Olympic failure leaves G4S in tatters, admits CEO

Posted at 07/18/2012 4:26 PM | Updated as of 07/18/2012 4:27 PM

LONDON - The chief executive of G4S admitted that his management of the London Olympics staffing scandal had embarrassed the British government and left the world's biggest security group's reputation in tatters as he fought to save his job on Tuesday.

G4S has been at the centre of a political firestorm that has wiped $1.1 billion off its market value since it announced that it could not provide the promised 10,400 security guards only two weeks before the Games.

Shares in the group closed down 5.7 per cent after Chief Executive Nick Buckles appeared before a parliamentary committee, struggling to answer several questions and saying he wished he had never taken on the Olympics contract.

At one point, when asked whether his staff would be able to speak fluent English, he responded that he did not know what fluent English was.

After being assured that he was speaking English himself, Buckles went on to say that the group still expected to take its 57 million pound ($89 million) management fee from the Games.

G4S has said that it could lose up to 50 million pounds on the Olympics security contract, worth 284 million pounds.

The embarrassing staffing admission has ignited a wider row over the British government's decision to outsource key work to the private sector and left ministers from the Prime Minister down trying to explain how the failure was allowed to develop.

"Many would take the view that the reputation of the company is in tatters," Buckles was told by one member of the Home Affairs Select Committee after being summoned at short notice to explain the debacle.

"I think, at the moment, I would have to agree with you," Buckles said, looking uncomfortable and sitting ramrod straight before lawmakers in the ornate wood-panelled room.

"We have had a fantastic track record of service delivery over many years in many countries, but clearly this is not a good position to be in," he added.

The debacle has overshadowed the build-up to the Games only 10 days before the world's biggest sporting event begins, reviving memories of previous embarrassments for the company, such as a string of prisoner escapes and riots.

Last year the group left inmates locked up for almost 24 hours at a British jail after losing the keys to cells. In another incident, guards tagged a man's false leg, allowing him to remove it and break a court-imposed curfew.

"Certainly my view, and the view of the board, is I'm the best person at the moment to take this through," Buckles insisted.

ACUTE EMBARRASSMENT

To fill the gap left by G4S, the government has called up an additional 3,500 soldiers, many of whom had just returned from lengthy deployments in Afghanistan.

On Monday it emerged that, as well as extra troops, police officers were being deployed earlier than planned to cover for some G4S staff who had failed to show up for work.

The row is a blow for Buckles, who worked his way up through G4S over 27 years with a no-nonsense management style.

"Clearly we regret signing the contract, but now we have to get on and deliver it," he said after being asked to answer questions more directly.

Only 11 days ago, the managing director of G4S Global Events, Ian Horseman Sewell, told Reuters that the company was so confident about the Olympics that it believed it could stage another similar-sized event at the same time if needed -- a line that was repeated numerous times at the committee hearing.

In a blow to the group's future earnings, Buckles indicated that the group would now not bid for work at either the soccer World Cup or the next Olympic Games, both to be held in Brazil, a key emerging market for G4S.

Buckles said that the company would seek to compensate the police and consider a bonus for police and troops, prompting the chairman of the committee to ask if he was making up plans on the spot. A further 500 troops are on standby in case needed, Buckles said.

Espirito Santo analyst David Brockton believes that G4S will come out relatively unscathed in the longer term, though Buckles could pay the price for the company's failures.

"If G4S can deliver the minimum 7,000 (venue guards) that they expect to deliver, then today is the eye of the storm and the vitriol will subside over time and (we) will perhaps see the departure of Nick Buckles after the Olympics."

The company's second largest shareholder Invesco, however, said that it thought the market had overreacted and told Reuters that Buckles should not be forced to stand down for failures made by local staff.