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What a horlicks. Xavier Rolet, the most brilliant chief executive of the London Stock Exchange that the City has seen for a generation, has been banished. One of the UK’s most highly respected businessmen – Donald Brydon – is fighting to hold on to his job as chairman but looks set to leave the LSE well before his 2019 deadline.
And Sir Christopher Hohn, the activist hedge fund manager and LSE shareholder, who triggered the corporate meltdown with his demands for Rolet to be reinstated as chief executive, and for Brydon to be sacked, has egg on his face too. For Hohn has achieved precisely the opposite of what he had hoped for: the Frenchman has been summarily executed while Brydon stays on to live another day. For now at least.
Only Mark Carney, the Governor of the Bank of England, has emerged from this ongoing fiasco with some street cred having earlier this week week arched his eyebrows to say the exchange’s leadership had to be cleared up ‘as soon as possible.’
That was ‘Bankspeak’ for sort out the mess. Within 24 hours, Rolet had been sacked, and unusually, announced he would never return.
In truth, the Governor’s eyebrows came too late: the damage to the LSE’s reputation has been allowed to grow ever since Hohn’s TCI group made its demand for an extraordinary meeting due to have been held this week. Hohn, who has 5% of the LSE’s shares, wanted to stop Rolet from leaving next December – a date supposedly mutually agreed between him and the board. It’s only after Hohn’s intervention that questions were raised over whether Brydon had infact forced Rolet to step down next year against his will.
To get Rolet back on board, Hohn had demanded the extraordinary meeting to rehire Rolet and for Brydon to go. Hohn’s reasons for doing so were solid ones: Rolet was too good to lose, and Brydon had been a fool to let him go so soon.
It’s a sorry tale, not just for Rolet to be quitting under such a cloud having had such a superb run over the last eight and a half years. It was well-known that the French genius – and he is one of the few businessmen I have come across for whom that description is not over the top – was difficult to work with. So you can see why Rolet’s arrogance was a price worth paying for his brilliance as a corporate strategist having turned the LSE from a second division regional stock exchange player, worth £800m when he joined, into a global colossus valued at £13bn.
Interviewing the former Dakar rally driver was always a joy, if not a little crazy. He’s erudite and has a restless energy which I once described tongue in cheek as not being dissimilar to that shown by Lucy in Luc Besson’s sci-fi movie. Like the drugged heroine, Rolet demonstrated super powers, knew everything about everything and, perhaps tellingly, liked to tell people so.
Yet the last few weeks of chicanery – on all sides – rather suggests he was not first in class when it came to his own career. Most tellingly, it was bizarre that Rolet never commented publicly on Hohn’s campaign to have him stay, which to the outside world made it seem as though he were implicitly complicit with a shareholder revolt. This was not a good look for investors to see their CEO seemingly backing an activist against his own company.
In Rolet’s defence, it has been said that there was a gagging order on him which meant he could not make any comment about the manner of his agreed departure. Using the same defence, his critics claim that board papers will show why they did decide originally to defenestrate him and force him to move next year.
Whatever the truth – and we will only now when and if the board papers are released – Rolet’s latest campaign to stay on as king of the LSE was about as successful as Napoleon’s return from Elba. And his sacking was like being sent packing to Saint Helena.
If that’s an appropriate parallel, then what was Rolet’s Moscow? Well, that was the failed merger between the LSE and Deutsche Borse: his march on Frankfurt. As part of sweetening up his German counterparts to agree that the merged company be a UK plc – and headquartered in London – Rolet offered to give up his CEO role in favour of his younger competitor, DB’s Carsten Kengeter. That was a big price to pay, one that Rolet knew DB would warm to. And so they did: until Kengeter was investigated for insider dealing. Kengeter denies the allegations. He is leaving DB at the end of this year.
Once the merger, which would have turned the LSE/DB into one of the world’s biggest exchanges, was scuppered by the EU authorities, Rolet decided to stay on. But, for whatever reason, Brydon and the board did not agree and next December’s date was set.
Who is to blame for this unseemly mess? Critics say that Brydon should have insisted immediately after the merger failed that Rolet go as soon as an orderly succession plan was put in place. And he should never have allowed Hohn to get so far with his demands and so publicly criticise the exchange.
Nor should Brydon have allowed his consiglieri to have conducted such a damaging whispering campaign against Rolet which, frankly, does not put anybody in a good light. If Rolet was such an abrasive character, then Brydon as chairman should have acted more swiftly.
If Brydon wants to survive, he needs to have learnt from his mistakes. This meltdown could not have come at a worse time for the LSE, mainly because of the controversies surrounding euroclearing raised by Brexit. The LSE’s LCH Clearnet business is at the heart of the City’s relations with Europe – it handles around 90% of all of the continent’s derivative contracts, including the enormous interest rates swaps trades, and is vital to London’s role as Europe’s biggest financial centre. This is not only about self-interest – the vast volumes of transactions are a big revenue spinner.
More pertinently, the City’s reputation as being the deepest and most liquid market depends on it being well-run and well-regulated. Indeed, although Rolet was a big Remainer, he has been out fighting to keep euro-clearing in the City despite EU objections, arguing – and hopefully winning – the claims that the cost of capital for investors and corporates would soar if the London pool is lost.
What happens now? Luckily for the LSE, the exchange has David Warren, the finance director and a former Nasdaq executive, who has now taken over from Rolet until a new CEO is found. It would be smart for the exchange board to give Warren – who has worked with Rolet for five years and has been part of the master plan – the job immediately.
Of course, the board cannot give Warren the job under corporate governance etiquette without at least benchmarking other rival candidates. Yet at the same time, it’s unlikely that any big-hitter who might fill Rolet’s shoes, would take on such a job without knowing who the chairman is going to be.
So, this is an easy conundrum to solve. What the exchange needs now is continuity and stability: give Warren the job as CEO and find itself a new chairman – from the board. David Nish, former CEO of Standard Life, has rather good credentials. Bingo: two in one and the LSE can save a little on headhunter fees. The LSE needs stability right now. In normal times, this would be the perfect moment for a bidder such as the giant Intercontinental Exchange – ICE – to pounce. There are so many uncertainties over Brexit that this seems unlikely, for now. Or maybe not.
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Iain Martin and the team make sense of the news, providing commentary and analysis on the stories that matter in politics, geopolitics, economics and culture.