The Largest Company You've Never Heard Of: G4S And The London Olympics

 @ibtimes
on August 06 2012 2:09 PM

G4S
G4S personnel, on a meal break at the London Olympics. British media tell of strained relations between soldiers and private security personnel at the games. Photo: Reuters

Those who have followed the organization of security measures for the London Olympics closely may now think that humiliated UK-headquartered security firm G4S (London: GFS) is headed for the financial rapids.

Far from it.

In fact, if industry experts are right, the future will be bright for G4S, despite its troubles at the London games.

That may follow a repeated pattern in the company's history, one spotted with public blunders, but nevertheless a raging success story of consolidation, growth, and expansion.

G4S is the third-largest private employer in the world today, behind only Wal-Mart and Foxconn, with nearly 660,000 people under its banner at last count in  2012. Who knew that, behind retailing and electronics, security is one of the world's more successful industries?

G4S says that it had operations in more than 125 countries in 2011, a turnover of nearly $11.7 billion, and a profit of $825 million. The company says it has maintained a steady profit margin of 7 percent over the past 5 years.

Its spectacular rise, much of it within the last two to three decades, also occurred over a period when security privatization increased, and advanced and developing economies became further interlinked.

As money continues to flow from the West into emerging economies, a group which is now enlarging to encompass more nations in Asia, Africa, and Latin America, corporate concern about risk -- not just about flawed business deals but also the physical risk of operating in an alien environment with less than reliable police and legal services -- remains high.

G4S says it gets 30 percent of its revenues from the developing world, and also has stated ambitious plans to transfer talent and operations there. Its total contracts with the developing world, valued at $2.86 billion in 2011, are already worth more than those with the UK, at $1.9 billion. A corporate report from the company in 2012 revealed it planned to have $15.5 billion in revenue by 2014, and projected half of it to come from developing nations by 2019.

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A G4S armored truck, used for transporting cash to ATMs and banks in South Africa. Photo from www.g4s.com

So what does a security services firm actually do?

In the case of G4S, it protects major international airports (120 throughout the world in areas as diverse as India, Cyprus, Canada, and Estonia) and harbors (in 70 countries), it manages prisons and correctional facilities, provides logistics and transportation for banks, monitors electronic surveillance, disposes of land mines and military ordnance, and gives security training.

The less glamorous side of the company includes guards and night patrols serving office buildings and empty warehouses, duties carried out by people who neither handle firearms nor would be allowed access to them. Only a small portion of the company's hundreds of thousands of employees are the ex-military guns-for-hire stereotype that people imagine working for a security company. Just exactly how many, the company says it cannot disclose.

But G4S does have a significant footprint within the murky world of "security contracting", which includes armed guards escorting government personnel and diplomats in hazardous, far-flung locations, or providing protection for places like oil fields and mining facilities, chemical and power plants, and major transport hubs integral to national security.

And it's not simply G4S that's in the game. Competitors like Prosegur (Latin America), Securitas (North America), GEO (UK), Omega (Africa), and a slew of other large- to tiny-sized companies dotting Asia are involved in similar businesses, protecting the physical assets that make up companies and governments: people, money, buildings. For the public at large, that's mostly an opaque world of unfamiliar names and acronyms.

Internationally, while G4S does not dominate any one region, and is often only in second or third place in Western markets and nearly non-existent in many Asian countries, it has become more widespread than competing security firms.

In the U.S. it accounts for 11 percent of the commercial security market, far from a leading position, but 25 percent of the government's outsourcing for manned security duties. Half of its revenue from North America comes from government contracts. A spokesman for the company noted that some 27 percent of current revenues from around the world come from government contracts.

Some of G4S' big-name American customers include Chrysler, Amtrak, Apple, and Bank of America, but also municipal governments, the Department of Justice, and the Department of Energy.

For companies hoping to enter risk-prone areas, it seems like a no-brainer -- why entrust your safety to anybody but a world leader?

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A G4S Afghan worker receives training on landmine disposal near Kandahar in April 2010. Photo from Reuters/ Tim Wimborne

Yet there was a time when G4S was tiny. And its past practices have left questions about its climb to the top.

In the 1950s, what would eventually become G4S was a group of unrelated entities separately based across the Western world and Europe. The English precursor was a night watchmen service of only 4 guards who travelled around on bicycles during the period between the two World Wars.

The Belgian side of the company, known as Group 4 by 1968, eventually merged with Danish security firm Falck in 2000 to form "Group 4 Falck".

Only a few years previous earlier, in 1993, Group 4's contract with the British government to provide security for the country's prisons resulted in farcical mismanagement. Within a week of the group's takeover of security responsibilities at select prisons around the country, six inmates escaped. Tony Blair, who at the time was the Shadow Home Secretary, called the affair a "comedy of errors."

That slip-up didn't slow the new company's expansion outside of Europe. In 2003 it took over security and management of Australian refugee detention centers. A short two years afterward it was the target of biting criticism from non-government groups for its heavy-handed approach to the treatment of foreign nationals within the facilities. By this time, opponents to privatization, asking whether it made sense to hand over detention facilities to profit-seeking organizations, were already targeting Group 4 Falck.

In 2002, the company purchased American security firm Wackenhut for $570 million. Wackenhut, whose former board included a retired Defense Secretary and Ambassador, then held responsibilities for a number of key infrastructure locations around the country critical to national security.

In 2004, British firm Securicor -- that former night-watchmen team was by then a billion dollar company -- merged with Group 4 Falck to create the company we now know as G4S.

Two years after, critics said that the company's American division had cheated in anti-terror drills, prompting its expulsion and replacement at 10 key U.S. nuclear sites. Negligence and poor performance of personnel at the site included guards who were literally sleeping on the job. This occurred only years after the September 11 attacks prompted comprehensive reviews of security at critical sites around the country.

As recently as January 2012, local news stories from Knoxville, Tennessee, revealed that G4S subsidiary Wackenhut's security personnel were still sleeping on the job, this time at the Oak Ridge National Laboratory -- the U.S. Department of Energy's largest.

Between March and May of 2008, the company took over three competitors, expanding its duties to include security detail for sporting and music events (after buying the Rock Steady Group), explosives disposal (after buying RONCO Consulting Corp.), and operations in unstable regions of the world like Afghanistan, Iraq, Lebanon, Nigeria, Sudan, and Colombia (after taking over ArmorGroup).

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A G4S security officer at a U.S. nuclear plant. Photo from www.g4s.com

In mid-October 2011, G4S' failed $12.7 billion takeover of ISS A/S, a Danish facilities, catering, and cleaning services company, nearly prompted a revolt among shareholders, who decried what they called the poor rationale of the attempted purchase.

Investors warned that the ISS A/S addition would have been a poor strategic development, bringing on added debt and pushing the company into an area where it had little to no expertise, and which fit poorly with the rest of its activities.

That chronology brings the G4S story back to the present, and its damaged reputation with the UK government.

When the company failed in filling its 13,000 personnel quota for the London games, British authorities instead had to call up thousands of soldiers and police to provide security at locations around the country and in the capital.

G4S originally called the allegations of its mismanagement of the Olympic security personnel review process "false" and "inaccurate". It continued to deny any flaws even in early June, when whistleblowers from within the company began exposing poor practices. By mid-July Nick Buckles, the G4S CEO himself, had admitted to the British Parliament that his company's Olympics contract was in a "humiliating shambles".

In a statement that riled the public and elected representatives, Buckles told Parliament that the Olympics contract was "not particularly financially lucrative for us. It was much more about, ironically, reputation and building reputation for the future."

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G4S Chief Executive Nick Buckles speaks to a parliamentary committee hearing in mid-July. Photo: Reuters

A corporate spokesman for G4S said of the Olympics and other incidents that "There are occasional incidents where our high standards are not met.  Where we encounter errors in process, lessons are learned and improvements are made."

In specific regard to the Olympic contract, G4S claims that because it was a "self-contained operation with its own management," it therefore "cannot be used in comparison to other UK or worldwide contracts." Regardless of whether the company initially underestimated the Olympics, it says that providing security for the Games is "complex and unprecedented globally".

G4S argues that it remains an "industry benchmark for excellence." And while critics will say that the company has much to be held to account for, supporters will mention that it provides an essential service, protecting human lives and critical assets, and by and large does it well and with professionalism.

After all, governments and companies in thousands of location around the world still rely on their services, regardless of the current upset.

History could very well repeat itself, and the company may have no trouble shaking off its blemished image and finding new opportunities. Western firms remain eager to enlarge their investments and facilities in dozens of regions across the developing world; many lack the knowledge or experience to protect those new assets. They will inevitably have to turn to security firms like G4S to do it for them. And in a time of financial austerity, governments everywhere are also lowering budgets, especially for the upkeep of public facilities. They may have little choice other than to privatize services and security to companies like G4S.

And that means memories can be particularly short.

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