HIGHLIGHT: Wackenhut says its prisons are no worse than the public ones. Is that good enough?
BODY: WACKENHUT CORRECTIONS, the nation's number two private prison operator, insists it does not have an image problem.
Sure, there have been stabbings, riots and sexual assault indictments at Wackenhut-run lockups. But this stuff happens at prisons, the company says.
Maybe, but investors have reason to wonder. Once a Wall Street darling, Wackenhut, with 48 prisons and 1999 revenues of $438 million, has fallen hard. Wackenhut's stock is down 65% in the past year from a high of $21. There's probably no better sign that Wackenhut is hurting than its recent hiring of Los Angeles crisis p.r. man Michael Sitrick. He's the guy who helped Food Lion battle ABC and wrote the book Spin: How to Turn the Power of the Press to Your Advantage" (see "Gotcha!"). "There are violent people in these prisons. This isn't summer camp," says Sitrick. "Are these guys [Wackenhut] any better or worse than public prisons?" That's a switch. This, after all, is the industry that several years ago said it would do a better job than the public sector: Not only will taxpayers save a bundle, but they'd teach government something about managing hooligans. Easier said than done. In Texas, 12 former Wackenhut employees have been indicted on charges that they raped or had sex with female inmates at a state jail in Austin. Texas officials have taken control of the lockup. In Louisiana, the U.S.
Justice Department sued Wackenhut, alleging that guards were beating young boys, throwing gas grenades into their barracks and holding them for long
periods in isolation. Wackenhut, which surrendered the prison, disputes the allegations.
And if that wasn't bad enough, two prisons in New Mexico that Wackenhut was hired to run were plagued by stabbings and deaths last year. State police were rushed in when 300 inmates rioted. Wackenhut blames the state for sending it rival gang members who had scores to settle.
Wackenhut Chief Executive George C. Zoley says that such problems are all part of running prisons. "If someone wants to get in a food fight at one of our prisons there is very little we can do to stop that," he says. "We have had some operational issues at our higher security prisons, but those issues have settled down." Wackenhut, 56% owned by Wackenhut Corp., the Palm Beach Gardens, Fla. security firm, has added an ombudsman, an investigative arm, cameras to monitor its prison staff, and regional vice presidents to monitor facilities. All this costs money, which is one reason why expenses have been rising faster than revenue at Wackenhut.
About 60% of the cost of running a prison is labor. Wackenhut and the industry leader, Corrections Corp. of America, have had more than their share of problems because they ineptly managed the prisons, among other things hiring poorly trained guards. At one CCA prison in Youngstown, Ohio, for example, six prisoners escaped after finding out motion detectors weren't working.
All this bad publicity comes when voters are pressuring elected officials to spend less on prisons and more on education. Crime is down, and the trend is toward keeping drug offenders and nonviolent criminals out of jail.
Recognizing this, Zoley is steering Wackenhut toward opening higher-security prisons paying more per prisoner -- a daily average of $44.58 per inmate, up from $38.43 in 1996. But that's no panacea for a weak bottom line; high-security prisons cost more to build and operate. Moreover, accounting rules now dictate prison companies' expense salary and training related to opening a facility up
front rather than spreading them over time. Which is one reason why earnings are suffering. Wackenhut's revenues rose at an annual compound rate of 39% between 1994 and 1999, while profits grew even faster at 58%. This year earnings will be flat at $1 per share. For the growth-stock fans Wackenhut used to have, that's criminal.
It is incredible to think that the other prissions local state and federal don't have problems, all you have to do is read the local newspaper here in Abilene, Texas and find out that some of the same type of stuff has taken place, it would be wrong to think that the pop. of inmates at WHC and CCA would be any different than the others, would it not..?