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November 14, 2013 11:00 pm
On an overcast Friday evening on a rundown suburban street in Boston, Lincolnshire, a part-time plumber and a retired policeman are sitting in a large white van outside a cell-block, waiting to hear from the police. In black bulletproof vests, smart black trousers and white shirts, they look like police officers. But their van is emblazoned with the words “G4S – working with local policing” and the epaulettes on their uniforms carry the red, white and black logo of the private security company above that of Lincolnshire Police.
This is the frontline of part-privatised policing, where police officers still make the arrests but G4S staff go to the scene, drive offenders away, and later process them for fingerprints and other paperwork in the company’s own “custody suites”. “We tell offenders we are just a taxi service,” says Julian Davis, the ex-policeman on duty for G4S. “It helps defuse the tension.”
To critics, the police authority’s 10-year contract with G4S looks more like a time bomb that could destroy an increasingly fragile consensus about where the limits of private security lie. For G4S, however, such potentially explosive deals with the public sector – in Britain and abroad – are a treasure-chest, which it wants to prise open further.
That contradiction underlines the challenges facing an organisation of a scale and scope rarely seen in the private sector since the 18th century, when the East India Company ran its own army, ruled large parts of the British empire and implemented some of the most controversial government policies of the age. From “The Manor”, its modern black-and-white headquarters in Crawley in West Sussex, G4S employs 620,500 staff in 115 countries, pursuing a vision that was laid out by its ambitious, marathon-running former chief executive Nick Buckles during a decade of aggressive expansion. That vision is summed up in the company’s slogan “Securing Your World”.
The bulk of its business involves supplying private guards for commercial and residential property, stewards for large events – from The Rolling Stones’ appearance this year in Hyde Park to the Indian Premier League cricket tournament – and armoured vans to carry cash from stores to banks and from banks to cash machines. But G4S armed guards also protect ships against piracy off Somalia, while its uniformed employees screen airline passengers in Vancouver, Canada, manage detention centres where immigrants are held before deportation, clean hospitals, and install and monitor security systems.
Excluding state-controlled groups, G4S is the third largest listed private-sector employer in the world, behind only Walmart, with 2.2 million staff, and Hon Hai (which trades as Foxconn, the Taiwanese manufacturer of devices such as Apple iPads), with 1.3 million. The only employer to rival G4S for ubiquity is McDonald’s: 1.8 million people work there but most are employed in its fast-food franchises. It is an apt parallel. Academics have pointed to the growth of G4S and large rivals as evidence of the “McDonaldisation” of private security – a reference to sociologist George Ritzer’s theory that many products and services are now supplied, like burgers in buns, by multinationals that put a premium on efficiency, standardisation, predictability and control.
But G4S’s control over its empire has slipped. Buckles stepped down in May, hit by the triple blows of a failed takeover of ISS, a Danish outsourcing group, an embarrassing failure to supply enough security guards for last year’s Olympics and a profit warning. The pressure on his successor – the more technocratic Ashley Almanza – remains intense. The government has prompted a criminal investigation by the Serious Fraud Office into alleged overcharging by G4S and rival Serco for electronic tagging of prisoners, some of whom had left the country, returned to prison or even died.
In July, an inquest jury recorded a verdict of unlawful killing for an Angolan, Jimmy Mubenga, who died after being restrained by three G4S security guards as he was being deported. A report into Oakwood prison, Staffordshire, run by G4S since 2012, revealed a serious drugs problem and shortages of clean clothing and basic toiletries (G4S blamed “teething problems”). Abroad, former G4S prison guards have claimed they oversaw forced injections and electric shocks at a South African maximum-security jail once lauded as a model.
Such high-profile, high-risk, high-margin contracts are still a vital part of G4S strategy. Work that puts staff in the line of fire is lucrative, and where Britain has led – fuelling the group’s growth over more than 20 years through privatisation of vital services in a sector the National Audit Office estimates is worth £93.5bn a year – G4S expects other countries to follow. “The true benefits of globalisation and being larger [are] that you can bring expertise to markets that aren’t familiar with the products and services you’ve developed in the UK,” Buckles says. According to Almanza, fighting to convince investors he can sustain G4S’s growth, its emerging markets business should continue to expand more strongly than its activities in the rest of the world.
But G4S’s ability to standardise and control such work only goes so far. As current and former executives concede, some of what G4S and its large rivals do will always give rise to highly public, sometimes violent, confrontation. Strict controls on cost may push already low wages down, increasing pressure on staff. Governments could also lose their appetite for privatisation and outsourcing. If managed too loosely, the group’s riskier activities could threaten the reputation and future of G4S as a whole, as its global presence could backfire. After years of expansion is G4S now simply too big, too complex and too risky to manage?
. . .
The trail to the modern world of private security starts with a Danish company called Kjøbenhavn Frederiksberg Nattevagt – the Copenhagen-Frederiksberg Night Watch – set up by drapery wholesaler Marius Hogrefe in 1901 with 20 guards. Three large companies, which together now employ nearly 1.5 million people, trace their histories back to this point. One is ISS – the Danish service company that G4S failed to buy two years ago. The others are the two global rivals in guarding, Securitas of Sweden and G4S itself.
Buckles was the architect of G4S. He started at Securicor (eventually the “S” in G4S) in 1985 as a project accountant but as early as the 1990s, he saw that size would be an asset in the business. His approach and appearance were not that of the typical leader of a blue-chip business. According to the head of one G4S subsidiary based outside the UK, when he first glimpsed Buckles at a regional management meeting about three years ago, the chief executive was wearing light-coloured trousers and loafers; with his long hair and open-neck shirt, he “looked more like Elvis than a CEO”. In person he was – and remains – engaging. Another G4S executive, based in Asia, says Buckles “had this ability to know you – he would always make sure that he spent time with all of his senior managers at any opportunity he could get”.
As chief executive of Securicor, Buckles helped broker a 2004 deal with Group 4 Falck, a direct Danish descendant of Hogrefe’s Copenhagen Night Watch. The Danish group was larger than the British company but within a year, Buckles, then aged 44, had become head of what was now Group 4 Securicor. Kean Marden, a London-based equity analyst with Jefferies, the investment bank, says: “Nick Buckles was good at planting flags on the map.” That is an understatement. Backed by a highly loyal and close-knit group of executives, Buckles aggressively pushed for rapid expansion. In the nine years to 2013, the group spent about £1.5bn and gobbled up more than 70 companies. The deal drive took G4S into new territory and brought an extraordinary array of sensitive security businesses, big and small, into the empire, including ArmorGroup, whose armed staff protect UK diplomats in Afghanistan and clear mines in Iraq, and Nuclear Security Services, which supplies security systems to nuclear, oil and chemical plants. Until Almanza said he would rein in the deals, the group kept £200m in an annual takeover war chest.
The Buckles strategy more than doubled G4S’s share price between 2004 and 2011 and made it a stock market favourite. His expansionist approach, however, did not go down well everywhere. “We have always heard that the goal is to be the largest private-sector employer in the world,” says the head of the G4S subsidiary. “What kind of metric is that? It’s size not quality. If you look at the environment they are operating in, in second-, third-tier countries, risks are very high; the opportunities for unethical behaviour are extremely high and, quite frankly, I think the business acumen of a lot of these folks is in question.”
In one area, though, the acumen of G4S managers is not in doubt. They are extremely adept contract bidders and negotiators. They honed this skill during years competing for public-sector business, after Margaret Thatcher’s Conservative government introduced competitive tendering and private construction and management of hospitals, transport links and prisons in the 1980s. The policy helped drive smaller companies from the field – or into the arms of bigger outsourcing companies, which were better equipped to take on the potential liabilities. “The government really was the market maker in this industry,” says Dame DeAnne Julius, who wrote a report on outsourcing for the last British government in 2008 and used to be a director of fellow outsourcer Serco.
Ronald van Steden of VU University Amsterdam, an adviser to the Dutch government and co-author of a paper on how security companies have expanded and adapted, chameleon-like, to local jurisdictions, says: “Because there’s no debate and nobody really cares about it, [the security companies] follow a salami technique: slicing off a small part of public services to see how far they can go.” There is a further consequence: policy makers “are not always fully aware of the magnitude of the sector”.
By the time Labour took power under Tony Blair in 1997, the idea of privatised public services was firmly embedded, despite early mistakes such as the episode in 1993 when a number of prisoners escaped from Group 4’s custody within weeks of the start of its contract to escort inmates. “Nobody was very impressed with G4S,” admits a former adviser to the UK government in the 2000s, “but nobody was very impressed with the UK Border officers or the Prison and Probation Service either. [G4S] only had to seem to be outperforming [them] rather than being a Rolls-Royce.”
This week, the National Audit Office warned about lack of transparency in government contracts with companies such as G4S and Serco and said the rise of a few major contractors needed to be scrutinised. But G4S and its rivals are not entirely to blame for the way the market has evolved, though they have profited from it. The government failed to co-ordinate or share information about early contracts, and the UK Treasury under Gordon Brown – the natural regulator of such activity – pushed to outsource more. Tom Gash, who was a senior crime policy adviser in Blair’s strategy unit and is now director of research at the Institute for Government, a think-tank, says: “There’s a pernicious public sector contracting dynamic: what you have had historically is often highly politicised drives towards outsourcing, with a heavy focus on doing the deal quickly and delivering success, not [on] how do we set up the market so it delivers in the long term.”
By December 2010, when the ill-fated Olympic security contract was signed, G4S was one of the few companies that could possibly have handled it. Then, in 2011, having secured the Olympics job, Buckles’ ambition hit a wall. He mounted a £5.2bn offer for ISS, G4S’s long-lost Danish cousin. The deal would have doubled the group’s size and moved it firmly into cleaning and facilities management. But previously loyal investors forced him to withdraw the bid. Just eight months later, Buckles faced further embarrassment when a shortfall in trained security staff for the London Olympics obliged the UK to mobilise armed forces personnel to assist. In front of a parliamentary committee that was hostile even by the Roman circus standards of such hearings, Buckles – who admits now he went into the committee room exhausted and unprepared – agreed with members of parliament that the prestigious contract had turned into “a humiliating shambles”. Two senior executives resigned and, following a profit warning in May this year, Buckles himself finally stepped down with a £16m package, including deferred pay, his pension and G4S shares.
Almanza – who was brought into the group as chief financial officer and promoted within a month – looks like the anti-Buckles. Where Buckles’ public persona is marked by blokeish bonhomie and grand ambition, Almanza’s style is buttoned-up and austere, with occasional flashes of dry humour. Buckles is a football fan; Almanza is a keen follower of rugby union. In his pomp, Buckles was known for his collar-length hair; Almanza is bald. Yet, as the new chief executive is starting to discover, many of the challenges he faces are the same as those that ultimately did for his predecessor.
. . .
Buckles’ most significant legacy is G4S’s global brand, imposed in 2005, when the group was already present in more than 100 countries, with 410,000 staff. He says the rationale was that it would help to raise standards and wages in the sectors that G4S served. Local companies “aren’t going to do [the job] as efficiently, with as much control and process as we do, because our reputation is at risk. So going into developing markets and establishing much stronger methods of security than they would otherwise get is a massive positive.” After that point, if managers came to him with the idea of exploring risky new areas, saying, “Don’t worry, we won’t brand it G4S,” Buckles says he would respond, “In that case, don’t do it.”
The brand values include “the G4S Way” – common standards and practices including “service excellence” and ethics, reputation and crisis management. The GMB union, which represents 25,000 of the 45,000 G4S workers in the UK, compares the group favourably with other employers in the still-fragmented security sector. In India, for example, where all new recruits are paid more than the minimum wage, G4S guards get two weeks of classroom training at one of 31 schools around the country and two weeks’ training onsite and the chance to rise through the ranks to branch manager and beyond. “If you have ability, there’s possibility,” says the Asia-based G4S executive, pointing to G4S’s role in raising standards.
Although the G4S logo is omnipresent, the boots-on-the-ground nature of most of G4S’s business means most specific problems are handled locally – and usually don’t reverberate beyond the local market. Responsibility to “do the right thing lies quite heavily on our managers”, says the same executive, “down to the branch manager [who is] like a mini-managing director with profit and loss responsibilities”.
But for some G4S businesses, the brand is a handicap. One former executive, who used to sell expensive consulting services, says the logo was “troublesome” when trying to win business because “it stands for men in ill-fitting uniforms standing outside shopping centres or offices – in some parts of Africa, wearing flip-flops”.
Anthony Minnaar, who heads the security management programme at the University of South Africa (Unisa) and studies the global market for security services, says that while rival companies put their guards through Unisa’s professional development courses, few of G4S’s employees take part. “For them to just claim that they are assisting with the professionalisation of the guarding sector is nonsense,” he insists. G4S says that it is governed by the Private Security Regulations Authority and that all training is accredited before a guard gets a licence.
The most sensitive part of G4S’s South African business, however, is not guarding but prison management. Last month, South Africa’s Department of Correctional Services decided G4S had “lost effective control” of the Mangaung prison, accusing the company of using “uncertified security staff to perform custodial duties”. An investigation by the Wits Justice Project at the University of Witwatersrand, which interviewed former G4S guards, alleged they used electric shocks and forced injections to impose control. Andy Baker, G4S Africa’s regional president, strongly denies the allegations and says he expects “full management control [to] return to G4S once the current instability has abated”.
One former South Africa-based executive blames a change in the way the prison was overseen after G4S took on the jail in 2008 through an acquisition. After years in which control of the budget and local management had been handled by UK-based experts in correctional services, G4S switched to a system of devolved oversight by Africa regional heads, who have responsibility for all G4S activities on the continent. The change was “quite uncomfortable”, says this former executive, as budget considerations for differing activities clashed. “If I’m guarding a casino, I’ll have particular costs, which are tangible,” says the former executive. “If I’m running a prison, I’ll spend money on rehabilitation and other things that are less tangible.”
Campaigners have jumped on the Mangaung crisis as further evidence of a company failing to live up to its own promise to raise standards. “G4S is interested in cosmetic changes at the top level, but we haven’t seen any changes at the level [where] workers are being managed,” says Rafeef Ziadah, a senior campaigns officer at War on Want, which is pushing for stronger global oversight of security companies under the aegis of the United Nations.
Highly publicised failures, as well as the threat of greater regulation, could also erode G4S’s business and undermine the lucrative public outsourcing market, which is already stalling in some areas. A recent critical report by the US-based Sentencing Project could find only 11 countries, including the UK, US and South Africa, with any form of prison privatisation. David Hall, former director of the University of Greenwich’s Public Services International Research Unit, says privatisation and outsourcing are no longer “badges of international respectability” for governments. “In developing countries, as in Europe, in terms of general political trends . . . the momentum is no longer with the private side,” he says. “It is at best stalled, at worst . . . going backwards.” Even in the UK, sensitive outsourcing plans for areas such as defence procurement (where G4S is not involved) and probation services (where it is) are now under even more intense political and public scrutiny.
That G4S is now a whipping boy is galling for Buckles, who refers to the company as if he still works there and clearly remains proud of the group. “There’s no difference in our service delivery today than 10 years ago – it’s probably better – it’s just that people are after us,” he says.
His replacement sees the situation slightly differently. Asked about Buckles’ supposedly “hands-on” style, Almanza is careful not to criticise his predecessor directly but says: “I don’t think management has been hands-on at a corporate level [and] although I think there was a distributed operating model, at the centre in the executive team, decision-making was very concentrated.”
G4S’s size should not be a management challenge. “They aren’t managing 620,000 people, they’re managing 6,200 contracts and they can do that perfectly simply,” comments Hall. Almanza says he asked himself, “Is G4S too big to manage?” when he joined the group. But he points out that most of the high-profile problems faced by G4S in the past two years should have been overseen close to home, including the abortive ISS merger, the Olympics contract and the UK electronic tagging deal, where G4S and Serco are alleged to have overcharged the government by tens of millions of pounds.
Even so, by granting a large amount of autonomy to individual managers on the most sensitive contracts, G4S ran a risk that corners would be cut. The former G4S risk consultant recalls his unit “scrambling to get a yes or no [from headquarters] only 24 hours before tendering” for potentially risky contracts. Hall, citing the Serious Fraud Office’s tagging probe, says companies such as G4S should “expect a recurrence of these kinds of issues because . . . [they have] people operating a contract within a clear financial framework, set by the parent company [and they] have work that is highly sensitive and political”.
Almanza knows he must stop cracks in the brand from spreading. He says he has tightened assessment of the most complex and risky contracts. G4S now flies in executives with specific expertise to vet big, difficult deals. Almanza himself is demanding more information about who will take charge of such operations on the ground. In one recent case, he asked to see the organisational chart to assess the competence of the local management team.
He has strong financial reasons for clinging on to such work. What G4S calls “care and justice” – which covers both police and prison work – accounts for less than 10 per cent of group revenue but new contracts earn margins of more than 15 per cent, higher than for more mundane guarding. In return, G4S accepts that “stuff happens” – which is exactly what enrages campaigners and increasingly disquiets politicians.
At an investor meeting earlier this month, an analyst asked Almanza an unusually direct question for these normally anodyne sessions: is G4S at the stage where it is not worth putting shareholders’ money into some high-profile frontline contracts? The chief executive’s reply was equally direct: “We don’t think that’s the case.” He added: “We do difficult things sometimes in difficult places . . . It’s the nature of the business that we can . . . hit the ball out of the park for 364 days of the year and on the last day of the year something goes wrong.”
His response hints at an uncomfortable truth. When uniformed staff – however tightly supervised – are placating violent prisoners, tackling pirates or even fingerprinting drunks, the situation will occasionally get out of hand. Sometimes people will be hurt or could even die.
. . .
Near the bottom of the organisational diagram, the challenges for G4S have a human face. In Lincolnshire, many of the men and women who now embody the company were transferred from the police force as part of the deal. Even if cells are now called “custody suites”, the uniformed staff behind the desk in Boston, waiting for the Friday night influx of offenders, are the same people as before. They joined the police because they wanted to contribute to society.
Lincolnshire Police says the G4S collaboration has improved emergency call response rates, saved time – freeing police to get back on the beat – and cut costs. But the year preparing for the transfer to G4S was, as Clare Heyes-Bowden, a custody suite worker and the union representative, puts it, “one of the most stressful I’d lived through . . . People were concerned that our jobs would be replaced by people who were cheaper. The feeling was that G4S would get us in the long run.” In fact, on the day, all that changed were her epaulettes. But she may yet be right about the long-term trend.
Laura Greenley, a senior custody detention officer, is keen to point out improvements since G4S came in: better communication, a new staff kitchen area, modernised cells. But she admits that with just two people on duty, and the cells usually full on a Friday night, the job is stressful. There is a rubber strip on the walls, which, if pushed in an emergency, will contact the nearest police station. But that assumes officers are there to heed the alarm. Often, they are out on a call.
With G4S in control, many new staff will be paid less than existing workers for doing the same job. Current G4S staff earn about £26,000 a year. Replacement jobs are being advertised at a rate that is £7,000 lower, in line with more menial and less stressful supermarket jobs. Clare Heyes-Bowden says would not reapply on those terms. “I wouldn’t do this job for £19,000,” she says. “I could stack shelves in Tesco for that.”
Andrew Hill is an FT associate editor and management editor. Gill Plimmer is an FT correspondent. To comment, email email@example.com
This article was amended since the original publication to reflect the fact that the quote in the final paragraph was from Clare Heyes-Bowden.
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