June 2012 was one of the wettest Junes on record in the UK. Despite the extra bank holiday that was granted to the nation for the Queen’s Diamond Jubilee celebrations and the Olympics in London just around the corner it’s fair to say spirits were low.
A public weary of rain and austerity was looking at the upcoming festival of sport with a high degree of scepticism. Would the transport be able to cope, would there be a terror alert, would Team GB prove a massive disappointment?
So it was that a sceptical public were almost delighted at the news that the security services company G4S was on course for a spectacular failure to deliver enough security guards for the event. Tired of the way in which big banks had brought the world to the brink of financial disaster, a narrative of this vast multinational corporation being greedy and over-promising its ability to deliver the giant contract was too good for the media and public to ignore — and they didn’t.
Suddenly, Nick Buckles was one of the most famous business leaders in the country, held in such esteem as Fred “the Shred” Goodwin and Bob Diamond.
But in reality, the Olympic contract and the furor surrounding it was a minor blip for G4S, which is the third largest private-sector employer in the world, after only Walmart (which owns Asda in the UK), and Hon Hai, better known as Foxconn, the manufacturers of iPads and other devices. G4S employs more than 620,000 people in 115 countries and last year made revenues of GB pound 7.3 billion, up 8.1 percent on the previous year, in spite of the Olympics.
That contract lost G4S GB pound 88 million after it refunded GB pound 70 million of the management fees, as well as additional costs including GB pound 7 million of “marketing costs” — presumably in an attempt to repair the reputation damage done. The refund was in an attempt to engender good will with the UK government, which now-former CEO Buckles described as “an important customer.”
G4S then is possibly one of the most important companies in the security industry, and when it suffers reputation damage, so does the industry. We have to ask if this firm is too large, and if it can keep a handle on all parts of its business.
Since the summer of 2012 Buckles has stepped aside. The Olympic security guarding contract was always going to be challenging, and many in the security industry always believed that one company would never have been capable of delivering it by itself — rivals were certainly relieved that the embarrassment had not been theirs.
Buckles had been instrumental in the merger of Securicor and Group 4 Falck that created the company in 2004. After his appointment as chief executive of G4S in 2005 he had seen revenue increase by almost 77 percent, from GB pound 4.13 billion to GB pound 7.3 billion. Perhaps the most damaging blow to a man who was otherwise credited with such huge successes at G4S was the failed GB pound 5.2 billion bid for Danish facilities business ISS, and a subsequent profit warning that saw him leave abruptly in May 2013.
This paved the way for the arrival of Ashley Almanza, who has begun trying to rebuild investor confidence in earnest. However, he has had a difficult start. In July, a jury returned a verdict of unlawful killing after three G4S guards restrained a man on board a deportation flight from London Heathrow to Angola.
In the same month, the Serious Fraud Office launched an enquiry after it was suggested that G4S and rival Serco had been charging for electronic prisoner tags on people who either were dead, were in jail, or had never been tagged. G4S Chairman John Connolly said that it was he that prompted the SFO to launch its investigation, but nevertheless the firm today revealed it would be issuing the Ministry of Justice with credit notes worth GB pound 23.3 million.
Almanza is under pressure to show that the huge firm can find new revenue streams. A partnership with the Lincolnshire Police that started in 2012 has been very successful. G4S collects individuals who have been arrested by a police officer and transports them to a privately-operated “police” station where they are processed and identified by the firm’s back-office staff. This creates significant savings in the need for Police IT and infrastructure, but is also worth GB pound 200 million over 10 years to G4S.
But not every private-public partnership has been successful. The G4S-operated Oakwood Prison, in Staffordshire, received the Ministry of Justice’s lowest rating in a July 2013 report, and inmates told inspectors on “more than one occasion” that “you can get drugs here but not soap” during an unannounced inspection in June. The subsequent report stated that one in seven prisoners claimed to have developed a drug problem while at the prison — all this in a facility that only opened in April 2012.
Almanza is taking steps to turn the company around including the recent announcement of restructuring plans that will see 400 jobs lost in the UK and the restructure of 35 business units. Almanza said that his review of the group’s strategy had confirmed that G4S had “outstanding” worldwide market positions. He continued:
G4S has strong fundamentals and these will be improved by changes to the way we manage the business. We will sharpen our strategic focus and strengthen our investment in customer service, organic growth, and technology, and innovation.
A group the size of G4S has, fundamentally, to be concerned about its share price. The Olympic contract story saw G4S’s share price fall from 290.3p to 241.80p in just two weeks. The profits warning that hailed the departure of Buckles in May saw it crash by 21 percent from 312.2p to 247.7p in the same period. In fact, the G4S share price in July 2013 was the lowest it had been since May 2009.
Almanza also questioned whether the previous administration had lost its way, saying that while the company’s staff understood and was committed to the company’s values, “I don’t think as a management team we always applied those values in a concentrated way.”
Can Almanza turn the firm around? Analysts seem to think so, with one calling 2013 a “year of consolidation” and another saying that the shares still represent good value as the new management team grows in confidence. Whatever happens, it’s fair to say that right now G4S is more concerned with securing its business, before it can secure your world.
I think it is too big and obviously top management making the decisions and going for the big, high profile contracts are out of touch with operations and how things can be delivered. I know for the Olympics several guarding companies got together with the proposal of splitting the work between them, but apparently G4S fought against this, wanting it all for themselves- pride comes before a fall. Hopefully they will loose the arrogance, start thinking about delivery when they put in these bids and get back on track. We are all working on trying to raise the profile of… Read more »
I agree with you@ Holmed G4S is too big to manage effectively they need to split it to regional and divisional for easy management and not top management practices.
I wonder if it is the relentless pursuit of growth in the past that has got in the way, slightly. Has the company taken on too many reputation-risking operations?
It looks as if we are missing the point here in this era of bash the banks…now bash the rich, and maybe bash big business. I watched the Olympics. It was great. The building of the venues were on time, within cost and value for money. The Group 4 glitch was just that. Perhaps before we go all “horrified tunbridge wells”, maybe we should actually try to run a business for a while, then comment. On that occasion, a glitch occurred.Naturally it got publicity because of the nature of the event. I have overseen security for a large organisation, and… Read more »
@ gbrown, the all celebrated devolution plan, right? Well I agree devolution of management and decision making works quite effectively. But these big businesses never want to lose control of anything. They always want to keep everything with them. May be their top managements don’t think that their regional or divisional managements are as capable as they are themselves.
@ holmesd, we can never be sure about big firms. It is very difficult to manage big business from a single point, but then they have improvised communication channels and procedures in place though the same procedures prove to be stumbling blocks at times. Arrogance is also a common trait among big businesses so G4S is no exception. But you are right they should let go of this arrogance in these trying times or they will be risking the reputation of the industry.
@ Rob Ratcliff, this fad for unrestrained, and often unplanned or poorly planned, growth has a definite attraction and it has lured many companies into doing haphazard things which would prove detrimental later on. But this quest for growth is so overwhelming that no booming business can avoid it which in turn drives them to taking operations that are hurriedly planned and put the reputation at risk.
@john hill I made the point in my article that actually the Olympic contract was just a blip, and that it was an incredibly difficult contract to expect any one vendor to deliver. Many in the industry wanted to see a multi-vendor contract but this didn’t end up the case. But then, what I spend the second half of the article on is of key importance. Since that blip, there has been one crisis after another, something that really chips away at confidence in what is an important brand in our industry. I think it’s right that we ask questions.… Read more »
To lend from the Government’s famous lines, what we need is a business model that is not based on a boom and bust cycle.
Rob, I agree with your main point, and feel that, with Govt procurement things are sometimes on so big a scale (Not Big as in a massive project) but big as in overcomplicated, with insistence in unneeded regulation and oversight, which would be absent or much simpler in Private Sector. The fact that the Olympics was successful (G4S aside) was the fact that real professionals with long experience of construction carried out all the complicated work, including safety Procedures welfare etc.. The Olympic ceremony was icing on the cake of a quite successful enterprise. Seems the Olypic committee were a… Read more »
@Robert Brown yes, you are right… but it is always a boom and bust cycle. – How I see it – it like human nature of things and no way around…
They seriously need to grasp the concept of under promise, over deliver, though admirable (?) they seem to consistently be doing the opposite, which attracts unnecessary criticism, not to mention the pressure they put themselves under
I left G4S as there are massive problems from the top down. The biggest issue is arrogance and communication. Instead of working together each operating unit and division within in so is determined on one-up-manship.
Business unit are closed and moved as they cannot manage the egos within.