Serco chief resigns in fight to keep Government contracts

Outsourcing giant also reforms board after 'tagging dead prisoners' scandal

Serco's chief executive Chris Hyman fell on his sword yesterday as the outsourcing giant announced sweeping reforms of its board and policies in an attempt at repairing the damage of two Government investigations into multi-million-pound contracts.

"At this time, nothing is more important to me than rebuilding the relationship with our UK Government customer," Mr Hyman said. "In recent weeks, it has become clear to me that the best way for the company to move forward is for me to step back".

Mr Hyman, who was paid £2.5m last year, is being temporarily replaced by Ed Casey, who has run Serco's Americas division since 2005.

It comes after the company – which runs the Docklands Light Railway, the Boris Bikes scheme and the Atomic Weapons Establishment – was accused by the Government, one of Serco's biggest customers, of overcharging taxpayers to monitor the electronic tags of offenders who were actually dead, non-existent or in custody. Serco is also facing a separate police fraud investigation over alleged misreporting in a £285m prison escorting contract, amid claims staff recorded prisoners in London and East Anglia had been delivered ready for court – a key performance measure on the contract – when in fact they were not.

Mr Hyman, a 50-year-old devout Christian who donates 10 per cent of his annual income as a tithe to his local church, had held the top job at Serco for 11 years and worked at the outsourcer for 19.

He is to receive a pay-off of a year's basic salary plus benefits worth £1.1m. He also departs with a pension pot worth £2.2m, paying out £128,000 a year, and 917,000 shares in Serco, worth £5.1m.

"He believes that the company will have the greatest chance of success with new leadership at the helm and he has, therefore, decided to step down with immediate effect," Serco said. It is now looking outside for a new chief executive.

Shares in Serco rose 5p to 557.5p on news of Mr Hyman's departure, which came one day after the UK boss of rival Government contractor G4S – also involved in the tagging scandal – resigned. The outcome of an inquiry into Serco and G4S's tagging contract is expected next month.

Serco said it wanted to demonstrate "substantive evidence of corporate renewal". Ministers are currently deciding whether to blacklist Serco from future central Government contracts, which provide about a quarter of revenues.

The outsourcer also plans to split its UK & Europe division in two, with one focused solely on Government contracts and the other on the public sector. Serco is also hiring three more non-executive directors and a group general counsel, establishing a board committee for corporate responsibility, and appointing full-time ethics officers to each division.

The chairman Alastair Lyons said its actions "should leave no one in any doubt about how seriously Serco takes these issues".

A Government spokesman said it would take full account of the changes and called them "a step forward".

Triple trouble

Prison escorting Serco's £285m contract to escort prisoners in London and East Anglia was put under administrative supervision in the summer over allegations of false records on prisoner delivery.

Tagging The Serious Fraud Office is looking whether Serco overcharged the Government for electronic tags. The company had allegedly been charging to tag offenders who had left the country, were in prison or were dead.

Boris Bikes Transport for London warned Serco earlier this year it could face fines on its deal to manage London's bicycle hire scheme.