Committee Room 15 in the House of Commons yesterday was the scene of what could possibly be the worst performance by a major corporate figure in front of a House of Commons Select Committee in recent years – and given that this follows on a tradition that has seen Bob Diamond, James Murdoch, Paul Tucker (Bank of England Deputy) and Tony Hayward (BP) give performances that have immediately resulted in the loss of hundreds of millions of pounds from their companies share prices, personal resignation or the loss of their own prospects of future advancement, that is saying something.
Having the luck to be in Committee Room 15 at the time (I make a brief appearance on Sky News! – sitting behind Ian Horseman-Sewell at 13 secs and 1:30), I can assure you that G4S Chairman Nick Buckles came across even worse in real life than he did on TV highlights. If it had been a fight, not only would the referee have stopped it in the first round, but he would have fined Buckles his fight money for being under-prepared.
So, where to start…
Firstly, given the clear and total fiasco that the G4S operation had undoubtedly become, you would have thought that Nick and his team of senior advisers would have arrived to the hearing with a well-thought out strategy to apologise profusely, explain what had happened, and then move onto the front foot by setting out exactly what steps they would be taking to fix the problem, as well as doing some reputational defensive work by explaining how they would be covering the costs of the police, military and other people involved in saving their bacon. What immediately became clear, however, was that Buckles was unprepared and badly briefed by his own people. He repeatedly responded to committee members’ questions with ‘I don’t know’, using a low and mournful voice as used by a schoolboy trying to explain why he hadn’t done his homework . He even answered ‘I don’t know’ when asked by Committee Chairman Keith Vaz (a well-known committee rottweiler, and not a man who is likely to shy away from the possibility of making a headline or two himself), ‘How much is your management fee?’. The Chairman of the largest security company in the world, called before a House of Commons Committee to explain the complete failure of his company to provide security cover for the biggest event to happen in this country in sixty years – and the answer is ‘I don’t know how much we are being paid’….. ?!
It was also clear that he didn’t know how many people G4S would actually be able to provide, how many people the military would need to provide, or when he would be able to tell the authorities how great the shortfall would be. You could see the members of the Committee, as well as the few observers (the room itself is quite small, and limited to 12 members of the public and a few spaces for journalists) growing increasingly unimpressed as Buckles seemed to be making up policy (and expensive decisions) as he went along. When asked whether G4S would cover the cost of the police operations, he answered with some confidence ‘Yes, absolutely’. This was obviously a question that he had prepared for. When he was then asked whether he would cover the cost of the military personnel, he hesitated, and then again came out with ‘Yes’. When he was asked whether that would include the cost of accommodation of the military and police, he was clearly nonplussed, but eventually came out with a further ‘Yes’. It was at this point that Vaz claimed that Buckles seemed to be making it up as he went along, and you could hear city shareholders drawing in their breath as Buckles made a public commitment to an open-ended cost that could clearly cost his company further tens of millions of pounds. After all, replacing barely-trained part-time security personnel at £8.50 an hour with experienced police officers (and their senior commanders) is obviously going to involve a completely different business model and pricing structure.
Implications for G4S
The figure that was being bandied around yesterday was £30-50m losses for G4S. There was even a disagreement as to how significant this was, with Vaz stating that the problem was that this was not a significant sum for a global company with revenues of over £7.5 billion, and Buckles claiming that it was a ‘massive’ sum, 10% of annual profit. However, given Buckles’ new commitments to reimbursing the military and police, it is likely that those numbers could grow, and that is before the matter of G4S’s management fee is discussed. It grew gasps of shock, and faces of incredulity from the committee members, when Buckles stated that he saw no reason to forego any of the management fee, as G4S had already put two years of management and planning into the operation and would be providing at least some of the personnel. Vaz said that, given the fiasco that the project had become, and the damage it had created to the reputation of UK as a whole, surely G4S would have to make the public gesture of giving up the fee, but Buckles was not prepared to accept that. For a man who stated in his opening sentence that his primary concern was to protect and restore the reputation of his company, he didn’t seem to realise how bad he was making both himself and his company look.
Up until yesterday, G4S had lost 14% of their share price (translating to a money loss of £700m), but that was followed by a further 9% fall following Buckles appearance in front of the committee. Although there have not been any serious calls for his resignation yet, if he becomes ‘the face of G4S’ then there will undoubtedly be questions about his future from major city investors – and Tony Hayward, James Murdoch and Bob Diamond would undoubtedly be able to give him some advice on how that situation can develop.
Buckles announced that G4S have withdrawn from the bidding process to supply security to the Brazilian World Cup (2014) and Rio Olympics (2016), though that will have little effect on their current commercial position. What is much more significant is their exposure to UK government contracts. Over 50% of the roughly £1bn that G4S turns over in UK comes directly from government contracts, and G4S has been at the forefront of pushing for an increased slice of the privatisation of many of the policing services that have traditionally been provided by the police and other Home Office agencies (such as prisons, prisoner transfers, escorting deported immigrants, etc). Their case will not have been helped by the fact that they have just been through a high-profile inquest into the death of an Angolan refugee who died after being restrained by three G4S guards on a plane waiting to take off from Heathrow. Although the official reports put out by both G4S and the Home Office initially stated that Jimmy Mubenga had ‘been taken ill’, it later came out that he had been restrained in a bent-over position in his seat, putting extreme pressure on his diaphragm and ability to breathe. The three guards responsible for escorting him were arrested on grounds of suspected manslaughter, though they have now been told that they will not be charged. G4S insiders then told the same Home Affairs Committee that staff had continuously warned management about the use of restraint methods that could lead to death, and that the director of public prosecutions had asked that Crown Prosecution Service to write to G4S, the UK Border Agency and the National Offenders Management Service (all of whom were involved in the deportation of refugees and failed asylum seekers), raising concerns about the restraint methods and potential use of lethal force.
This was then followed, also today, by news that G4S is facing a new investigation after a prisoner was found collapsed in a police cell after the required checks (by a G4S civilian contractor) were not made. It could be said that given the scale of G4S’s operations in the private contract sector, it is inevitable that there will be isolated incidents somewhere within the system, but much like a shark frenzy, once blood has been tasted, it is hard to see the seal pup surviving….
Given that G4S has high-profile contracts / high-value across the UK policing sector, including managing 12,000 offenders under the tagging monitoring programme, running pre-deployment training for the British troops before they are shipped out to Afghanistan (a contract that they won, ironically, in order to prevent these training programmes becoming ‘a major drain on military resources’) and supplying specialist civilians to police agencies on a contract basis, it is likely that the issue of outsourcing in general, and the use of G4S in particular, will be high on the agenda of many local police authorities.
Despite the fact that Buckles claimed that he had no interest at this stage in his own personal future, it is clear that he is likely to become a highly public sacrificial lamb, though whether that is enough to save G4S, or at least allow them to cut their losses to a manageable degree, is something that we will need to wait and see.
As a global operation, G4S will undoubtedly be able to take the blows that will be coming, carry on with the bulk of the rest of their operations overseas, and write this off as a fiasco that will be half forgotten in six months, or when the next big scandal comes along. (And they will undoubtedly have felt a lot better after reading the headlines over their morning coffee about HSBC being the money-launderer of choice for drug cartels, international terrorist organisations and dictators everywhere. That is undoubtedly a much bigger issue from a strategic global perspective).
If Nick Buckles was Japanese, he could well be sitting right now on the thirtieth floor of a five star hotel, bottle of whisky half drunk, and the window to the balcony already open, waiting for him to do the honourable thing. However, as a UK businessman responsible for damaging the reputation of a global company, wiping billions of pounds off his shareholders value, and bringing shame on to UK plc in general, he will undoubtedly be looking at Tony Hayward, the man who took BP close to destruction over the Deepwater Horizon Oil spill, and who is now CEO of Genel energy company on a reported annual package of £2.8m, and Stephen Hester, who managed to keep his position at RBS despite receiving massive levels of criticism over his £1.2m bonus at a time when he had laid off 21,000 people, and was for all intents and purposes a civil servant, running a government owned-bank.
There was something about Buckles’ performance yesterday that was deeply unsettling. As Chairman Vaz summarised, it was ‘Unacceptable. Incompetent. Amateurish.’. To see the head of one of the few UK institutions that can claim to be a global player looking as weak, unprepared and clearly out of his depth as Buckles was made you question pretty well everything you ever thought about UK plc. Buckles’ future is probably going to be decided on the basis of two or three things, all outside his control. Firstly, will the Olympics manage to go off OK, even if based on high levels of police and military involvement. Secondly, will there be something else taking over the headlines (such as HSBC), which will mean that by the end of the Paralympics, this hearing could be seen as ancient history. And thirdly, and perhaps most importantly, will his institutional shareholders decide that he is a liability, and throw him to the wolves in the hope that that will give them time to rebuild the commercial and government bridges that bring them so much revenue. For those amongst you who trust the bookies to get this right more than the politicians, William Hill are offering 6/4 that Mr Buckles is no longer G4S chief-executive by the time of the Olympics closing ceremony.