Blood on the floor at the Stock Exchange: how boardroom coup led to the sack of a reformer

John Willcock traces the conflict that opened a rift in one of the City's great institutions
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The Independent Online
When Michael Lawrence, chief executive of the Stock Exchange, woke up in his spacious detached house in Berkshire on Thursday, he had no inkling that this was to be a day that would change his life and provoke bitter accusations of skulduggery and in-fighting in the boardroom of one of the City's key institutions.

He prepared for the regular board meeting, which was scheduled for 11am. Thirty minutes before the 17 members of the 20-man board were to gather on the 23rd floor of the Stock Exchange Tower in Leadenhall Street, Lawrence was informed that there was to be a vote on whether he should be sacked as chief executive.

The meeting was opened by the Exchange chairman, John Kemp-Welch, the embodiment of blue-blooded City establishment. What followed had reverberations way beyond the confines of this boardroom and would affect the way shares are traded in London, and its position as a global financial centre.

Mr Kemp-Welch invited Mr Lawrence to rebut the criticism that he had lost the confidence of the Exchange's member firms. Mr Lawrence spoke for 10 minutes before he was asked to leave the room while a vote was taken. He never returned. The board voted by a majority to sack Mr Lawrence, just two years after his predecessor, Peter Rawlins, was given the push.

Mr Lawrence's "offence" was to force through far-reaching reforms which will bring the City of London's share-trading practices into line with those of New York and Tokyo. The changes would weaken entrenched institutions in the City, which prefer the old ways. The Exchange says that the proposals had nothing to do with it. Mr Kemp-Welch stated: "Michael had failed to win the confidence of member firms, both large and small, and his relationship with the board for some months had been unsatisfactory."

Mr Lawrence returned home and released a short statement: "There is a great team at the Exchange and a good programme for reform which will be rolled out in 1996. It is important that this programme goes ahead."

Mr Lawrence's reforms strike at the heart of City methodology. Uniquely, London preserves a system of quote-driven share trading. This involves firms of market makers posting offers to buy and sell shares on an electronic bulletin board, which in turn is used by stockbrokers to buy and sell shares.

Mr Lawrence believed this system did not guarantee the best price for institutions buying and selling shares. He also believed that the market makers at the heart of the system enjoyed too many privileges.

Mr Lawrence wanted to introduce the "order-driven" system. This proposal immediately raised the hackles of the main market makers, who represent the old City establishment: BZW, Kleinwort Benson, SBC Warburg and NatWest Markets. They became Mr Lawrence's main opponents.

On 13 November, Mr Lawrence issued a series of measures aimed at introducing the "order-driven" system; buyers would put in an order and the seller would then quote a price for the shares.

This was the last straw for the market makers, who made insistent threats that he should drop the reforms, or else they would get rid of him, despite the fact he had the support of other Exchange member firms.

This did not take Mr Lawrence by surprise.The reforms would make it easier for new competitors to enter the once-protected share-trading arena, and would cost the market makers jobs and profits.

A source close to Mr Lawrence said yesterday: "It's all about control. The Exchange is in a near-monopoly position, since you have to go through the market makers. Yet many firms now realise that market-making ties up capital without giving a decent return."

Michael Lawrence is no stranger to controversy, and clearly relishes taking on some of the City's big hitters. He has stirred up opposition from colleagues he considers intellectual inferiors. His own academic credentials are impressive; a first in Physics from Exeter Univertsity followed by a PhD in Mathematical Physics at Bristol.

He started his career as an accountant with Price Waterhouse in 1969. He joined the Prudential, one of Britain's biggest investment institutions, in 1988 as finance director, and was considering retirement before joining the Exchange. In the year to last March, he earned pounds 442,000.

He can now, in the time- honoured fashion, spend more time with his family; he is married with two sons and a daughter. And he can always cruise around the Berkshire countryside in the red Aston Martin he bought from the comedian Rowan Atkinson to celebrate his appointment to the job he departed in such acrimonious circumstances this week.

City crusader, page 17

MPs call for inquiry, page 18