Sunday Brunch: the Post Office scandal - a failure of operational governance
Governance starts with the board in setting the culture of the company. But execution is key.
Governance starts from the top - at the board level - in setting the culture of the company, but execution throughout the organisation is key.
Back in my investment banking days I remember receiving a call from a client, that I had serviced for years and had a great relationship with, asking me to stop calling him. For a split second I thought "sh*t! what did I do?" but then my client proceeded to tell me, with a slight jokey lilt in his voice, that I and my analyst colleagues combined were providing 25% of ALL of my bank's resources into the client as a whole. This was based on a call his Chief Investment Officer had received from our head of sales.
Long story short, the issue was that two of our analysts had been selecting the 'bespoke email' option on the time management system for generalised emails they were sending to all of their clients. Worth the equivalent of a 30 minute call, the data was actually suggesting that these analysts were engaging with clients 48 hours per day.
The underlying problem was the assumption that the data from the system was a fair reflection of what was happening in reality and management were relying on that to make decisions. You'll be pleased to know that I continued to call my client and add value to their investment process!
Something we introduced in a recent Sunday Brunch is that operational governance is often overlooked.
Sandy Jayaraj
One of the most significant governance failures in recent memory occured with the postal service in the UK, The Post Office which exemplifies that sometimes even when a system is followed and followed to the letter, the wrong outcomes still happen. The issue? The system and oversight of that system.
The Post Office scandal involved faulty software, provided by Fujitsu and known as Horizon, creating false shortfalls in the accounts of thousands of sub-postmasters. It has been described it as one of the most widespread miscarriages of justice in British history. Between 1999 and 2015, over 900 sub-postmasters were convicted of theft, fraud and false accounting based on faulty Horizon data, with about 700 of these prosecutions carried out by the Post Office.
There is no doubt that there was a governance issue but often when we think about governance failures we tend to focus on board governance. I would certainly ask the question of whether it made sense that more than 900 sub-postmasters were really stealing from the Post Office? That would say something incredible about the culture if it were so. Where were the questions being asked by the board to test the reasonableness of the claims?
Nearly all of the blog from here onwards comes from Dr Mimi Ajibadé, a sustainability/ESG and corporate governance expert with over 20 years’ experience and founder of Cogent Governance. Mimi brings a unique perspective in understanding the interlinkages between leadership and operations; between board governance and operational governance.
So I shall leave you in Mimi's excellent hands as she dives into the topic using The Post Office as a case study, and come back with a conclusion at the end.
If you want to read the rest and are not already a member...
What is operational governance?
Operational governance is the way organisations do things and make decisions that ensure clear responsibility, accountability and transparency, creating a culture of good governance where ethical conduct is a key check and balance. Operational governance interacts with managerial processes to ensure managing has a firm governance foundation. Operational governance is part of corporate governance or business governance or organisational governance. It differs in that it exists within the operational aspect of the business.
Operational governance is not the same as management. Management is about planning, organising, leading and controlling the activities of an organisation to achieve its objectives. Operational governance is about setting the standards, policies, procedures and values that guide those activities and ensure they are aligned with the organisation's mission, vision and goals.
Operational governance is also not the same as board governance. Board governance is about overseeing the strategic direction, performance and risk management of an organisation. Board members are usually non-executive directors who are independent from the management team and may represent the interests of shareholders and other stakeholders. Board governance is about ensuring that the organisation is well-led, well-run and well-controlled.
