September 28, 2012 / 12:57 PM / in 5 years

G4S backs CEO over Olympic fiasco

LONDON (Reuters) - G4S (GFS.L) stood by its chief executive Nick Buckles but said two other senior executives would go following its probe into an embarrassing Olympic contract blunder.

G4S admitted just two weeks before the London Olympics that it could not provide a promised 10,400 guards, forcing troops to step in and make up the shortfall in a contract failure that threatens the security firm’s commercial relationship with the British government.

But in its review the firm said it did not uncover any “significant shortcomings” in the CEO’s handling of the contract and company chairman John Connolly defended Buckles, who has been with the company for 27 years.

“He has tremendous loyalty to him from within the company and he has tremendously loyalty from within the shareholder base and those are characteristics that get earned over a long period,” Connolly said in an interview with Reuters.

Buckles became the public face of the Olympic failure, taking to television and radio airwaves to apologize to the British public and twice being hauled in front of a Parliamentary Committee to explain what had happened.

His continued presence could make it more awkward for the British government, a key client of G4S, to hand the company sensitive outsourcing contracts.

Government deals account for over half of G4S’s 1.8 billion pounds ($2.9 billion) British revenue. The group, which operates in over 125 countries, is expected to achieve total revenue of 8 billion pounds this year.

“Our hope is that we will be looked at in the round, based on all of our credentials and not an over emphasis on the one contract that didn’t go well, albeit an extremely important one,” Connolly said.

HEADS ROLL

There had been speculation Buckles would fall on his sword in an attempt to shore up the firm’s damaged reputation but instead chief operating officer David Taylor-Smith and global events director Ian Horseman Sewell resigned.

“Whilst the CEO has ultimate responsibility for the company’s performance, the review did not identify significant shortcomings in his performance or serious failings attributable to him in connection with the Olympic contract,” G4S said.

Buckles has presided over a 76 percent rise in his company’s share price since being elevated to the CEO role in 2005, and now needs to persuade the government that G4S can be trusted with upcoming contracts managing British prisons and police outsourcing deals.

“Are we surprised that Buckles hasn’t gone? Frankly yes. Does it draw a line under the whole affair? I don’t think it does,” said Seymour Pierce analyst Kevin Lapwood.

Last week, a parliamentary committee rapped G4S on the knuckles over the contract shambles.

“It’s not closure. They must waive their fee and pay compensation,” tweeted Keith Vaz, who chairs the Home Affairs Committee, on Friday.

The Home Affairs Committee has called for G4S to waive its 57 million pounds management fee for the contract, while the company reiterated on Friday that it expected to make a 50 million pound loss on the contract.

Taylor-Smith was responsible for ensuring the Olympics contract was delivered on budget and on time, while Sewell was the account director who told Reuters just before the Games that the company could have delivered two events of that scale at the same time.

The company was capable of fulfilling the contract, the review found, but did not sufficiently allow for the scale and complexity of the task. It did not track its workforce effectively and failed to realize the problem until too late.

G4S said it would carry out more vigorous risk assessment in future, with greater board oversight of large contracts.

It also tasked Kim Challis with repairing relations with the government, creating a new role of CEO for UK government opportunities and outsourcing.

The group is the second largest private sector employer in the world, running operations from immigration and border control to guarding ships from pirates and cash transportation. ($1 = 0.6176 British pounds)

(Editing by Elaine Hardcastle)

rosalba.obrien@thomsonreuters.com; Twitter @rosalbaob; +44 20 7542 3431; Reuters Messaging: rosalba.obrien.thomsonreuters.com@reuters.net

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