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Department for
Business, Energy Peraranent Under-Secretary of State
naustrial otratet 1 Victoria Street
& Industrial Strategy ive
ondon
SW1H.OET..
Tim Parker
Post Office Limited
Finsbury Dials
20 Finsbury Street
London
EC2Y 9AQ
31 March 2021
Dear Tim,
STRATEGIC PRIORITIES FOR 2021/22
As in previous years, I am writing to set out our key priorities for you in your role as Post
Office Chair for the coming year. We continue to be grateful for your work to date in
leading the Post Office, and I am pleased that we can continue to rely on your service and
expertise for a further year before your term expires in September 2022.
I am particularly pleased with Post Office’s resilience over the last year in responding to
the unprecedented circumstances brought on by the Covid-19 pandemic in its continued
delivery of essential services across the country to those most vulnerable in our society.
We are grateful for Post Office continuing to do its best to meet its geographical access
criteria under such difficult circumstances. Credit must be given to you, the Board, the
management team and staff, as well as to the postmasters who have performed so well
during this difficult period. We are also supportive of the longer-term strategic thinking that
the company has completed on the future shape of the network.
2020/21 was an especially challenging year for the company. In addition to the setbacks
created by the pandemic, Post Office also faced an unexpectedly large number of
applicants to the Historical Shortfalls Scheme (HSS) and slower than expected progress
on issues like Belfast Exit, Payment Card Industry (PCI), and the operational changes
needed to address the findings of the Fraser judgments. However, the Government
recognises the significant commitment and effort put in by the Board, management team
and the whole organisation to deal with the multiple challenges the company is facing. In
particular, the Government recognises Post Office’s significant efforts to deal with its
complex legal issues, the successful sale of the Telecom operations and signing a positive
new 11-year Mails Distribution Agreement with Royal Mail.
Whilst the Government also continues to recognise the commercial progress that Post
Office has made over recent years in improving operating profits, we note that it was
envisaged at the start of the current funding period that the company would achieve
commercial self-sufficiency by the end of the period and it is unfortunate that, even after
accounting for Covid-related impacts, this has not yet been achieved. It remains an
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important objective for Government that the Post Office should be able to support itself
financially, without the need for ongoing support from the taxpayer.
Shareholder priorities
As we move into the new financial year, I know that Post Office is working on responding to
the Horizon IT Inquiry, resolving legacy litigation-related issues and developing the
commercial and network strategy to help position the organisation for future success. AS
Chair of the Post Office, we are looking to you to lead the Board and provide support and
challenge to the Chief Executive and management team in the delivery of these over the
coming year. I would like to share on behalf of BEIS our expectations as they relate to this
work:
1. Fully engaging with the Post Office Horizon IT Inquiry: I am expecting that the
Post Office Horizon IT Inquiry will require a significant portion of your time during
2021/22 and I would ask that you ensure that your Board and management team
continue to fully engage with Sir Wyn Williams and his team in an open and
transparent manner. Once the Inquiry has issued its findings, Post Office should
report to Ministers on the actions that are being taken to respond to them.
2. Working towards resolving historic litigation issues: The Historical Shortfall
Scheme funding has recently been confirmed and Government needs to be kept fully
appraised of developments, including any concerns around delivering to the
expected cost envelope and/or timeline. As the final funding provision was
significantly higher than what was expected, Post Office will need to make sure that
the requirements to settle claims expeditiously is at all times balanced with ensuring
taxpayers’ money is spent appropriately, in line with Managing Public Money. Whilst
BEIS officials will maintain a significant amount of oversight due to the size of the
scheme, as Post Office will continue to retain primary ownership, the Government
expects the Board to be fully engaged in ensuring these requirements are met.
Please also continue to keep my officials fully informed of developments around
postmasters who have their convictions overturned and seek compensation from
Post Office, as well as the separate workers’ rights litigation.
3. Prioritise cultural change; in particular building a more productive relationship
with postmasters. I know that you are continuing to conduct surveys and focus
groups with postmasters and I would be keen to hear how you plan to reflect the
feedback and track progress. In my predecessor’s letter to you last year, the
Department flagged that we would like to see evidence of the support that
postmasters have received from Post Office in respect of the commitments made in
relation to the litigation settlement, and we are keen that this is shared at the earliest
opportunity. We have yet to see anything from the company that provides detailed
feedback from postmasters, although we are aware that a consultation exercise was
completed recently. We hope this issue is receiving the attention it needs and we
look forward to seeing the outcome of the consultation. I know you will share my
concerns about the longstanding issue of hard-to-place postmasters as well, and it
would be good to see Post Office bring forward a plan for resolving this. I am also
keen to see Post Office sensitively manage the roll-out of the new network strategy,
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balancing commercial need against the need to address local concerns and any
potential impact on protected groups in a sensitive way.
4. Successfully deliver on the Annual Plan for 2021/22: The Government has
provided a significant funding envelope as part of the 2020 Spending Review and I
know that you will want to ensure that the Annual Plan has challenging targets for
trading profit, cost efficiencies and cash generation. The accompanying investment
programme should include robust controls and I expect you to ensure that it is
regularly and rigorously monitored by the Board. Our view at present is that the
Board remains focused on trading profit and whilst we are pleased to note tangible
improvements on areas such as bonus metrics, we remain concerned about the
effectiveness of change spend and cash flow. As many of the Spending Review
plans were not supported by developed business cases, we would request that the
Board pays particular attention to the progress with respect to Post Office’s major
projects and that external assurance is obtained where appropriate, and that these
considerations are included as a standing agenda item in Board meetings. As you
know, the business case for Strategic Platform Modernisation (SPM) will need to be
approved by BEIS given its significance.
5. Develop the company strategy into a coherent Strategic Plan as part of the
Spending Review for funding beyond 2021/22: The 2020 Spending Review was
changed to be a one-year funding settlement and therefore we will need Post Office
to once again work with the Department and UKGI to develop a new multi-year
Spending Review bid. I expect Post Office’s funding request to be informed by a
detailed multi-year Strategic Plan that maps a route to financial self-sustainability.
6. Build a diverse Board with the required capacity and capability: With the terms of
two current NEDs expected to expire in the coming year, you should work with BEIS
and UKGI to consider appointments to the Board. Diversity should be a key
consideration of these appointments. As Chair, I would like you to lead the induction
and mentoring of new Board members, noting that the first Postmaster NEDs are due
to join the Board shortly.
I note that a request was made in last year’s letter to the Chair to improve the use of data
and analysis to enable the Board to take decisions grounded in evidence on postmaster
economics, particularly around how and where postmasters make money, and at what
point they might choose to leave the network. It is our view that there remains significant
scope for improvement in the company’s analysis and understanding of postmaster
economics and I would be grateful if you could work further on this and keep my officials
regularly informed of its progress.
As we will soon be reaching the end of the period covered under Post Office’s current
funding agreement, I would also be grateful if you could provide me with a report on the
company’s performance over the period, lessons learned and any improvements being
made.
Finally, I would also like to bring to your attention the attached note which outlines UKGI's
standard Governance Expectations of a Chair. UKGI is issuing this note to the Chairs of all
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its assets and - whilst not exhaustive - it should serve as a helpful reminder of best
practice.
Thank you again for your continued stewardship of Post Office. I hope to have the
opportunity to meet with you soon to hear from you about the latest developments and to
discuss this feedback.
Yours sincerely,
Sarah Munby
GRO _
Permanent Secretary for Business, Energy & Industrial Strategy
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Annex A: Governance Expectations of the Chair
This letter, issued by UK Government Investments (“UKGI”), sets out the standard
governance expectations of Chairs within its portfolio. This is not an exhaustive list of the
duties of a Chair, and should be accompanied by a letter, tailored to the needs of Post Office
Limited (“POL”), outlining the specific priorities and expectations of both BEIS and UKGI,
acting as shareholder. This document does not supersede or alter any responsibilities as set
out in POL’s Framework Document, Articles of Association, Funding Agreement or
Entrustment Letter.
UKGI, acting as shareholder on behalf of Departments, expects the Chairs of its Assets to
lead the Board in an effective and collegiate manner, and adhere to best practice corporate
governance standards where possible in undertaking their roles. It is your responsibility, as
Chair of POL to lead the Board, and ensure that it undertakes all of its responsibilities as set
out in POL’s Articles of Association and Terms of Reference, Managing Public Money and
the Corporate Governance Code. The Chair should set the tone from the top of the POL and
promote an effective and appropriate culture in both the Boardroom and the wider
organisation.
Your responsibilities are to act in accordance with the highest standards of corporate
governance, and are complemented by requirements and expectations of you by HM
Government. Below is a list of some of the core governance expectations of UKGI regarding
your duties as Chair encompassing both of these elements. This list is not intended to be
exhaustive, and does not supplant any responsibilities set out in the POL’s governing
documentation:
Set the Board’s agenda
You should set the POL’s Board’s agenda in good time ahead of a Board meeting. There
should be sufficient visibility of items for forthcoming meetings to allow Board members,
Executives, and stakeholders as necessary to prepare and engage with the Board. The
agenda should focus upon the POL strategy and any policies as set by BEIS. In addition, the
Board’s agenda should interrogate the POL’s ongoing performance, culture, and value for
money, all while being cognisant of its overall accountability to the Secretary of State, and
ultimately, the taxpayer.
Encourage engagement from Board members
You should encourage Board members to engage with POL both within Board meetings,
through active participation in discussions and decisions, and more widely. You should
encourage Board members to join Board committees where they can add value. You should
support Board members to contribute their expertise where relevant to POL on an ongoing
basis. You should foster effective relationships based on trust, mutual respect, and open
communication between Board members and the Executive team, both inside and outside of
the Boardroom. You should monitor and manage conflicts of interest among Board members
in order that the Board may function appropriately, in accordance with the conflicts of interest
policies of BEIS and POL.
Foster relationships between the Board and stakeholders, including Government
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You should be the principal point of contact between stakeholders and the Board. You should
foster constructive relationships with all relevant stakeholders to POL, including postmasters
and employees. You should also maintain a constructive relationship with BEIS and UKGI in
the course of your work.
Develop a strong working relationship with the Chief Executive
The relationship with the Chief Executive is key to the long-term success of POL. You should
provide support and advice to the Chief Executive, while respecting their executive
responsibility. You should work with the Chief Executive to consider the strength of the
broader executive team. Under your leadership, the Board should consider executive
succession planning on a regular basis.
Work with HM Government on the composition of the Board, and the appointment of
new Board members
You should consider the composition of the Board in line with the requirements of POL on a
continual basis, providing regular feedback to BEIS and UKGI as appropriate. You should
work with BEIS and UKGI to consider appointments to the POL Board. You should engage in
the appointment process as appropriate as per the agreed framework, and in compliance with
rules or regulations governing appointments to the POL Board.
Provide mentoring and an induction to new Board members
You should lead the induction to new Board members on behalf of POL. You should make
sure new Board members are introduced to all relevant people both within POL and among
stakeholders. This should be done in cooperation with BEIS and UKGI. The induction process
should familiarise new Board members with POL and its overall governance framework.
You should encourage Board members to develop their knowledge and skills
You should continually consider the knowledge and skills that the Board requires to discharge
its duties to POL, this should be considered in conjunction with UKGI. Where the Board would
benefit from additional knowledge and skills, which can be met without the need to recruit
new or additional Board members, you should encourage Board members to undertake
relevant training and education where possible.
Lead the annual evaluation of the Board, which should be externally facilitated at least
every three years
You should ensure that a review of the Board’s effectiveness is undertaken on an annual
basis. This should be facilitated by an external provider at least every three years. Where the
evaluation is not externally facilitated, you should lead the process, gathering feedback from
Board members regarding the Board’s functioning. You should also consider how
stakeholders, such as BEIS and UKGI, can input into the review, to provide comment upon
the Board's effectiveness in engaging with Government and stakeholders. You should be
responsible for overseeing the implementation of any recommendations arising from a review
as necessary.
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Evaluate the performance of non-executive Board members at least annually
You should undertake a review, at least annually, of the performance of non-executive Board
members. This review should consider their contributions to the Board, and the value they
add to POL. You should write these reviews and be prepared to share them with BEIS and
UKGI in an appropriate manner. A written review of performance may be necessary to support
any reappointment decisions for Board members.
Be subject to an annual performance evaluation
You should engage with an evaluation of your performance on an annual basis. You should
allow the Senior Independent Director to gather feedback on your performance from the
perspective of Board members. BEIS and UKGI shall gather feedback from Government and
other stakeholders. This will be collated by UKGI and provided to the Principal Accounting
Officer in an appropriate manner. A written review of your performance may be necessary to
support any reappointment decision.