Belfast Telegraph

James Ashton: G4S and Serco became slick bidding machines, not service providers

Whatever happened to the FTSE 100’s conglomerates? The blue-chip index used to be littered with them, be it Bowater, which encompassed diesel engines, stamps and telephone cards; Lord Weinstock’s GEC, straddling electronics, defence and shipbuilding; or Lord Hanson’s Embassy cigarettes, building aggregates and Buxted chickens.

The argument to investors of owning assets that had so little in common with one another was that when one part wasn’t doing well, another would pick up the slack. Over time, and with the passing of these companies’ forceful leaders, the City tired of the lack of focus and break-ups became the norm.

 

But to say that the FTSE 100 doesn’t feature conglomerates today would be to misunderstand how some of our largest firms operate. They’re still there – they’re just labelled differently.

 

In rejecting a £1.6bn offer for its cash-handling arm, G4S not only reminds us of its conglomerate characteristics, but points out that under Ashley Almanza, the new boss, it is no mood to get rid of them.

 

It wasn’t so long ago that Nick Buckles, Mr Almanza’s predecessor, told me simply that the way it would manage increasing its workforce to some 1.1 million people – more than many small countries – from acquiring Danish rival ISS would be to get his country managers to take the strain. Investors made sure that deal never happened and what with the London Olympics security fiasco, Mr Buckles exited too.

 

These outsourcing companies have been a modern economic miracle, taking on virtually any task for the public sector and completing it for a discounted price. As the departure last week of Chris Hyman from the helm of Serco after grave errors in the electronic tagging of prisoners demonstrated, it couldn’t go on forever.

 

When one enterprise manages such disparate activities as RAF aviation support, out-of-hours medical care and London bike rental, you have to wonder if even a Lord Hanson would be able to keep tabs on it all.

 

What G4S and Serco have in common is the client, not the contract. In order to feed the growth that investors have come to expect, they have become slick bidding machines first, deliverers of great work second.

 

As he prepares next week’s strategy update, has Mr Almanza been listening closely? Of course, with so much public sector work, the Government has a role to play in the shape of these companies. After all, the Cabinet Office minister, Francis Maude, is always saying how he wants to outsource more work to the small business sector.

Belfast Telegraph Digital

Popular