; and
© highlighting how many applications in the Scheme cite issues which relate specifically
to the Horizon system.
May 2014
POLB 14/76(f)
The next Sparrow Sub-Committee to consider:
e the options available for the Scheme;
* how cases could be removed from the Scheme into business as usual, based on a
narrow definition of Horizon, and how this would be explained to the sub postmasters
and other stakeholders;
e the likely response from Sir Anthony Hooper, JFSA and Second Sight to any change;
and
e PR scenario planning for all the options being considered.
General
Counsel/Belinda
Crowe/Mark Davies
Miscellaneous
May 2014 An update note to be sent to the Board once the Facilities Management and Grapevine I CFO
POLB 14/71(b) contracts were signed.
May 2014 Ascertain if the BBC Documentary broadcast could be timed for after the election. Mark Davies
POLB 14/76(e)