Pinkerton’s Inc.

views updated

Pinkerton’s Inc.

15910 Ventura Blvd., Suite 900
Encino, California 91436
U.S.A.
(818) 380-8800
Fax: (818) 380-8515

Public Company
Incorporated: 1850
Employees: 43,000
Revenues: $703.70 million
Stock Exchanges: NASDAQ
SICs: 7381 Detective & Armored Car Services

Pinkerton’s Inc. is the country’s oldest security firm, providing security guard personnel and investigative services to some of the largest businesses in the United States, including ITT Corp. and Hewlett-Packard Co. During the nineteenth and early twentieth centuries, the company emerged as a leading detective agency whose private investigators became famous for solving crimes involving the country’s railroads, banks, and businesses. Since the 1940s, however, Pinkerton’s has focused increasingly on security, developing into a business primarily engaged in guarding property; in 1990 more than 98 percent of the company’s business consisted of contracts to provide security guards.

The history of the Pinkerton detective agency may be traced to its founder Allan Pinkerton. Pinkerton was born in 1819 in the Gorbals, an impoverished and crime ridden district of Glasgow, Scotland. Soon after the death of his father in 1827, Pinkerton left elementary school to help support his family, achieving the status of journeyman cooper ten years later. During this time, Pinkerton became involved in Chartism, a political movement espousing an independent, democratic Scottish parliament that would provide citizens with voting and property rights. The movement turned violent in the early 1840s, and Pinkerton became known in Glasgow for his activism. When police sought his arrest, he went into hiding for several months and eventually decided to flee the country. In April of 1842 he and his bride, Joan Carfrae, set sail for the United States.

The Pinkertons settled in Chicago, where Allan found work making kegs and barrels for a brewery before establishing his own cooperage in the nearby town of Dundee. According to his biographers, Pinkerton’s involvement in detective work began in 1847, when his suspicions regarding some activities he observed on a nearby island resulted in the exposure of a gang of counterfeiters. Soon thereafter, local bankers and shopkeepers began hiring Pinkerton to help them apprehend thieves and counterfeiters, and he was appointed deputy sheriff of Kane County. In addition to his work as a cooper and amateur detective, Pinkerton became involved in the burgeoning abolitionist movement, establishing his home as a stop on the underground railroad from which slaves escaped to freedom in Canada.

After selling their cooperage, the Pinkertons moved back to Chicago in the late 1840s. There Pinkerton served as sheriff of Cook County and was appointed as Chicago’s first detective. He quickly became known as an honest and uncompromising law enforcer and a shrewd detective. When the post office experienced a concentration of thefts in the Chicago area, Pinkerton was appointed Special United States Mail Agent in order to help find the source. Pinkerton went undercover, targeted some suspects, and eventually caught one man in the act of stealing envelopes during the sorting process. As a result of his work, Pinkerton became nationally famous. Observing a need for organization in the field of law enforcement, Pinkerton founded his detective agency in 1850.

During this time, the country’s policing system consisted primarily of sheriffs and bounty hunters in rural areas and loosely organized and often corrupt police departments in the larger cities. Describing these circumstances, biographer Frank Horan stated in his book The Pinkertons: The Detective Dynasty That Made History, “What was needed at the time to fill the niche between the lack of rural law and the incompetence of corrupt urban law-enforcement organizations, was a private police force that could move across local, county, and even state boundaries in the pursuit of criminals. This is what Pinkerton established.”

Pinkerton composed a code of ethics for his agency; his General Principles outlined several areas in which the agency would not accept contracts, including divorce cases, or cases of a “scandalous” nature, and the investigation of public officials, jurors, or political parties. The Pinkerton agent, furthermore, was forbidden to accept rewards or gratuities not specified in the contract. Many of these rules continued to be honored through the twentieth century.

Setting up business in downtown Chicago, the agency originally employed five detectives and a few administrative personnel. Among Pinkerton’s detectives was George Bangs, who became the company’s leading detective and general manager. Pinkerton was also the first in the country to hire a woman detective, Kate Warne, who served the agency for several years. Pinkerton, who referred to himself as the company’s principal rather than president, hired agents, or operatives, based on their intelligence, perceptiveness, and courage, rather than on experience in detective work. Once hired, operatives received training through dramatizations of crimes as well as lessons in how to assume disguises and play the roles demanded of them.

From the onset, the company flourished and its staff of operatives grew. Focusing on a territory that included Illinois, Indiana, Michigan, and Wisconsin, the agency soon established branch offices in each state. While its chief area of business in the early years was the investigation of train robberies, Pinkerton’s agency also worked on cases involving forgery, counterfeiting, and murder. In the 1850s Pinkerton and his agents became known collectively as The Eye that Never Sleeps, in reference to their unrelenting pursuit of criminals.

Also during this time, Pinkerton maintained his commitment to abolition. His home in Chicago was one of the most crucial stops on the underground railroad, and he became a staunch supporter of the renowned abolitionist John Brown, to whom he provided both financial and moral support. During the Civil War, Allan Pinkerton and his agency assumed various roles in the union cause. Operatives traveled undercover in the South, investigating reports of espionage and conspiracy; some operatives were captured and executed by Confederate forces. Convinced that President Lincoln was the target of an assassination plot in Boston in 1861, the Pinkerton Agency persuaded Lincoln to amend his travel plans, providing guards to guarantee his safe passage back to Washington. Whether or not such a plot existed later became a topic of controversy among scholars, some of whom have suggested that Pinkerton fabricated the incident in order to further his reputation. Throughout the war, Allan Pinkerton maintained a close personal association with the union general George McClellan, spending much time in Washington D.C. and at various battle sites and providing McClellan with information on Confederate forces, even suggesting strategies for battle. However, Pinkerton proved a better detective than military advisor.

In the postwar period, as reconstruction began in the South and the country strove to develop more adequate communication and transportation networks, Pinkerton faced a new type of crime. Wiretapping, specifically of Western Union telegraph lines, involved the interception of information which was then falsely relayed to newspapers in major cities, creating sensational stories of mine disasters and bank failures that significantly affected investors on Wall Street and consequently caused financial crises. Wiretappers were then able to take advantage of the declining stock prices prompted by the false reports. Instrumental in dissolving bands of wiretappers, the Pinkerton Agency also prompted Congress to enact laws protecting the wire service as a public utility.

Bank and train robberies also occupied the Pinkerton Agency during the second half of the nineteenth century. Notorious gangs such as the Reno family, Frank and Jesse James, and Butch Cassidy’s Wild Bunch were all pursued and most were eventually captured by Pinkerton operatives, who now operated out of offices in the west as well as in New York and Philadelphia. During this time, however, Allan Pinkerton suffered a debilitating stroke, and the great Chicago fire destroyed the agency’s headquarters. Although the headquarters were quickly rebuilt, and Pinkerton eventually regained his speech and mobility, national economic crises in the early 1870s strained the agency’s finances. Furthermore, the integrity of operatives’ expense accounts was brought into question by management and the company’s auditors. The period of cost cutting that ensued allowed the agency to remain in business.

The company received an important financial boost during this time in the form of a contract with Franklin Benjamin Gowen, president of the Reading Railroad. After investigating several instances of violence and vandalism, particularly involving railroad equipment in Pennsylvania’s coal mining region, Pinkerton suggested further investigation of a group known as the Molly Maguires.

The Molly Maguires was a group formed as a result of disputes between labor and management in the coal mining industry, consisting largely of militant Irish miners attempting to garner safer working conditions and better wages. Increasingly violent demonstrations were staged by the Molly Maguires, and Pinkerton suggested to Gowen that one of his operatives infiltrate the group. Pinkerton chose James McParland for the assignment, and McParland spent nearly three years as a member of the Molly Maguires, reporting to the agency on its activities and plans for violent raids and demonstrations. Towards the end of McParland’s service in this capacity, he came under the suspicion of the Molly Maguires and managed to flee the area before he could be harmed. In the late 1870s many of the group’s leaders were convicted in court of murder and arson and were sentenced to be hanged.

Allan Pinkerton died in 1884, and his sons William and Robert succeeded him as co-principals of the agency; William directed operations in the West from his office in Chicago, while Robert maintained an office in New York and supervised the eastern operations. During this time the Pinkerton Agency became increasingly involved in the labor wars. Uniformed Pinkerton operatives were hired to help protect property and non-striking workers as well as to provide intelligence to company management. Although the Pinkertons did not technically break strikes, an enmity developed between the agency and the labor union movement. In 1892 more than 300 armed Pinkerton operatives were employed by Carnegie Brothers & Co., Ltd. to help protect their iron works at Homestead, Pennsylvania, near Pittsburgh. The Pinkertons were attacked by gunfire as they tried to reach the Homestead plant via the Monongahela river, and a riot ensued during which the Pinkertons were defeated and run out of the area.

At the turn of the century, Pinkerton began to face competition from the William J. Burns security agency, as well as from improved city police departments and other private agencies then being formed by railroad companies and other businesses. Nevertheless, Pinkerton continued to expand its operations, opening new offices throughout the country, which handled investigations for insurance claims and provided protection at racetracks and public events. Moreover, the firm began investigations into the growing Mafia presence in New York and New Orleans.

Robert Pinkerton died in 1907; his son Allan Pinkerton II took his place as head of western operations. When William Pinkerton died after suffering a heart attack in December of 1923, Allan Pinkerton II assumed the position of principal at the agency. During the 1920s, the Pinkerton Detective Agency expanded its operations both in the United States and abroad. As industry boomed, Pinkerton detectives continued to be hired as factory guards as well as to perform investigations into labor union activities. Also during this time, Pinkerton employees were engaged in resolving cases of armed robbery, particularly those involving banks, a crime that had been facilitated by the growing popularity of the automobile. One of Pinkerton’s most famous cases involved the apprehension of the notorious bank robbers Willie Sutton and Marcus Bassett, who were captured and sentenced to life in Sing Sing prison in 1930.

That year Allan Pinkerton II died suddenly. His successor, son Robert II, was initially reluctant to head the agency, preferring to pursue his career as a Wall Street stockbroker. Nevertheless, he gradually adopted the role of principal at the Pinkerton Agency. During the 1930s a Senate subcommittee was convened to examine the practice of investigating labor activities, and in 1937 Congress passed the Wagner Act, which deemed such investigations unlawful as they interfered with the rights of workers to organize. Thereafter, the Pinkerton agency resolved to deny contracts to investigate the organization and collective bargaining tactics of unions. As a result of renouncing this line of work, the company’s 1938 earnings dropped to $1.2 million, down from more than $2 million the year before.

During this time, the agency increased its presence in the horse racing industry, which was beset with corruption. Robert Pinkerton personally investigated gambling syndicates, primarily in New York, as well as identifying gangs of “ringers” who fixed races by either altering the appearance of a horse or doping it. Pinkerton was largely successful in his efforts to eradicate crime from the racetrack. However, in doing so he was on several occasions targeted for murder by the syndicates and experienced several near misses.

By 1940, the character of the Pinkerton National Detective Agency had changed significantly. Over the next 20 years, the company’s services narrowed in scope, as Pinkerton’s provided investigative services for accounting and insurance firms, and the guarding of property became central to its business. During World War II, Pinkerton operatives were hired to guard war supply plants. The company’s 1944 gross income topped $4 million, $1.7 million of which represented such wartime work. The company also gained several important contracts in the 1950s and 1960s, including one to provide security guards for the 1964-65 World’s Fair in New York. The Pinkerton National Detective Agency became Pinkerton’s Inc. in 1965, prompted by its general shift in focus from detective work to security services. Two years later the company went public, and Edward J. Bednarz assumed the presidency, becoming the first non-family member to attain the position. Although its role in police work had diminished, the company prospered, maintaining over 70 branch offices throughout the world by 1968.

In 1983, Pinkerton’s was purchased by American Brands for $162 million. Some analysts suggested that Pinkerton’s was not likely to fit well with the other businesses in the American Brands conglomeration, which included manufacturers of cigarettes and other merchandise. Nevertheless, the company maintained that with new direction, Pinkerton’s would become a profitable part of the conglomerate. In January of the following year Robert McGuire, a former assistant U.S. attorney and police commissioner of New York City, became the company’s chairperson and CEO. McGuire sought to increase the company’s sales and profits through improved service, particularly through the investigation of white collar crime and embezzlement in big business. McGuire was optimistic, commenting in a Forbes article in 1984 that with “reduced police resources nationwide and intolerable levels of crime,” opportunities existed in “executive protection, computer security and the alarm business.” Nevertheless, the company’s revenues remained flat, and by 1987 Pinkerton reported losses of $11 million on sales of $413 million.

In 1988 Pinkertons came under the leadership of Thomas Wathen, who purchased the company from American Brands for $95 million and merged it with his California Plant Protection (CPP). Wathen had graduated from Indiana University in the late 1950s with a degree in police administration and worked as the security director for a toy company in Los Angeles. There Wathen oversaw the hiring of security guard firms until 1964, when he purchased CPP, a struggling security guard business. Recalling this new venture in a May 1990 article in Nation’s Business, Wathen observed that his only experience with security guard firms had been as a customer. Consequently, he noted, “I ran the business the only way I could possibly know how to run it, and that’s the way the customer would want it to be operated. That gave me a hell of an edge philosophically.” Over the next 20 years, Wathen developed CPP into a successful business with annual revenues of $250 million, up from $163,000 in 1964.

Among Wathen’s contributions to the security industry was his implementation of extensive training programs for his company’s guards. In order to gain certification, guards at CPP took special courses and were expected to perform satisfactorily on written exams. Furthermore, even after being hired, CPP guards underwent psychological tests to ensure the company’s employees were well suited to their jobs. Wathen’s training programs as well as several screening techniques used to evaluate applicants were incorporated at Pinkerton’s after the acquisition.

When Pinkerton’s joined CPP, its headquarters was moved from New York to Van Nuys, California, and the entire enterprise was renamed Pinkerton’s Inc., reflecting the name long recognized for outstanding police work. One of the most notable changes for the Pinkerton company was effected by Wathen’s policy of accepting very few contracts that required armed guards. In 1990 less than two percent of Pinkerton’s guards carried guns, and Wathen told Forbes at the time, “I don’t like guns, dogs, or liability.”

In 1989 Pinkerton’s combined revenues totaled $605 million. In order to spur further growth, the company began a series of acquisitions. In 1991, Pinkerton’s purchased several security guard companies in the United States, Mexico, and Great Britain. Moreover, the company began to diversify its interests, providing clients with investigative services for workers’ compensation cases and background checks on prospective employees. Although plans were underway during this time for branching out into the electronic alarm systems business, this idea was soon abandoned in order to cut expenses.

By September of 1991 Pinkerton’s was projecting a growth rate of 25 percent for the following year. However, in June of 1992, after selling 48,000 shares of stock reportedly worth $1.26 million, the company acknowledged that earnings had fallen significantly below expectations. During the first half of 1992, the company’s operating expenses increased 36 percent to $24.4 million, while its earnings dropped 41 percent to $2.5 million. At that time, Robert J. Berger stepped aside as the company’s president, choosing to remain on the board of directors. Soon thereafter, upon learning that Berger and Wathen had sold some of their stock in the company just prior to the financial reports, a group of shareholders filed a lawsuit alleging that Wathen and Berger had deliberately misled investors in order to inflate the company’s stock prices.

Despite its legal entanglements, Pinkerton’s continued to generate new business, including an $8 million contract to provide security services to Hughes Aircraft Co. in 1992. Industry analysts noted that Hughes, like many other companies, preferred to contract with outside security companies due to the expenses associated with administering to in-house security staffs. By curtailing large acquisitions, consolidating its operations in a new headquarters in Encino, California, and relying chiefly on internal growth, Pinkerton’s stood to reduce operating expenses and retain its status as the nation’s leading security firm.