KEYNOTE ADDRESS BY IRA A. LIPMAN

DEUTSCHE BANK GLOBAL SECURITY SEMINAR 2004

LONDON, ENGLAND

APRIL 1, 2004

GOOD AFTERNOON.

THANK YOU FOR INVITING ME TO JOIN YOU AND SHARE MY PERSPECTIVE ON THE U.S. SECURITY SERVICE MARKET, OR WHAT IS KNOWN HERE AS THE GUARDING MARKET.

FOR THOSE OF YOU WHO MAY NOT KNOW ME OR MY COMPANY, GUARDSMARK, I BEGAN MY CAREER IN THE SECURITY SERVICES INDUSTRY 55 YEARS AGO, WHEN I WORKED FOR MY FATHER’S INVESTIGATIVE SERVICES FIRM, MARK LIPMAN SERVICE. WHILE SELLING MY FATHER’S SERVICES, I SAW A REAL NEED IN THE SECURITY INDUSTRY FOR A COMPANY THAT FOCUSED ON SUSTAINED EXCELLENCE. AT THE TIME, THE TYPICAL SECURITY GUARD WAS CHARACTERIZED AS AN AGING, WHITE MALE WHO WAS POORLY EDUCATED AND POORLY PAID.

GUARDSMARK WAS FOUNDED IN 1963. WE WENT PUBLIC IN 1970 AND BECAME PRIVATE AGAIN IN 1979. WE’VE HAD A COMPOUND ANNUAL GROWTH RATE OF 12 PERCENT OVER THE LAST 25 YEARS WITHOUT A SINGLE ACQUISITION, AND OUR ANNUAL REVENUE IS CURRENTLY JUST UNDER HALF A BILLION DOLLARS. SINCE THE COMPANY’S FOUNDING, WE HAVE MAINTAINED A CULTURE OF EXCELLENCE, RECRUITING COLLEGE GRADUATES FROM HARVARD AND WHARTON, VETERANS OF THE DRUG ENFORCEMENT ADMINISTRATION AND THE SECRET SERVICE, AS WELL AS THE UNITED STATES MILITARY. WE EMPLOY MORE FORMER FBI AGENTS THAN ANY OTHER ORGANIZATION IN THE COUNTRY. GUARDSMARK IS AN ENTREPRENEURIAL, PERFORMANCE-DRIVEN ORGANIZATION.

WE HAVE AN UNMATCHED ZEAL FOR EXCELLENCE THAT APPLIES NOT ONLY TO OUR BUSINESS OPERATIONS, BUT ALSO TO ALL OF OUR RELATIONSHIPS – WITH EMPLOYEES, WITH CUSTOMERS, WITH VENDORS, WITH THE COMMUNITY. TIME MAGAZINE DESCRIBED US AS THE COMPANY THAT “MANY SECURITY EXPERTS CONSIDER THE BEST NATIONAL FIRM IN THE BUSINESS.” WE HAVE ALSO BEEN RECOGNIZED WITH SEVERAL NATIONAL ETHICS AWARDS IN RECENT YEARS – DURING A PERIOD WHEN CORPORATE GOVERNANCE HAS BECOME THE FOCUS OF MUCH PUBLIC SCRUTINY.

SUSTAINED EXCELLENCE HAS DRIVEN OUR ORGANIZATION FOR FOUR DECADES, AND IT CONTINUES TO DRIVE US TODAY.

YET, DESPITE THE ONGOING WAR AGAINST TERRORISM AND TILE RISE

OF ANTI-WESTERN SENTIMENT IN GENERAL AND ANTI-AMERICAN

SENTIMENT IN PARTICULAR, THE U.S. GUARDING MARKET IS NOT FOCUSED ON EXCELLENCE. THE MARKET – SPECIFICALLY, THE CUSTOMERS – IS INSTEAD FOCUSED ON PRICE AND ON CUTTING SECURITY COSTS, AND THIS SHORT-SIGHTED ATTITUDE IS ONE OF THE

BIGGEST CHALLENGES FACING THE INDUSTRY TODAY. IT HAS FAR- REACHING CONSEQUENCES THAT AFFECT SECURITY SERVICE COMPANIES ON MANY DIFFERENT LEVELS.

EVEN SO, A BRAND-NEW STUDY ON THE SECURITY INDUSTRY PUBLISHED BY THE FREEDONIA GROUP ESTIMATES THAT U.S. DEMAND FOR PRIVATE CONTRACTED SECURITY SERVICES WILL GROW SIX PERCENT EACH YEAR, REACHING $49 BILLION IN 2008. CONTINUED OUTSOURCING OF IN-HOUSE SECURITY FUNCTIONS WILL FUEL THESE GAINS, ALONG WITH INCREASED PRIVATIZATION OF SOME PUBLIC SAFETY OPERATIONS SUCH AS CORRECTIONAL FACILITIES

MANAGEMENT. FURTHER SUPPORTING THIS PREDICTION OF GROWTH IS THE PUBLIC PERCEPTION OF CRIME. DESPITE A GENERAL TREND OF

FALLING CRIME RATES IN RECENT YEARS, MANY COMPANIES CONTINUE TO VIEW CRIME AS A SIGNIFICANT RISK, COMPOUNDED BY THE WIDESPREAD BELIEF THAT OVERBURDENED PUBLIC SAFETY OFFICIALS CANNOT PROVIDE ADEQUATE PROTECTION. ALL OF THESE FACTORS WILL CONTRIBUTE TO INCREASED OPPORTUNITIES FOR GUARDING SERVICES, WHICH REPRESENTED THE LARGEST SHARE OF SECURITY SERVICES REVENUES IN 2003. THE GUARDING SERVICES MARKET ALONE IS EXPECTED TO EXPERIENCE COMPOUND ANNUAL REVENUE GROWTH OF FIVE PERCENT, INCREASING FROM $12.8 BILLION IN 2003 TO $16.3 BILLION IN 2008.

LET ME GIVE YOU A BRIEF HISTORY OF THE U.S. GUARDING MARKET

AND HOW IT DEVELOPED.

IN 1949, PINKERTON’S WAS THE LARGEST SECURITY COMPANY IN THE UNITED STATES, WITH $5 MILLION IN ANNUAL REVENUE. ESTABLISHED

BEFORE THE AMERICAN CIVIL WAR, PINKERTON’S GREW DURING THE WAR AND GREW WITH THE EXPANSION OF THE NATION FROM EAST TO WEST, WHICH ALLOWED THEM TO ESTABLISH A NATIONAL COMPANY IN THE DETECTIVE BUSINESS.

DURING THE 1940S, PINKERTON’S EXPANDED ITS INVESTIGATIVE OPERATIONS TO PROVIDE UNIFORMED GUARD SERVICES AT SPECIAL EVENTS ACROSS THE COUNTRY. IT WAS DURING THIS PERIOD THAT THE COMPANY ESTABLISHED THE PRACTICE OF EMPLOYING MINIMUM-WAGE WORKERS AS SECURITY GUARDS. THERE WERE MANY PEOPLE WHO WERE EAGER TO SERVE AS A POLICE AUTHORITY, WHICH ELIMINATED THE NEED FOR HIGH WAGES.

UP UNTIL 1954, THE COMPANY FOUNDED BY WILLIAM J. BURNS, A FORMER FBI DIRECTOR BEFORE J. EDGAR HOOVER, AND PINKERTON’S REPRESENTED THE SECURITY INDUSTRY NATIONALLY, WITH NUMEROUS EMPLOYEES FROM COAST TO COAST. AS THE POST-WORLD WAR II BABY BOOM FIRED UP IN THE EARLY 1960S, THE SECURITY INDUSTRY EXPERIENCED RAPID GROWTH. EASY ENTRY TO THE MARKET ESTABLISHED MOM-AND-POP SHOPS THROUGHOUT THE UNITED STATES. TRAGICALLY FOR THE INDUSTRY AND FOR SOCIETY, THE WHOLE CONCEPT OF SECURITY AS A MINIMUM-WAGE PROFESSION WAS MAINTAINED AND IS EVEN MAINTAINED TODAY.

THE 1960S AND 1970S SAW A GREAT RESISTANCE TO MORE SOPHISTICATED DEVELOPMENT IN THE SECURITY INDUSTRY. FIRMS GREW WITH INFLATIONARY SALES DOLLARS, LOSING BUSINESS ALMOST AS FAST AS THEY ACQUIRED NEW CUSTOMERS, WITH

TRANSIENTS SERVING AS SECURITY GUARDS. AS A RESULT, ANY MONEY INVESTED IN TRAINING AND SUPERVISION WAS WASTED, LOST IN THE REVOLVING-DOOR TURNOVER THAT CONTINUES TO CHARACTERIZE THE INDUSTRY TODAY.

THE PREVAILING ATTITUDE – ONE THAT GUARDSMARK AND OTHER COMPANIES HAVE LONG FOUGHT – VIEWED UNIFORMED SECURITY PERSONNEL AS INTERCHANGEABLE COMMODITIES, MUCH LIKE OFFICE SUPPLIES OR CANNED GOODS. EVEN THE TERM “GUARD” REPRESENTS THIS ANTIQUATED MINDSET, EVOKING AN IMAGE OF A PASSIVE SENTRY STANDING AT A GATE OR SOME OTHER INSTALLATION. AT GUARDSMARK WE REFER TO OUR EMPLOYEES AS “SECURITY OFFICERS,” WHICH CONVEYS MORE ACCURATELY THE

ACTIVE NATURE OF THEIR RESPONSIBILITY AND OUR BELIEF IN THEIR

PROFESSIONALISM.

WIDESPREAD LACK OF INVESTMENT IN WAGES AND IN TRAINING AND SUPERVISION HAS CONSPIRED TO KEEP THE GUARDING INDUSTRY LOW MARGIN. EASE OF ENTRY AND THE PROLIFERATION OF OUTSOURCING HAVE CONTRIBUTED TO THE OVEREXPANSION OF THE INDUSTRY TO ITS PEAK OF 13,000 COMPANIES IN THE 1990S. WE BELIEVE THIS NUMBER HAS DECREASED IN RECENT YEARS, LARGELY BECAUSE OF SUBSTANTIAL CONSOLIDATION DURING THE LAST FIVE YEARS. THIS TREND TOWARD CONSOLIDATION SHOULD HOLD POSITIVE CONSEQUENCES FOR THE OVERALL INDUSTRY BY REDUCING FRAGMENTATION AND POTENTIALLY PAVING THE WAY FOR GREATER UNIFORMITY OF QUALITY STANDARDS. EFFECTING THIS KIND OF INDUSTRY-WIDE REVOLUTION, HOWEVER, WILL REQUIRE A DRAMATIC SHIFT IN THE ATTITUDE TOWARD THE VALUE OF SECURITY GUARDS.

MANY COMPANIES ALREADY RECOGNIZE THE TREMENDOUS BENEFITS OF TECHNOLOGY IN DEVELOPING AN Et II ECTIVE SECURITY

SYSTEM. THEY INVEST HUNDREDS OF THOUSANDS – AND EVEN MILLIONS – OF DOLLARS IN CUTTING-EDGE ACCESS-CONTROL AND SURVEILLANCE SYSTEMS. IN THE YEARS TO COME, ADVANCEMENTS IN TECHNOLOGY WILL CONTINUE TO SHAPE THE GUARDING INDUSTRY, JUST AS IT HAS SHAPED EVERY OTHER ASPECT OF OUR LIVES. SOME PEOPLE HAVE ASKED WHETHER SOPHISTICATED NEW TECHNOLOGY WILL HAVE A NEGATIVE IMPACT ON THE GUARDING MARKET, EVENTUALLY ELIMINATING THE NEED FOR SECURITY PERSONNEL. THE ANSWER TO THIS QUESTION IS AN EMPHATIC “NO.” IN FACT, INCREASED USE OF TECHNOLOGY WILL ONLY CREATE GREATER GROWTH OPPORTUNITIES WITHIN THE INDUSTRY – FOR THOSE ORGANIZATIONS THAT ATTRACT AND REWARD HIGH QUALITY MEN AND WOMEN. MACHINES CAN PERFORM CERTAIN FUNCTIONS MORE

EFFECTIVELY THAN HUMANS, BUT WITHOUT ALERT AND INTELLIGENT HUMANS TO INTERPRET THE INFORMATION PROVIDED

AND TO RESPOND APPROPRIATELY, THESE TECHNOLOGICAL ADVANTAGES HOLD NO VALUE. FURTHERMORE, FROM A LIABILITY PERSPECTIVE, FIRMS THAT IMPLEMENT HIGH-TECH SECURITY SOLUTIONS CANNOT AFFORD TO ENTRUST THEIR MULTIMILLION DOLLAR INVESTMENTS TO MINIMUM-WAGE SECURITY GUARDS. FOR INSTANCE, IF AN EMERGENCY ARISES AND IMPROPER USE OF TECHNOLOGY HINDERS RESPONSE EFFORTS, THE COMPANY COULD FACE SIGNIFICANT LIABILITY – ESPECIALLY IF THE ERROR ENDANGERS LIFE AND SAFETY. THIS DRIVES THE NEED FOR MORE

EDUCATION – MORE FOUR-YEAR DEGREES – MORE GRADUATE DEGREES – ANTICIPATING THE NEEDS OF A MORE SOPHISTICATED

INDUSTRY IN THE FUTURE.

THE ROLE OF THE SECURITY GUARD CONTINUES TO BE ABSOLUTELY VITAL, ESPECIALLY IN THE CURRENT WORLD CLIMATE.

THE U.S. HOMELAND FACES AN UNPRECEDENTED LEVEL OF THREAT. PRIVATE SECURITY GUARDS REPRESENT ONE OF THE PRIMARY LINES OF DEFENSE AGAINST THAT THREAT, PARTICULARLY IN LIGHT OF THE FACT THAT PRIVATE GUARDS OUTNUMBER PUBLIC LAW ENFORCEMENT OFFICERS BY NEARLY TWO TO ONE, ACCORDING TO THE U.S. BUREAU OF LABOR STATISTICS. AT THE SAME TIME, WE HAVE WITNESSED GREAT APATHY IN THE UNITED STATES – PARTICULARLY IN MIDDLE AMERICA, WHERE STUDIES HAVE SHOWN THAT MANY COMPANIES HAVE ACTUALLY REDUCED SECURITY SPENDING BELOW LEVELS PREDATING SEPTEMBER 11, 2001. EVEN IN THE

NORTHEASTERN UNITED STATES, WHERE SECURITY CONCERNS HAVE BEEN THE GREATEST FOLLOWING THOSE TERRORIST ATTACKS,

BUSINESSES HAVE STARTED TO RELAX THEIR GUARD, BOWING TO ECONOMIC PRESSURES.

WE BELIEVE THIS APATHY HAS WANED SOMEWHAT AFTER LAST MONTH’S ATTACKS ON COMMUTER TRAINS IN MADRID. PEOPLE ARE AFRAID. BUT BECAUSE OF THE ECONOMY, MANY COMPANIES ARE STILL FOCUSED ON COST AND NOT ON QUALITY – TO THE DETRIMENT OF AMERICAN SOCIETY.

CONSIDER THIS TRUE STORY: WE HAD PROVIDED SECURITY FOR A CUSTOMER NEAR CHICAGO FOR MORE THAN 20 YEARS WHEN THEY SWITCHED TO ANOTHER PROVIDER STRICTLY ON THE BASIS OF COST. WE LEFT THE FACILITY FRIDAY NIGHT AT MIDNIGHT. ON MONDAY

MORNING, A FORMER EMPLOYEE RETURNED TO THE PREMISES. HE SHOT AND KILLED FIVE PEOPLE AND INJURED FOUR OTHERS. THE

NEW SECURITY GUARD AT THE FRONT GATE DIDN’T KNOW WHAT TO LOOK FOR. HE DIDN’T RECOGNIZE THE FORMER EMPLOYEE. HE DIDN’T SEARCH THE BAG WITH THE WEAPON. IN THE END, THE DECISION TO REDUCE THE SECURITY BUDGET WITH A LESS EXPENSIVE SERVICE PROVED TO BE A VERY COSTLY MISTAKE IN TERMS OF THE LIVES LOST, THE EMPLOYEE COUNSELING, THE BUSINESS INTERRUPTION, THE NEGATIVE PUBLICITY, THE LEGAL COSTS, THE LOSS OF CONSUMER AND SHAREHOLDER CONFIDENCE.

WHEN CYANIDE-LACED CAPSULES OF EXTRA STRENGTH TYLENOL REACHED STORES IN THE 1980S, KILLING SEVEN PEOPLE, JOHNSON & JOHNSON WAS FORCED TO RECALL MILLIONS OF BOTTLES AT A TREMENDOUS COST, AND THE INCIDENT RADICALLY ALTERED SECURITY PROTOCOLS THROUGHOUT THE CONSUMER PRODUCT MANUFACTURING INDUSTRY. FEW ORGANIZATIONS COULD SURVIVE

SUCH A CRISIS, YET THESE ARE THE STAKES THAT COMPANIES RISK WHEN THEY PLACE THEIR ASSETS AND THEIR REPUTATION IN THE HANDS OF A LOW-COST SECURITY PROVIDER.

THE ASSIGNMENTS THAT SECURITY GUARDS FILL RANGE FROM VERY BASIC – A MIDNIGHT SHIFT AT A DISTRIBUTION CENTER – TO EXCEPTIONALLY SOPHISTICATED – OPERATING A GLOBAL COMMUNICATION CONTROL CENTER FOR A MULTINATIONAL FIRM. ALTHOUGH THE JOB MAY BE EXHAUSTING OR TEDIOUS, A GUARD MUST REMAIN ALERT AT ALL TIMES, PREPARED TO RESPOND TO ANY SITUATION THAT COULD ARISE: A TERRORIST ATTACK, A FIRE, A ROBBERY, OR A MEDICAL EMERGENCY.

IF A SECURITY GUARD IS ALERT, AWARE OF HIS OR HER

RESPONSIBILITIES AND PROPERLY TRAINED IN APPROPRIATE

PROCEDURES, QUICK ACTION CAN SAVE BOTH LIVES AND PROPERTY, CREATING VALUE FOR THE CLIENT. MANY WHO WORK IN THE U.S. HELP GUARD THE NEARLY 85% OF THE NATION’S CRITICAL INFRASTRUCTURE THAT IS OWNED AND OPERATED BY PRIVATE INDUSTRY, INCLUDING UTILITIES, REFINERIES, CHEMICAL PLANTS, PORTS, AND MAJOR PUBLIC VENUES. WE ALL DEPEND ON THE QUALIFICATIONS, HONESTY AND JUDGMENT OF SECURITY GUARDS, WHO SERVE AS A QUASI-POLICE PRESENCE IN SOCIETY – ENDOWED WITH THE PUBLIC TRUST TO PROTECT THE COMMUNITY AT LARGE.

UNFORTUNATELY, TOO MANY SECURITY GUARDS ARE UNQUALIFIED, DISHONEST, UNRELIABLE AND EVEN VIOLENT. MANY OF THEM USE DRUGS, AND MANY HAVE CRIMINAL RECORDS. THAT’S A PROBLEM FOR BUSINESS. IT’S A PROBLEM FOR SOCIETY. AND IT IS A PROBLEM

FOR EACH OF US INDIVIDUALLY.

EVERY YEAR, A STAGGERING NUMBER OF SECURITY GUARDS ARE CONVICTED OF, OR IMPLICATED IN, CASES OF MURDER, ARSON, RAPE,

ROBBERY, THEFT OR SIMPLE NEGLIGENCE OF DUTY. NO ONE KEEPS FORMAL STATISTICS OF THE ANNUAL CRIME RATES AMONG SECURITY GUARDS, BUT FOR A QUARTER OF A CENTURY, GUARDSMARK HAS TRACKED NEWSPAPER CLIPPINGS THAT DETAIL SUCH INCIDENTS.

A FEW OF THESE INCIDENTS ARE:

■ A SECURITY GUARD MURDERED A PROMINENT WOMAN WHO  WAS THE LEADER OF A WELL-KNOW FACILITY HE WAS HIRED  TO PROTECT. IT WAS LATER DISCOVERED THAT HE HAD PRIOR

CONVICTIONS THAT HIS COMPANY FAILED TO UNCOVER.

■ ANOTHER GUARD WITH A PREVIOUS RECORD OF CRIMINAL  BEHAVIOR WAS CHARGED WITH MURDER AND TAMPERING  WITH EVIDENCE.

THESE GUARDS DO NOT REPRESENT THE INDUSTRY AS A WHOLE. MOST SECURITY GUARDS ARE DEDICATED, HARD-WORKING PEOPLE WHO TAKE PRIDE IN A JOB WELL DONE. THEY COME FROM ALL SOCIAL AND ETHNIC BACKGROUNDS, WITH VARYING DEGREES OF EDUCATION. SOME HAVE LITTLE RESPONSIBILITY BEYOND WEARING A UNIFORM AND PERFORMING PATROLS; OTHERS ARE HIGHLY SKILLED, TRAINED PROFESSIONALS FAMILIAR WITH SOPHISTICATED SECURITY EQUIPMENT, CHEMICAL HAZARDS, FIRE FIGHTING EQUIPMENT, FIRST AID PROCEDURES, SAFETY PRECAUTIONS AND THE PROPER HANDLING OF SECURITY VIOLATIONS.

IN A SECURITY SERVICES COMPANY COMMITTED TO EXCELLENCE, THESE PROFESSIONALS ARE NOT THE EXCEPTION, BUT THE RULE. HOWEVER, IN MANY GUARDING FIRMS SUCH PROFESSIONALS REPRESENT NOT THE RULE, BUT THE EXCEPTION.

WHAT FACTORS HAVE CREATED THIS DANGEROUS SITUATION?

FIRST AND FOREMOST, THE LACK OF QUALITY CONTROL WITHIN THE SECURITY INDUSTRY HOLDS THE LION’S SHARE OF THE RESPONSIBILITY. THERE ARE NO INDUSTRY STANDARDS GOVERNING THE SELECTION, TRAINING AND SUPERVISION OF SECURITY GUARDS. AS A RESULT, IN SOME STATES, A CONVICTED FELON RELEASED FROM PRISON IN THE MORNING CAN APPLY FOR A JOB AS A SECURITY GUARD AND STAND POST WITH A GUN LATER THAT SAME AFTERNOON.

MANY COMPANIES DO NOT ATTEMPT TO CHECK APPLICANTS’ CRIMINAL RECORDS. THEY DO NOT INVESTIGATE MILITARY SERVICE RECORDS, PERSONAL REFERENCES OR PREVIOUS EMPLOYERS. THEY DO NOT VERIFY EDUCATIONAL CLAIMS. THEY DO NOT TEST FOR DRUG USE. IN MANY CASES, THEY DO NOT EVEN TEST FOR LITERACY. THEY SIMPLY OUTFIT PEOPLE WITH UNIFORMS AND ASSIGN THEM TO CLIENT LOCATIONS WITH LITTLE OR NO TRAINING.

IN FACT, 10 STATES IN THE U.S. MARKET HAVE NO REGULATIONS OVER THE GUARD INDUSTRY AT ALL. OF THE REMAINING 40, EIGHT HAVE NO TRAINING REQUIREMENTS, ALTHOUGH ARMED GUARDS MAY BE REQUIRED TO UNDERGO FIREARM TRAINING UNDER STATE FIREARMS STATUTES. EVEN WHERE STATES DO MANDATE MINIMUM TRAINING, HOWEVER, MANY GUARDS RECEIVE LESS THAN EIGHT HOURS OF TRAINING BEFORE STARTING THEIR ASSIGNMENTS. OFTEN, GUARDS

RECEIVE ONLY FOUR. THAT’S FOUR HOURS TO COVER FIRE PROTECTION AND FIRE PREVENTION, FIRST AID, LEGAL POWERS (SUCH AS POWERS OF ARREST OR DETENTION), INVESTIGATION AND DETENTION PROCEDURES, BUILDING SAFETY, CRISIS HANDLING, USE

OF EQUIPMENT, AND REPORT WRITING.

FOR SECURITY COMPANIES THAT DEMAND SUSTAINED EXCELLENCE, THE COSTS ASSOCIATED WITH SELECTION AND TRAINING ARE NOT AN

OPTION; THEY REPRESENT AN ESSENTIAL INVESTMENT IN PROTECTING CUSTOMER ASSETS. BUT FOR MANY SECURITY COMPANIES, INVESTING IN EMPLOYEE SELECTION AND TRAINING IS VIEWED BOTH AS UNNECESSARY AND UNECONOMIC.

UNECONOMIC, BECAUSE MANY OF THESE FIRMS SEEK ONLY THOSE CONTRACTS THAT EITHER BY LAW OR POLICY GO TO THE LOWEST

BIDDER. AND THE ECONOMIC TURMOIL OF RECENT YEARS HAS DRAMATICALLY INCREASED THE NUMBER OF ORGANIZATIONS THAT BASE THEIR SECURITY DECISIONS SOLELY ON PRICE, SIGNIFICANTLY INCREASING THE MARKET FOR THESE LOW-COST PROVIDERS. THE GROWING PREVALENCE OF LOW-BID CONTRACTS REPRESENTS YET ANOTHER REASON WHY EXCELLENCE REMAINS A LOW PRIORITY IN THE GUARDING INDUSTRY.

FROM 1971 TO 1988, GUARDSMARK PROVIDED PRE-BOARDING SCREENING SERVICES AT MANY OF THE NATION’S AIRPORTS. WE RESIGNED FROM THAT BUSINESS IN 1988 BECAUSE WE REALIZED THAT AIRPORTS HAD NO INTEREST IN PROVIDING MEANINGFUL SECURITY; THEY WANTED TO SATISFY MINIMUM LEGAL REQUIREMENTS WITH MINIMUM-WAGE BODIES. WE DIDN’T WANT TO PROVIDE SECURITY IN AN ENVIRONMENT WHERE WE COULDN’T PUT OUR STAMP OF

QUALITY, SO WE CANCELED OUR AIRPORT CONTRACTS. THE AIRLINES WERE SHOCKED BY OUR DECISION.

IN THIS KIND OF ENVIRONMENT, WHERE PRICE IS THE PRIMARY CONSIDERATION, THE LOW-COST PROVIDER OFFERS A HIGH LEVEL OF ILLUSION, BUT A LOW LEVEL OF PERFORMANCE.

INTERESTINGLY, THE LOW-COST PROVIDERS OF TODAY MAY NOT HOLD AS MUCH RESPONSIBILITY FOR THIS SITUATION AS DO THE UNENLIGHTENED SECTORS OF GOVERNMENT AND INDUSTRY THAT DO NOT UNDERSTAND THE DIFFERENCE BETWEEN LOW-BID CONTRACTS FOR PRODUCTS AND LOW-BID CONTRACTS FOR SERVICES. COMPANIES CAN TEST PRODUCTS BEFORE AWARDING A CONTRACT TO ENSURE THAT THEY MEET QUALITY SPECIFICATIONS; THE SAME DOES NOT HOLD TRUE FOR SERVICES. FURTHERMORE, THE STAKES ARE MUCH

HIGHER WHEN DEALING WITH SECURITY, WHERE A POOR PURCHASING DECISION CAN COMPROMISE THE VIABILITY OF AN ORGANIZATION.

AGGRAVATING THIS DANGEROUS SITUATION IS THE ONGOING PROBLEM OF LOW WAGES AND HIGH TURNOVER. HISTORICALLY, CORPORATE EXECUTIVES HAVE NOT FOCUSED ON SECURITY, AND THE SECURITY PROGRAM RANKS LOW AMONG BUDGET PRIORITIES.

MANY COMPANIES JUST DO NOT RECOGNIZE THE TOTAL COST OF INEFFECTIVE SECURITY. TOO OFTEN MANAGEMENT SEES THE SECURITY BUDGET ONLY AS A LINE ITEM ON THE FINANCIAL STATEMENTS, BUT IT OFTEN FAILS TO CORRELATE THIS FIGURE WITH

THE POTENTIAL COSTS ASSOCIATED WITH SECURITY BREACHES, RANGING FROM ACTS OF TERRORISM AND INDUSTRIAL ESPIONAGE TO

INVENTORY SHRINKAGE. WHEN SECURITY WORKS, COMPANIES SEE THIS BUDGET ITEM SIMPLY AS OVERHEAD; RARELY DO THEY STOP TO THINK ABOUT THE POSSIBLY CRIPPLING LOSSES THEY COULD BE EXPERIENCING: LOSS OF SHAREHOLDER AND CUSTOMER CONFIDENCE, PUBLIC RELATIONS AND LEGAL COSTS, LIABILITY EXPENSES, INCREASED INSURANCE PREMIUMS, LOST REVENUE, BUSINESS INTERRUPTION. THESE OTHER COSTS ONLY BECOME APPARENT WHEN SECURITY FAILS.

THE SHARPLY RISING COST OF INSURANCE SHOULD, BY ITSELF, CAUSE

COMPANIES TO REPRIORITIZE THE IMPORTANCE OF PURCHASING THE BEST POSSIBLE SECURITY SERVICE. AIG, ONE OF THE WORLD’S LARGEST INSURERS, HIGHLIGHTED ITS OWN FOCUS ON THIS ISSUE BY FEATURING GUARDSMARK IN A RECENT ANNUAL REPORT.

BUT, THE LEGACY OF LOW WAGES CONTINUES TO PLAGUE THE INDUSTRY. LOW WAGES MAKE IT DIFFICULT FOR COMPANIES TO HIRE

AND RETAIN THE BEST EMPLOYEES, BECAUSE THESE INDIVIDUALS HAVE THE SKILLS AND THE ABILITY TO ADVANCE INTO HIGHER PAYING POSITIONS. AS A RESULT, MANY GUARDING FIRMS ARE FORCED TO HIRE TRANSIENTS, WITH LITTLE WORK ETHIC, FEW SKILLS AND NO COMMITMENT TO STEADY EMPLOYMENT. THESE WORKERS HAVE NO UPWARD MOBILITY AND INSTEAD DRIFT IN AND OUT OF LATERAL POSITIONS ACCORDING TO THEIR FANCY OR THE IMMEDIATE NEED FOR A PAYCHECK.

INCREASED COMMODITIZATION PERPETUATES THIS CYCLE. BY FORCING GUARDING FIRMS TO SLASH THEIR PRICES, COMPANIES LIMIT THE QUALITY OF THE MEN AND WOMEN ENTRUSTED WITH THEIR PROTECTION. ALREADY-LOW MARGINS DRIVE CONTRACTORS

TO MEET PRICING REQUIREMENTS BY REDUCING EMPLOYEE WAGES AND BENEFITS, WHICH CRIPPLES THE ABILITY TO ATTRACT SKILLED INDIVIDUALS.

EVEN FAST-FOOD RESTAURANTS OFFER SUCH BENEFITS AS HEALTH INSURANCE AND MATCHING 401(K) SAVINGS PLANS TO THEIR MINIMUM-WAGE EMPLOYEES, YET THESE BENEFITS AND OTHERS – INCLUDING LIFE INSURANCE, PAID VACATION, SAFETY AND PERFORMANCE AWARDS AND INCENTIVES, AND TUITION REIMBURSEMENT – ARE VIEWED AS UNNECESSARY IN THE SECURITY INDUSTRY, ALTHOUGH THEY ARE ALL OFFERED BY GUARDSMARK. ONLY BY UPGRADING THE QUALITY OF LIFE OF THE INDIVIDUALS IN UNIFORM CAN WE ELEVATE THE PROFESSIONALISM OF THE INDUSTRY TO THE LEVEL IT NEEDS TO BE.

ONE PROBLEM WORKING AGAINST THE INDUSTRY LIES IN THE DIFFICULTY OF CHECKING CRIMINAL RECORDS OUTSIDE THE IMMEDIATE JURISDICTION. CRIMINAL RECORD CHECKS ARE ESSENTIAL IN ENSURING THAT THE PEOPLE RESPONSIBLE FOR OUR PROTECTION ARE INDEED PROTECTORS AND NOT PREDATORS. AT PRESENT, SECURITY COMPANIES HAVE NO STANDARDIZED ACCESS TO

CRIMINAL RECORDS; THEY MUST RELY ON A HODGEPODGE OF STATE POLICIES AND PROCEDURES AND AN INCOMPLETE FEDERAL DATABASE. STATES AND MUNICIPALITIES HAVE THEIR OWN WAYS OF

RESPONDING TO CRIMINAL RECORDS REQUESTS FROM PRIVATE SECURITY COMPANIES. SOME RESPOND QUICKLY, WHILE OTHERS TAKE UP TO SIX MONTHS. SOME ASK THE FBI TO CHECK FEDERAL RECORDS, AS WELL AS THOSE STATE RECORDS THAT HAVE BEEN FORWARDED TO THE FBI’S IDENTIFICATION DIVISION. BUT THE OVERALL SYSTEM IS INCOMPLETE, INCONSISTENT AND UNRELIABLE.

WE ARE MAKING PROGRESS WITH RESPECT TO THIS PARTICULAR PROBLEM. FOR MORE THAN 24 YEARS, GUARDSMARK HAS REPEATEDLY INITIATED LEGISLATION THAT WOULD ALLOW PRIVATE SECURITY COMPANIES QUICK ACCESS TO FBI CRIMINAL HISTORY RECORDS. FINALLY, OUR EFFORTS TO RAISE STANDARDS IN THE SECURITY INDUSTRY APPEAR CLOSE TO FRUITION. LEGISLATION THAT WOULD ALLOW ACCESS TO THESE RECORDS IS CLOSE TO PASSAGE IN THE UNITED STATES CONGRESS. THE BILL PROTECTS EMPLOYEES’ PRIVACY RIGHTS BY NOT DIVULGING SPECIFIC INFORMATION ABOUT ARRESTS OR CONVICTIONS. FIRMS WOULD RECEIVE ONLY AN APPROVAL OR DENIAL, BASED ON THE EXISTENCE OF A CRIMINAL RECORD, FROM A STATE’S CRIMINAL IDENTIFICATION BUREAU OR A SIMILAR AGENCY AUTHORIZED BY THE U.S. ATTORNEY GENERAL. PASSAGE OF THIS LEGISLATION, WHICH HAS ALREADY RECEIVED THE APPROVAL OF THE U.S. SENATE BY UNANIMOUS

CONSENT, WOULD REPRESENT A SIGNIFICANT VICTORY FOR BOTH THE U.S. GUARDING INDUSTRY AND AMERICAN SOCIETY AS A WHOLE.

THIS LEGISLATION WOULD HELP REMOVE A CRITICAL OBSTACLE IN TILE CRUSADE TO UPGRADE THE QUALITY OF THE OVERALL INDUSTRY.

AS FOR THE OTHER FACTORS CONTRIBUTING TO THE COMMODITIZATION OF THE INDUSTRY – THE LACK OF QUALITY CONTROL, THE GROWING FOCUS ON LOW-COST CONTRACTS, AND THE HISTORICALLY LOW WAGES AND BENEFITS – CHANGE MUST BEGIN WITHIN THE INDUSTRY ITSELF.

THE ORGANIZATIONS THAT COMPRISE THE U.S. GUARDING INDUSTRY MUST LIVE UP TO OUR COLLECTIVE RESPONSIBILITY TO CREATE AND

UPHOLD STANDARDS OF EXCELLENCE IN SECURITY SERVICES. THIS

MEANS DEVELOPING AND ADHERING TO QUALITY CONTROL PROGRAMS THAT UPHOLD INDUSTRY-WIDE STANDARDS, WITH COMPLIANCE CERTIFIED BY EITHER THE INDUSTRY’S TRADE ASSOCIATION, ASIS INTERNATIONAL, OR A PEER REVIEW PROGRAM FOR COMPANIES THAT COMPLEMENTS THE CERTIFIED PROTECTION PROFESSIONAL (CPP) DESIGNATION FOR INDIVIDUALS.

AT THE SAME TIME, THE INDUSTRY NEEDS TO EDUCATE THE MARKETPLACE OF THE DANGERS OF LOW-COST SECURITY. NEVER BEFORE HAS THIS MESSAGE BEEN MORE URGENT THAN NOW, WHEN THE U.S. HOMELAND LIVES UNDER THE DAILY SPECTER OF TERRORIST ATTACK. STUDIES THAT ANALYZE THE EFFECTS OF LOW-BID CONTRACTING COULD DOCUMENT THE RISKS OF SACRIFICING QUALITY IN SELECTION, TRAINING AND SUPERVISION. ALREADY, SOPHISTICATED ORGANIZATIONS THROUGHOUT THE UNITED STATES

RECOGNIZE THE IMPORTANCE OF EVALUATING SERVICE INDUSTRIES NOT ON PRICE, BUT ON VALUE. STUDIES DEMONSTRATING THAT LOW- BID CONTRACTING FOR SECURITY IS NOT COST EFFECTIVE ECTIVE COULD

ACCELERATE THIS TREND.

NOT SURPRISINGLY, IT IS USUALLY C-LEVEL EXECUTIVES WHO FIRST RECOGNIZE THEIR BUSINESSES’ EXPOSURE TO LAX SECURITY SERVICE. BUT A DANGEROUS DISCONNECT OFTEN EXISTS BETWEEN THE SENIOR MANAGERS WHO UNDERSTAND THEIR OBLIGATIONS TO PROTECT EMPLOYEES’ AND SHAREHOLDERS’ INTERESTS AND THE MIDDLE MANAGERS AND PURCHASING DEPARTMENTS RESPONSIBLE FOR CARRYING OUT THE SECURITY MISSION, USUALLY WITH THE OVERRIDING INSTRUCTION TO REDUCE COSTS AT ANY PRICE.

ANOTHER CRITICAL ELEMENT IN ELEVATING THE SECURITY INDUSTRY REQUIRES SUBSTANTIAL IMPROVEMENT IN THE WAGES AND BENEFITS PAID TO EMPLOYEES. ONLY BY OFFERING PROFESSIONAL WAGES AND BENEFITS WILL THE INDUSTRY ATTRACT THE HIGH-QUALITY APPLICANTS NEEDED TO PROVIDE EFFECTIVE SECURITY. GUARDING COMPANIES MUST CONVINCE THE MARKET THAT HIGHER WAGES WILL ATTRACT SUPERIOR EMPLOYEES. THIS MEANS MAKING A GREATER INVESTMENT IN HUMAN RESOURCES, OFFERING COMPETITIVE WAGES, COMPREHENSIVE BENEFITS, A CAREER PATH WITH THE POTENTIAL FOR ADVANCEMENT.

IMPROVING INDUSTRY STANDARDS ALSO REQUIRES THAT SECURITY GUARDS HAVE AN UNDIVIDED LOYALTY TO THE CLIENT AND TO THE

SECURITY MISSION. TO AVOID CONFLICTING LOYALTIES, U.S. LAW HAS HELD SINCE 1947 THAT THE NATIONAL LABOR RELATIONS BOARD

MAY NOT CERTIFY ANY UNION THAT ADMITS BOTH GUARDS AND NON-

GUARDS TO ITS MEMBERSHIP. THE REASON WAS OBVIOUS: TO AVOID

FORCING GUARDS TO CHOOSE BETWEEN THEIR CLEAR DUTY TO THE CLIENT AND ANY LOYALTY THEY MIGHT FEEL TO A FELLOW UNION MEMBER. NONETHELESS, SOME LABOR ORGANIZATIONS HAVE TRIED TO CIRCUMVENT THE LAW BY PRESSURING SECURITY COMPANIES AND INDIVIDUAL SECURITY GUARDS TO RECOGNIZE SUCH A LABOR ORGANIZATION, DESPITE THE CLEAR CONFLICT OF INTEREST AND REGARDLESS OF THE EMPLOYEE’S WISHES. RESPONSIBLE SECURITY COMPANIES MUST RESIST THE TEMPTATION TO PURCHASE PEACEFUL LABOR RELATIONS AT THE UNACCEPTABLE COST OF UNDERMINING THEIR CLIENTS’ FUNDAMENTAL SECURITY, AND IN DOING SO JEOPARDIZE THEIR CLIENTS’ SHAREHOLDERS’ VALUE AS WELL

NONE OF THESE SOLUTIONS OFFERS A QUICK FIX. ALL WILL REQUIRE A CONSIDERABLE INVESTMENT OF TIME, ENERGY AND RESOURCES BY THE MEMBERS OF THE GUARD INDUSTRY, BUT ALL ARE ESSENTIAL. AT GUARDSMARK, WE HAVE SOUGHT TO RAISE THE BAR BY EXAMPLE IN LEADING THE INDUSTRY TO HIGHER STANDARDS OF EXCELLENCE. A FEW EXAMPLES ARE:

• 40-PAGE EMPLOYMENT APPLICATION
• ALL EMPLOYMENT FILES MUST BE APPROVED BY ONE OF OUR INDEPENDENT SELECTION CONTROLLERS
• 100% OF THE MEN AND WOMEN OF GUARDSMARK HAVE PASSED A 10-PANEL DRUG TEST ADMINISTERED BY A GOVERNMENT APPROVED INDEPENDENT AGENCY INCLUDING SUPERVISED  COLLECTION AND CHAIN OF CUSTODY
• ONGOING TRAINING – LEARNING AND DEVELOPMENT – FROM

TIME OF HIRE TO RETIREMENT

• ALL OF OUR BRANCHES RECEIVE UNANNOUNCED INSPECTIONS

BY AN INDEPENDENT AGENCY

• ISO REGISTRATION OF OUR QUALITY ASSURANCE SYSTEM
• HEALTHCARE AT NO COST TO THE SECURITY OFFICER
• TUITION REIMBURSEMENT AND FOCUS ON PROMOTION FROM WITHIN
• MATCHING 401(K) PROGRAM
• POLYGRAPHING – WHERE PERMITTED BY LAW

THE NEED FOR SECURITY HAS NEVER BEEN GREATER. THE SAME HOLDS TRUE FOR THE CONSEQUENCES OF INADEQUATE PROTECTION. THE STAKES ARE TOO HIGH FOR THE INDUSTRY TO YIELD TO THE PRESSURES OF AN UNENLIGHTENED MARKET. SECURITY PROVIDERS MUST COLLECTIVELY ACKNOWLEDGE OUR CRITICAL ROLE IN /

PROTECTING SOCIETY AGAINST CRIME AND TERROR. WE MUST

CONTINUE TO EDUCATE THE MARKETPLACE AND IMPLEMENT THE QUALITY-CONTROL STANDARDS AND EMPLOYEE INCENTIVES NECESSARY.

THE OPPORTUNITIES BEFORE US ARE GREAT, BUT WE MUST MOVE FORWARD WITH URGENCY AND WITH A RELENTLESS FOCUS ON SUSTAINED EXCELLENCE.