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Post Office (again) – the fudge thickens
The escalation of name-calling is a bad sign; evidence is better. Following on from the debacle at the UK Post Office, we’ve witnessed another unedifying series of events that asks the question “How to govern?” and backs the assertion “not like that”.
In a statement to parliament at 16:18 on Monday, February 19, the Business Secretary Kemi Badenoch said that Henry Staunton, the recently dismissed chair of the Post Office, “spread a series of falsehoods, provide[d] made-up anecdotes to journalists, and leak[ed] discussions held in confidence.” He was told to leave because of accusations about his conduct, she said. “I repeatedly said that I refuse to carry out HR in public. That is why it is so disappointing that he has chosen to spread a series of falsehoods, provide made-up anecdotes to journalists and leak discussions held in confidence.”
Moreover, and as if to refute her own claim of refusing to conduct human resources management in public, she added: “I should also inform the House that while Mr Staunton was in post, a formal investigation was launched into allegations made regarding his conduct, including serious matters such as bullying.”
One might accuse Badenoch of standing behind the shield of the protected status of statements to parliament. Such statements cannot provide the base for suits for libel. But she has echoed at least some of those remarks outside parliament.
Staunton’s rejoinder was to publish a note-to-self he sent from his office to his private email address, the only evidence he has had available after being dismissed from office in January. In a highly unusual move, the government issued in rebuttal a senior civil servant’s letter to him. It wasn’t, however, a record of the phone call Staunton says he received.
These exchanges have the character of a “he said, she said” spate. No smoking gun, but a lot of fog about the nature of governance, public and private.
As presented in news accounts, and I suspect within government departments and the Post Office boardroom, this affair is a simple power struggle: who’s in charge, in whose interest. But the Post Office isn’t a government department, it’s a limited liability company, a distinct entity with its top level of governance arrangements residing not in the power of the Secretary of State for Business but in company law.
An aspect of this case that hasn’t been discussed well is what the Companies Act says about Staunton’s duties as a director of a formally constituted company. Staunton was a director of the company called Post Office Limited, a post he held only from June 6, 2023, to January 27, 2024. I wonder, did the question of the directors’ obligations in law ever cross anyone’s mind during his brief tenure, and very short timeframe after the television drama raised public awareness of the issues? The TV series aired in the first week of January.
Staunton was appointed as a director by the shareholder, and as chair by the board, in part because of the mess about how the Post Office was dealing with a decade-long scandal about the faulty software that local post offices were required to use.
Under the Companies Act, and like all company directors, Staunton was required to “promote the success of the company for the benefit of its members as a whole” (Chapter 2, Section 172, of the act; see UK Parliament, 2006). He was also supposed in law to “have regard to” the long term; to employees, suppliers, customers and the environment; and to the reputation of the business; among “other matters”.
The phrase “for the benefit of its members” is widely seen as an assertion of shareholder primacy. The shareholder of this company is the United Kingdom government, acting through “the Department for Business, Energy and Industrial Strategy (BEIS) and UK Government Investments (UKGI)”. In effect, the Business Secretary of the day – and there have been a lot of different people in the role in the decade of the sub-postmasters’ problems – represents the shareholder.
But the limiting provisos – the “matters” a director must “have regard to” – give boards discretion to ignore instructions from shareholders where their demands run counter to – in this case – the “matters” of the sub-postmasters (who are, in a sense, variously employees, suppliers and customers), as well as the reputation of the business. Directors ignore shareholders at peril of dismissal, however, as Staunton has learned.
But let’s recall:
Section 172 was a fudge. It came into force in 2006, but only after very prolonged debate: from 1998 to 2005. It was the first time in Britain’s long corporate history that director duties were articulated in law.
At the time one camp wanted a clear rule for directors: Shareholders come first. The other camp, the more socialist-oriented backers of the New Labour government, wanted a clear statement of employee rights, as well as acknowledgement of a catalogue of “matters”.
To “have regard to” was language to find a “Third Way”, in the phrase of the prominent sociologist and philosopher Anthony Giddens, who often advised the then-prime minister, Tony Blair, on how to govern.
There’s not a lot of case law on Section 172, perhaps because lawyers and judges know it’s unclear. Badenoch apparently has not decided to bring a case against Staunton for failing to live up to his duties as a director. As far as I’ve been able to see, Staunton hasn’t invoked directors’ duties as a explanation for his actions or in defence of his stance. Had he considered the legal framework more carefully when he was in post, who knows, he might have batted back the demands of the shareholder’s representative on the basis of Section 172. Had the other directors paid attention not to the power imbalances but their Section 172 duties, might they have backed the chair until of formal investigation into either the substance of the software scandal or the allegations of personal misconduct were examined or a formal shareholder meeting was convened?
Ambiguity is often a good thing in the formal institutions of corporate governance, and not just in Britain. It helps accommodate the countless varieties of issues that arise in running the hundred of thousands – maybe millions – of businesses that operate under the the governing law in any country. Still, I wonder: Is it time to look again at this type of fudge?
Let’s remember, fudge can be sweet, but too much can also make you sick. There’s another third way we haven’t yet found. But in the meantime, this remains a case of:
Further reading
Account in The Times: https://www.thetimes.co.uk/article/post-office-boss-was-told-dont-rip-off-the-band-aid-on-finances-3m0ppm7fl
ITV News account: https://www.itv.com/news/2024-02-19/badenoch-under-pressure-to-back-up-claims-ex-post-office-boss-lied
Financial Times account: https://www.ft.com/content/8e7840b9-366d-4452-b9e3-09086e9749ff
Reference
UK Parliament. (2006). Companies Act. Retrieved from http://www.legislation.gov.uk/ukpga/2006/46/contents