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POST OFFICE LIMITED
AHE BOARD OF DIRECTORS DISCUSSION PAPER
Operational Responses to the GLO
Sponsors: Debbie Smith, Rob Meeting date: 25 March 2019
Houghton, Al Cameron
Context
The purpose of this paper is to share more detail with the Board on our operational
response to the GLO. As requested on Wednesday's call, in Appendix One, we have
set out in more detail the fast base around Horizon to explain why we think it works at
scale. The findings from the review by Deloitte, prepared for the Chairman when he
first arrived, are attached as Appendix Two and a timeline of previous reviews forms
Appendix Three. The latest action list is in the Reading Room.
Questions
The questions for this paper are:
What workstreams have been formed and who is leading them?
How are we governing this work?
What the key questions being answered within each workstream?
What are our highest priorities?
What are the financial and other implications?
QaWwne
Conclusions
We have set up 8 workstreams as detailed in the Reading Room. We are finalising the
governance to ensure we prioritise and do not aim off BAU management or important
strategic opportunities.
Within the paper, we have set out the questions each workstream is answering. These
encompass things we have to do in response to the verdict, things we wanted to do
anyway and things which might shift the balance with agents.
Our priorities are:
« Putting project governance and management in place
e Agreeing and rolling out contract variations
e Resolving issues of legal interpretation on BAU processes (new contracts, Branch
Trading Statements, Suspensions, Withdrawals) and changing how we work
e Creating, rolling out and staffing a new differences and dispute resolution process
e Creating a plan to manage a bad Horizon outcome.
e Agreeing a set of positive changes for agents to reduce tension in the relationship
Our focus is on stopping issues building momentum and undermining agents and
customers: if agents remain in BAU mode, largely reassured and pleased with
changes, other stakeholders will also relax. We will revert with recommendations for
2019-20 in April.
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Input Sought
The Board is asked to comment on the contents of this report, making
recommendations as appropriate and requesting an update at each subsequent Board
meeting.
The Report
What workstreams have been formed and who is leading them?
1. As set out in the Board paper supporting the meeting on 20", we have set up the
following workstreams:
« Legal (Ben Foat)
¢ Operations (Julie Thomas)
« Agents (Amanda Jones)
¢ Communications (Mark Davies)
« Stakeholders (Al and others)
e IT/Horizon verdict (Rob Houghton)
« Brand (Emma Springham)
¢ Financials (Micheal Passmore)
How are we governing this work?
2. Governance is being finalised. However, this list assumes that we have completely
separated the current case management. The legal workstream will therefore be
dealing with issues of interpretation to enable better operational decisions.
3. Part of the role of our legal team will be ensuring that there is an effective balance
between case management and operational change, with neither damaging the
other.
4. We are setting up weekly oversight, bringing the workstream leads together with
other key colleagues and seeking an overall Project Manager. We will provide a
progress update at each Board meeting.
What the key questions being answered within each workstream?
Legal
5. The purpose of this workstream is to ensure that we make changes that are
consistent with the judgement and are designed and introduced in a way that is
reasonable and can be expected to stand the test of time.
6. The priority is to agree what contract variations we should make to resolve some
of the gaps and issues left by the judgement. We are not seeking to restore the
status quo but to achieve a reasonable balance. The process of discussion and
consultation will be important to making changes sustainable.
7. Other urgent questions of interpretation include what contract we should be
offering new postmasters, how should we proceed if we think we should suspend
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or terminate a Postmaster’s contract, under what circumstances can we retrieve
cash, does the Branch Trading Statement work and how can it be used/changed
following the judgement and what process should we follow to manage
discrepancies?
Operations
8. The focus of the Operations workstream is to deliver the new processes as defined
within the Legal workstream above: contract variations; contracts for new joiners;
suspensions and terminations; use of the trading statement.
9. Most critically, we need to agree and deliver a new process for managing
differences. Can we be more transparent on the information we have? How do we
speed up resolution? Do we need to communicate more and more often on the
status of outstanding differences? Do differences need to be accounted for in a
different way, perhaps with some element of “escrow”? Do we need an element of
independence in finalising disputes? Do we need to formally investigate differences
or only disputed differences and what form does that investigation take: is simply
triangulating against known issues and client data, for example? Under what
circumstances can we trigger which follow up actions?
10. We are working through a plan to create 4 tiers of response in Chesterfield and
are currently splitting calls between a Tier 1 for easy answers and Tier 2 for BAU.
We are considering a third team to manage historical differences and a fourth
team for material disputes. Again we need to design in transparency and
independence.
11. As well as managing differences better, we need to reduce them. We are
underway with a programme to reduce errors and repeats and we will likely invest
more to re-design errors out of Horizon.
12. Culturally, we decided last year that we had a good deal of work to do and that
operational colleagues had learned to focus on Post Office outcomes first and
agents and customers later. We started by changing the names of some teams, so
the Fraud Analysis Team became the Branch Analysis Team. We require a material
shift in attitude and behaviour which will need programme disciplines.
13. We have very recently delivered much better branch by branch information
through our Branch Insight Tool, developed on the back of the investment in Case
Management. We have now gathered together a series of data points by branch on
the number and nature of phone calls, cash declarations, transaction corrections
and so on. The current plan is to create corrective activity, training, support etc on
the back of it. In addition, we will consider sharing data with branches so they can
see warning signs or issues for themselves.
14. We may also choose to accelerate investment in the Branch Hub. This can
become a single point of interface for agents to see their pay, order cash, do
training, get management information, receive communications and can also be
used for transparent dispute management.
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15. We have already concluded that a critical area of focus is training. Classroom
training for new agents is not good enough. On site training is not long enough.
There is very little ongoing training. Over time, do we need a Post Master Academy
to support agents across their career with us?
16. To get training and communication right, we know that we need to invest in our
Communications team, which has been focused on network change. This is not just
resources: it is about using simple, jargon free language that agents can
understand. We may also need to recognise some segmentation in how we
communicate between small, subsidised Post Offices, commercial independents
and Multiples. We will also consider whether we need foreign language versions of
some material.
17. In the existing budget for 2019-20 we have increased the size of the field team
and are bringing the field teams together. Field presence will be critical to explain,
reassure and resolve issues: we have become too dependent on letters. We may
expand the team further by using some ex-DMB and other colleagues who know
how to run a Post Office.
18. Other potential investments include creating key logs in Horizon or screen
sharing to enable better explanations from the call centre. It may also be that
disciplines that help us (cash declarations, balancing etc) may need to be
mandatory and more regular.
Agents
19. A number of the operational priorities above will be owned and delivered by the
Network teams in Retail and not just in Operations. There are also bigger picture
questions around the future of our agent relationships.
20. Fundamentally the question we were due to bring back in the Autumn is to set
out how and over what timescale we can improve agents’ lives to the point where
we have a queue of people wanting to join: what is the balance of remuneration,
simplification, support and lower costs that would unlock the opportunity. The
opportunity is to create agents as advocates, training each other, supporting each
other and explaining their role to stakeholders: they are much more effective and
trusted than we are.
21. We are trying to clarify with the NFSP and others what we can do to help most
now. We are anyway announcing improved remuneration for deposits and lower
penalties on Mails segregation. We also need to be clear on whose problems we
are trying to solve first: the hardest up agents or the most entrepreneurial.
22. Fundamentally, agents want to earn more and perceive unfairness in different
places. Which do we want to address and how quickly: can we pay them more for
digital leads and create them as advocates for our website instead of viewing it as
a competitor; should we neutralise the pricing differentials on foreign currency;
should we share more of the Banking Framework premium; should we resolve the
stuck agents either by paying more, reducing network numbers or by putting
employees in to rum them?
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23. We need an effective representative body for agents that they support. Can the
NFSP evolve to fill this role or will agents prefer to replace it? How can we help
without undermining its independence?
Communications and Stakeholders
24. Much of this is self-explanatory and clearly the priority is to minimise the impact
of GLO criticisms on agents and customers. This requires a balance between
demonstrating change and the need for change with a robust defence legally.
However, while there are many stakeholders: Government; the Unions; Clients;
Customers all of them will be happier and more relaxed if we make progress with
agents. It is the sense of unhappy or unfairly treated agents that causes concern
elsewhere.
25.We also note that there is a political narrative that seeks to link the GLO with
agents pay and DMB closures and we need to decide if we wish to accept some of
that narrative for now or not in our budget decisions
26.Finally, we will be strongly reinforcing the message to our shareholder that now is
not the time to be discussing dividends. Nothing would infuriate agents more and
indeed it may be that we wont be able to have that conversation without also
talking about ownership.
IT
27.The critical focus is “how bad a Horizon verdict can this Judge deliver and how
would we manage it?” While he should only be able to reach a limited view, we
have to assume that he is capable of stating that Horizon cannot be relied upon.
28.This is potentially devastating, even though the vast majority of agents know deep
down that this isn’t the case. Other changes listed above may help but this
fundamental narrative will be critical. On aspect may be introducing much more
transparency around our data: how many transaction corrections; how old etc.
Brand
29.We have asked Emma to explore what sort of brand spend, and at what scale,
would help defend us against criticism without simply being so alien to the public
conversation that it reinforces a view that we are not listening and out of touch.
Any brand message may have to be articulated by agents not us.
Financials
30.We have two priorities which have been rehearsed in other Board papers. In the
budget paper for this Board we have set out the questions we need to resolve for
2019-20. In the previous Board paper we listed out the options we are working
through to provide additional funding capacity over the next 2-3 years.
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What are our highest priorities?
31.The above is a long list of questions which need answering prioritising and
executing. The range and variety is concerning and we must prioritise. Key issues
are:
«Putting project governance and management in place
«Agreeing and rolling out contract variations
«Resolving issues of legal interpretation on BAU processes (new contracts, Branch
Trading Statements, Suspensions, Withdrawals) and changing how we work
eCreating, rolling out and staffing a new differences and dispute resolution
process
Creating a plan to manage a bad Horizon outcome.
«Agreeing a set of positive changes for agents to reduce tension in the relationship
What are the financial and other implications?
32.Many of these changes were in our strategy and by accelerating them we will
become a better business. If we can do so while maintaining a calm continuity of
service it will be a significant achievement.
33.Adverse implications if we don’t manage the situation are significant. We will find it
harder to recruit and retain agents and that will cause the 11,500 target to come
under pressure. If things start to unravel along these lines, we will find it harder to
retain key people and that in turn will undermine our ability to respond to the
issues and deliver change safely.
34.We will revert on the short-term financials in April. However, it would not be
ridiculous to invest £5-10m in operational change, £10m in IT change and £5-10m
in fairness initiatives. We will also need to fund further litigation costs, as
discussed elsewhere.