A City crusader who lost the battle

Can the Stock Exchange survive the sacking of its chief executive? Jeremy Warner thinks not
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The Independent Online
Boardroom coups and sackings always make a good story, particularly when they involve an institution so resonant of public school and Establishment as the London Stock Exchange crushing an upstart grammar-school boy underfoot. The unceremonious sacking of Michael Lawrence as Stock Exchange chief executive may hold a deeper significance.

For a start, he is the second chief executive to be fired in less than three years; that normally indicates deep and unresolved crisis. Second, he may have been ejected because he had the arrogance and vision to embark on painful, but necessary reform. On the face of it, his story appears a classic of its type - the brave reformer and moderniser silenced and sent to the gallows by powerful vested interest.

With the pirate thrown overboard, where does the Stock Exchange go from here? Mr Lawrence fears it will become stuck in a bygone age with its business progressively eroded by more free-thinking foreign competitors. And who on earth would take on a job that two incumbents have admitted involves uniting such widely differing interests that it is pretty much impossible?

The official line is that Mr Lawrence had to go because he lost the confidence of his members. As far as it goes, this is undoubtedly true. By the end, Mr Lawrence was almost universally despised by the membership; his style and reforms had succeeded in alienating large and small firms alike. Mr Lawrence was a crusader; what was required was a diplomat. Politically, he was a complete innocent, his abrasive, often tactless approach inappropriate to an organisation that has always been more akin to a club than the business he appeared intent on making it.

Mr Lawrence was a chief executive with attitude - bolshy and determined. A background in accounting and life assurance combined with a boyish addiction to sports cars, aeroplanes and sailing boats. If there were toes to be trodden on, no matter. His view was that the Stock Exchange needed to be brought into the late 20th century and he was the man to do it.

Implement and then explain is a management style common enough in business, but in a club funded largely by its members failure to consult is a cardinal sin. Mr Lawrence denies it, but that's what members accuse him of. It doesn't matter how right you are. An inability to carry the shareholders, in this case the membership, is a management failing as serious as any. Some say a bunker-like mentality had developed by the end. This newspaper had direct experience of it. He thought us hostile and therefore refused all contact. We were obstructed, shut out and rubbished by him. No doubt we had given Mr Lawrence good cause for anger but his response to the problem - to refuse to explain what he was trying to do - is typical of the man.

If Mr Lawrence was politically inept, however, it is also true that he was engaged in a process of root and branch reform - some of it against the interests of the big battalions of the membership, who unwisely, he lambasted publicly. His ultimate downfall was plotted by a small cabal of powerful market-making firms, some of the biggest names in the City, NatWest, BZW and SBC Warburg among them. The coup de gras for Mr Lawrence was two recent initiatives which go to the heart of the Stock Exchange's search for a new role in a rapidly changing world.

The Stock Exchange is a broad church comprising many different interests and factions. Getting all parties to agree on anything has always required Herculean effort. Most member firms are as fiercely competitive with each other as rivals are in any business.

Some of the more powerful firms have long wondered whether there is any purpose in the Stock Exchange at all in today's deregulated electronic markets, other than as a professional body with policing, rule-making and promotional functions. To have a single organisation also control key information and trading systems might seem archaic and even monopolistic.

In any case, the Stock Exchange's record in establishing adequate information technology systems is not a good one. So mishandled and costly were its attempts to reconcile the differing interests of the City into a single automated share settlement system that eventually the task was assumed by the Bank of England.

In his search for a new purpose for the Stock Exchange, Mr Lawrence tried to turn it from club into business - a business that would not only compete with members in some of what it does but would also cost them money. Mr Lawrence wanted an organisation independent of its members, possibly with its own share quote, that would sell utility type financial services to the City. The big battalions of the Stock Exchange thought this anathema.

When he suggested that the Exchange should boost revenues by setting up in interdealer broking, a service already provided by members, pent up anger burst into the open. But it was his decision to push ahead with Continental-style trading systems that took the lid off events.

The current Stock Exchange system is "quote-driven", which means the big league market-making firms determine buy and sell prices for shares. The system in use over most of the Continent is "order-driven" - investors determine the prices at which they buy and sell.

The new system would not necessarily damage the profitability of the big firms, but it will involve a costly change of technology, the ultimate demise of the old way of doing things and probably a great many job losses. Mr Lawrence argued that it was, nonetheless, the way of the future. Given that it is cheaper for investors, he is probably right. Without it, London could lose its pre-eminent role in international share-trading. The trouble with an order-driven system, as the little European bourses have already shown, is that anyone with a good computer can do it. It certainly does not require the Stock Exchange.

The Stock Exchange insists it is going to push ahead with introduction of limited order-driven trading, regardless of Mr Lawrence's departure. Such reform may be too little, too late, however. One big firm is saying privately it has had enough and may soon quit the Exchange altogether. Fragmentation is all too likely to be the future for stock trading in London.