Mark Leftly: Keep track of criminals? Serco is so big that it can't keep track of itself

Serco needs to slim down. It should sell off big parts of the business and focus on core operations

The main reason for Serco's spectacular fall from grace – and, more crucially, suspension from winning lucrative government contracts – can be summed up very simply: the FTSE 100 group, though possibly not for much longer, has 120,000 employees.

That's an empire, not a company. Those at the top may have little or no awareness of, let alone any control over, what those closer to the bottom of the pile get up to.

So it was that Serco ended up referring some of its employees to the police last week over allegations of fraud related to the misreporting of numbers on a £285m contract to run prison vans in London and East Anglia. Serco insisted there was "no evidence" that senior management had any idea what was going on – and that is the root of its problems.

Having a huge, unwieldy empire is exactly what got G4S into trouble at the Olympics last year. Senior managers were shocked to discover that the group didn't have enough security guards to cover the Games, because although this was a high-profile contract, it was also fairly small fry for a company with more than 620,000 employees.

Responsibility was delegated –arguably abdicated – and authority compromised. In such disparate organisations, it is far easier for rogue employees of business units to try and hide their mistakes, and then get away with it until the problems escalate to an unsavoury degree.

The other thing Serco has in common with G4S, of course, is that they were both alleged to have assigned electronic tags to criminals who were in custody, even dead, earlier this summer. A forensic audit found that the taxpayer may have been overcharged by as much as £50m. Like the contract that sparked last week's furore, this was a deal with the Ministry of Justice. As a result, the Justice Secretary Chris Grayling is fuming and the Government is even prepared to ban Serco from future contracts if it fails to put stricter internal controls in place.

Serco's chief executive, Chris Hyman (pictured), says he has "immediately initiated a programme of change and corporate renewal". Tighter internal controls will be a vital part of this in a disparate group that now runs so many parts of our daily lives though its vast number of public sector contracts.

These include operating out-of-hours GP services in Cornwall, helping offenders get back to work, and looking after Ofsted school inspections in the Midlands and East of England.

However, this action plan still won't be enough. Mr Hyman might try and change a business culture almost overnight and it's likely he really is "deeply saddened" that the actions of a small number of his employees have reflected so badly on the "overwhelming majority" of hard-working staff.

But Serco is too big to change.

Its circumstances remind me of a story I was told about one of the biggest oil and gas groups. New executives were sent on a course, from memory, in the Caribbean, which sounds like great work if you can get it. In those sunny climes, though, they were given a gloomy message and trained in how to cope with a depressing reality: whatever their apparent clout, the executives of the oil company could only ever have a minor impact on such a monolithic beast. They might be able to steer it in certain new directions, but they could never reform it nor properly stamp their authority.

That's why investors were right to flee Serco in droves on Thursday. Around £450m was wiped off its value in a single morning, which greatly threatens its place in the blue-chip index of the biggest quoted companies.

What Serco needs to do is slim down by selling off big parts of the business and focusing on core operations. G4S announced last week that it is doing just this, at least up to a point, with the sale of its Canadian cash-security and Colombian data-solutions businesses for £100m. US subsidiaries could soon follow.

Serco works in 30-plus countries. If it is going to monitor its operations properly, management must drastically cut this number. And 120,000 staff is far too many for the company to cope with on its payroll. By stripping back the business, Mr Hyman might just have a chance of taking back control of Serco.

Sometimes there is a plan B

Blame George Osborne. The Chancellor's attempt to evoke the toughness of Margaret Thatcher by saying there is no plan B for curing the nation's economic malaise has spread to the City, as directors of troubled companies want shareholders to believe that only their way of getting them out of trouble could possibly work.

Take the way in which Nick von Schirnding, the boss of the scandal-scarred coalminer Bumi, defended how he is sorting out the group's convoluted ownership structure – a plan that will leave the Indonesian tycoon Samin Tan with nearly half the company's shares. He said it was possibly not the best solution, but it was the "best one on the table".

Co-op's chief executive, Euan Sutherland specifically said "there is no plan B" – only his solution for the woes of the group's bank, which will see angry bondholders stump up £500m.

Dismissing the notion that there are other options is not sensible practice. Mrs Thatcher's intransigence was her undoing, while Mr Osborne's obduracy borders on the narrow minded.

Executives should beware taking lessons from politicians, whose careers nearly always end in failure.

Margareta Pagano is away.

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power