Fujitsu takes a hit as UK Post Office miscarriages of justice catches up with the managers

Japanese takeover of a company once seen as a British rival of IBM has soured with a decades-long miscarriage of justice

Mr Bates vs the Post Office. Photo: ITV

A true-life drama TV show in the UK sums up why one of the largest Japanese tech companies this week had almost $1 billion wiped off its stock-market value.

"A computer system the Post Office spent an arm and a leg on is faulty," protagonist Alan Bates declares in the trailer for Mr Bates vs The Post Office.

Mr Bates was one of 555 key employees, the sub-post masters, operating the outlets that used Fujitsu Horizon software to file accounts with the UK mail provider, who went to court to clear their names when they were accused of fraud.

They and many others suffered prosecutions and sacking as the authorities maintained the system could not go wrong. As the Bates character, played by actor Toby Jones, declares, that was a lie that led to wrongful convictions, bankruptcies, family breakdowns and suicide. "We are in a war against an enemy owned by the British government while we are just skint little people," Bates says in the drama.

The reputation of the Post Office has been pummelled since the drama was released. Mr Bates vs The Post Office was seen by more than 10 million people in the UK, far more than TV executives expected. With parliamentary hearings and an official inquiry taking up the story in recent days, it is the Japanese multinational that has found itself uncomfortably in the spotlight.

“We strongly believe that individuals, that businesses, will be held to account for one of the biggest miscarriages of justice this country has ever seen," said Prime Minister Rishi Sunak.

The government has spent £138 million ($175 million) compensating people who were wrongfully convicted and has now confirmed all victims will be eligible for an additional £75,000 upfront payment. The payments are unlikely to be limited to these sums.

The cast of Mr Bates vs the Post Office. Photo: ITV

The sight of Fujitsu's top boss, Takahito Tokita, being confronted when he attended Davos, was a rare instance of disruption at the global gathering. BBC reporters asked if he would apologise for his company's faulty software. He conceded there was grounds to do so. "Of course, Fujitsu has apologised for the impact on them, their lives and that of their families," he said as he crunched across the snowy Alps.

Fujitsu’s takeover of ICL was a slow courtship of a British company that was once on track to change the world, according to its promoters. In late 1990, the Japanese tech giant bought 80 per cent of ICL and then built up its shareholding to be the sole shareholder by 1998. Four years later the ICL name was dropped completely.

A Fujitsu pop-up store in Davos where it was in the spotlight after the UK Post Office scandal. Bloomberg

“I joined ICL [which became Fujitsu] in 1996 and have worked for the organisation since,” said Greg McDaid, a managing director of Fujitsu with responsibility for local and devolved government in Northern Ireland. He told the Belfast Telegraph in 2014 about the strong internal culture that had won his loyalty over the years. “People tend to stay at Fujitsu for a long time, it is reflective of our Japanese culture which recognises and rewards employees who demonstrate loyalty and commitment to the business.”

It was left to Paul Patterson, Fujitsu’s European boss, to complete the climbdown that Mr Tokita had acknowledged was needed. Mr Patterson told MPs that the company has a “moral obligation” to compensate the sub-postmasters.

'We were involved from the very start," he said in parliament. "We did have bugs and errors in the system. And we did help the Post Office in their prosecutions of sub-postmasters. For that we are truly sorry."

On Friday, he told an inquiry into the scandal that the company is determined to “get to the truth wherever it lays” as he began giving evidence.

The case is shaping up to provide a new chapter in the history of large foreign investments in the UK economy. For decades British leaders from Margaret Thatcher on prided themselves in the openness of the UK economy. It is hard to think of a sector that does not have large multibillion-pound foreign investments, including telecoms, utilities, supermarkets and technology.

Alan Bates. Photo: ITV

For the most part these are decades-long commitments that are lucrative for both sides, but there are risks and the Fujitsu situation is only getting going. On Thursday the company itself said in a letter to Whitehall it would be “voluntarily undertaking not to bid for government contracts” for the foreseeable future.

Such deals with government go to the heart of the business that Futjitsu has built around the ICL investment. Originally, ICL was created from the merger of International Computers and Tabulators (ICT) and English Electric Computers (EEC), the latter had been formed by the union of Elliott Automation and English Electric Leo Marconi (EELM) computers.

ICL’s best years were in the 1970s, with its most successful product line being the ICL 2900 series range of mainframe computers (launched in 1974), running the Virtual Machine Environment (VME) operating system.

Despite some attempts to diversify into small systems and personal computers, the core of ICL’s business was mainframes. Mainframes, naturally, are expensive pieces of equipment and buyers thus rare. At that time in the UK, ICL’s customers tended to be large public sector institutions, including the Inland Revenue, the Department for Work and Pensions, the Ministry of Defence and, of course, the Post Office.

Toby Jones as Alan Bates in Mr Bates vs the Post Office. Photo: ITV

There had always been a close relationship between the British government and ICL – the government bailed out ICL in the 1980s when it faced bankruptcy and a hostile takeover.

In 1999, a joint venture between Fujitsu and Siemens absorbed all of ICL’s hardware business, except for the VME mainframes, and in 2002, ICL was finally rebranded as Fujitsu Services, which maintained all those government contracts.

There was a time when ICL could have taken on IBM. While IBM went on to become a $140 billion giant – ICL will be remembered as a footnote in British innovation history – the company that slid into foreign ownership and then became the source of a scandal.

Indeed, where IBM’s legacy is basically the creation of Silicon Valley, the ICL brand and trademark were acquired by a company that does IT and electrical repairs in Kidsgrove near Stoke-on Trent.

Many questions remain unanswered, not just who’s to blame for the harm to the more than 700 sub-postmasters who fell victim to the system. Is Fujitsu to blame or is it a culture of cover-up overseen by successive British governments?

Problems with government IT projects and ICL go all the way back to at least 1996, including the government's Pathway benefits project. Some diplomatic papers unearthed suggest that officials feared Fujitsu would threaten Tony Blair, who was prime minister at the time, with job losses and a fall in trade with Japan should the ICL/Fujitsu contract be cancelled.

A view beyond Tower Bridge in the City of London. Former corporate employees of Japanese corporations talk of a 'work hard, play hard' culture in the late 1990s. Bloomberg

Management experts are now pondering whether the corporate culture at Fujitsu was at least partly to blame. Former employees are being asked if there was an environment that encouraged a "see no evil" approach.

Indeed, the loyalty and commitment that Mr McDaid spoke of were certainly rewarded. One former worker at a Japanese corporation in the City of London around the turn of the century spoke of a culture of long hours, but "massive entertainment budgets".

Another agreed that there was a "work hard play hard" culture.

"Most employees then were very much journeymen and a job with one of the big zaibatsu (Japanese corporate giants) was a job for life."

Takahito Tokita, chief executive officer at Fujitsu, who must now confront a stock market sell-off. Bloomberg

But the root of many management failures in the globalised corporate world can sometimes come down to the fact that people in different countries react, communicate and make decisions in different ways.

"Miscommunication becomes more frequent, and trust erodes, especially between the head office and the regional units," said Prof Erin Meyer at Insead in the Harvard Business Review.

"In their efforts to fix these problems, companies risk compromising attributes that underlie their commercial success."

The relationship between Fujitsu and the UK government, in terms of nearly 200 contracts, is worth £6.78 billion. At almost £2.4 billion, the Post Office Horizon contract is the biggest, and there is a £36 million extension to keep it going to 2025.

Coincidentally, that is when the public inquiry is due to report back and when the final settlement, likely to exceed that £75,000 advance payment to each victim, is eventually signed, sealed and delivered.