This post has been contributed by Professor Christopher Riley, Module Convenor for Company law.
One of the biggest UK corporate scandals of recent years is currently playing out in our national media. It involves a company with a presence on most high-streets, Post Office Limited. There are about 18,000 post-offices throughout the UK. Most are managed by a ‘sub-postmaster’, who is not an employee of Post Office Ltd but running their post-office as a business under a very detailed franchise-like agreement with Post Office Limited.
At the end of the 1990s, Post Office Ltd introduced into each post-office a new computerised system – called ‘Horizon’ – for recording each post-office’s daily transactions. Because of defects in Horizon, some post-offices wrongly started appearing to have shortfalls in their accounts, suggesting the sub-postmaster had been either negligent or, worse, dishonest.
Under their agreement with Post Office Ltd, each sub-postmaster was liable to make up these apparent, but non-existent, shortfalls. Many did so, causing them severe financial hardship. Others could not afford to do so but were then sued by Post Office Ltd, leading to further hardship and the loss of their businesses and livelihoods. About 900 sub-postmasters were prosecuted for theft or dishonesty. Many were wrongly convicted and some imprisoned. Four committed suicide. In fact, Post Office Ltd was aware of the defects in the Horizon system from the early days of its roll-out. Yet it was determined to maintain confidence in its flawed system, to protect its revenue and avoid the enormous cost of replacing Horizon. Post Office Ltd therefore continued to assert, to sub-postmasters, to the courts, and to Parliament, that Horizon was robust and reliable. The truth has emerged only slowly, and brought to public awareness through a television dramatization in 2024.
Many lessons must be learned from the scandal, further details of which can be found in this excellent summary Post Office scandal explained: What the Horizon saga is all about.
Some concern the criminal justice system, which failed to prevent hundreds of wrongful convictions, but others raise issues relevant to our company law module. Two deserve mention.
- The directors of Post Office Ltd could and should have done much more to discover the technical problems in the Horizon system, and so prevent the mistreatment of sub-postmasters and the commercial damage caused to Post Office Ltd itself. As more companies employ ever more advanced technologies – including AI – boards must monitor the deployment of these technologies within their companies, and that board members must have, between them, sufficient technical expertise to do this competently.
- The interests of sub-postmasters, a key ‘stakeholder’ of Post Office Ltd, were subverted to the company’s desire to protect its revenue and profits. As chapter 14 of our Module Guide notes, shareholder primacists argue that directors should indeed prioritise shareholders and profit maximisation because other stakeholders are already adequately protected by their contractual relationship with the company. Yet for sub-postmasters, their contracts failed to provide such protection, leaving them vulnerable. For stakeholder theorists, this sort of stakeholder vulnerability is common, and justifies a refashioning of directors’ duties in order to protect their interests.