The Institute of Directors has accused past members of the Post Office board of being “excessively passive” and becoming “absorbed in a culture of mistrust” during a period that saw hundreds of sub-postmasters wrongly accused of fraud due to a faulty software system.

The claims come in a report reflecting on the governance phase of a public inquiry into events at the Post Office. The report calls for “professionalisation” of boards at state-owned businesses, as well as a new corporate form in which it is made plain that directors should balance the search for profit against the public interest.

The report also calls for amendments to the UK Corporate Governance Code to reflect the need for IT skills in boardrooms.

More than 900 sub-postmasters were wrongly accused of stealing from the Post Office between 1999 and 2015 as a result of incorrect data produced by the company’s Horizon software.

Boardroom wake-up call

Roger Barker, director of policy and corporate governance at the IoD, says sub-postmasters were caught in a “dystopian nightmare worthy of a Franz Kafka novel or George Orwell”, but adds that the scandal’s genesis was in the boardroom, rather than software.

“The roots of the scandal are hence not to be found in the lines of code in the Horizon software, but in the performance of the board, management and ownership function of the Post Office, who should have delivered better supervision and oversight.”

But, Barker adds, the problems cannot be “regulated out of existence.

“What is needed are better directors with the appropriate knowledge, skills and attitudes to fulfil their crucial societal roles.”

The purpose of the board and the Post Office as a company is at the heart of the IoD’s proposal that the UK needs a new corporate form. The report points out that a private limited company, as the Post Office had become, was “not well suited” to delivering public interest goals. The IoD argues section 172 of the Companies Act on directors’ duties demands that boards “prioritise” shareholders.

“As a result,” the IoD says, “they are constrained in their ability to take into account the interests of other stakeholders and the wider public interest.”

A new corporate form, a “public interest entity”, would mandate that directors “balance shareholder value creation with broader societal/stakeholder objectives”.
The IoD seeks the professionalisation of boardrooms at state-owned companies.

“No one,” the IoD declares, “should be appointed as a director of a state-owned enterprise unless they can evidence the full range of director competencies, either from their experience or by having undertaken a comprehensive training programme in directorship…”.

Ongoing professional development

But the IoD also highlights that the lack of IT expertise in the Post Office boardroom was a “fatal mistake”, which means even seasoned directors should undertake an “ongoing programme of professional development”.

The IoD also calls for amendments to the UK Corporate Governance Code to reflect the necessity of IT literacy inside boardrooms, noting that technology has become a “existential success factor” for most organisations, with its importance only likely to increase in the coming years.

“The government should encourage the wider community of directors to up their game in terms of tech and IT literacy, reflecting this in the UK Corporate Governance Code,” says the IoD.

“In addition, the government should insist that the boards of publicly-owned entities include a chief technology officer in their composition.”

The Post Office inquiry began two years ago and will continue until Christmas. It has revealed the biggest scandal and miscarriage of justice in UK corporate history. The IoD’s report makes plain that it is not just about an IT defect but has profound lessons for corporate governance at a time when influential voices have called for less governance and rule making.