Yahoo Finance Sleepy G4S misses warning signs as top shareholder publicly shuns firm
Is anybody awake in G4S’s boardroom? You would struggle to believe so when you read the limp corporate response to the news from Norway, where the local $1tn sovereign wealth fund has dumped G4S from its investment portfolio because it sees unacceptable risks that the company is violating the rights of its migrant workers in Qatar and the United Arab Emirates.
This development, you might assume, would be a very big deal for G4S directors for several reasons. First, it follows three years of engagement by Norway’s Council of Ethics, the adviser to the fund, so G4S had time to put its house in order.
Second, it challenges G4S’s view, in its annual “slavery and human trafficking statement”, that its current policies and procedures are up to scratch. G4S “does not seem to have followed up its own risk assessments and guidelines,” says the 14-page Norwegian report.
Third, G4S – and its shareholders – know that reputational damage can have commercial consequences. The company had to pay £109m for overcharging on electronic tagging of offenders in 2014 and was briefly barred from new public sector contracts in the UK. A risk discount, as one could put it, continues to weigh on the entire outsourcing sector. The G4S share price is lower than it was in 2014.
Now consider the company’s response to the Norwegian report. G4S says it carried out a “robust investigation” and thinks it is “making good progress on our action plan to reinforce our high standards in relation to employee recruitment and welfare provisions in the Middle East.” It mentioned the appointment of a “migrant worker coordinator” who will probe the agencies that recruit workers from India, Pakistan and Nepal.
Come on, that statement side-steps the three key charges in the report: that G4S has given “no indications” it will stop the charging of recruitment fees to workers; that the company could not point to measures to prevent misleading information being given about wages and working conditions; that G4S does not allow its workers in Qatar to change employer.
G4S operates in 90 countries and has 570,000 employees, so the directors cannot be everywhere. But Ashley Almanza, the chief executive since 2013, and the chair, John Connolly, who formally headed up Deloitte, should be able to recognise the warning signs here. A top-20 shareholder – one with international standing and influence – has dumped its entire 2.33% holding on ethical grounds. A public shunning is serious.
G4S had seven months’ warning of the Norwegian decision, so could have prepared a fuller answer than a three-paragraph “spokesperson said” statement. Other companies might have ordered an independent review by an outside body. Other chief executives might have made a personal commitment to investigate. Almanza was paid almost £3m last year. He’s meant to be on top of these risks.
Round and round, all day long
“The board and I are clear that the imperative is to get on and deliver shareholder value without further delay,” declared the new FirstGroup chair, David Martin. Thursday was another bad day, then. Shares in the misfiring transport company promptly plunged 18%.
Still, at least FirstGroup’s latest strategy, adopted in May, is intact. There have so many upsets in recent years, notably a showdown with rebel shareholders in the summer, that it has been hard to tell. A mini carve-up imagines the Greyhound coach business in North America being sold and the UK bus operation being separated, in part or whole. FirstGroup would be left with two US bus businesses, one in school transport, plus its UK rail franchises, which include SWR and TransPennine.
Slimming down sounds sensible given the lack of synergies between divisions, but the terms of separation are crucial. A £124m impairment charge on Greyhound is less than ideal during a sale process, even if, in practice, it should make little difference to the eventual price.
It serves as a reminder, though, that nothing is ever straightforward at FirstGroup. One suspects there is value to be unlocked eventually. It’s the “without further delay” ambition that looks tricky.
Textile tech-styles
Burberry’s plummeting sales in Hong Kong are sadly easy to understand. Harder to decipher is the apparently exciting development 20 miles down the road in Shenzhen – a “social retail” tie-up with the Chinese technology group Tencent that will explore “touchpoints” in the “luxury customer journey”. Translation, please?
Burberry says it will “pioneer a concept that blends social media and retail to create digital and physical spaces for engaged communities to interact, share and shop”. Sorry, none the wiser. A shop with wifi? Don’t we have those already?
