Magazine article Management Today

Inside Out

Magazine article Management Today

Inside Out

Article excerpt

The French have the best phrase to describe the tragi-comic goings-on at the London Stock Exchange: Grand Guignol. Somehow only the British stockbroking community could put on such an unedifying show of greed, disharmony and incompetence.

I suppose none of us should be surprised that this paradigm of pure capitalism is proving so inept at organising its affairs. Over the past two decades I have watched the Exchange botch almost every big strategic decision, from the development of settlement systems to the launch of trading platforms.

And it's no use laying the blame on its historic structure as a mutual. Apart from the fact that it is now a public company able to recruit the best talent that money and share options can buy, few mutuals have been quite so hopeless. Many of the Exchange's best customers, from Standard Life to Norwich Union, got along very nicely for many years as mutuals. And most of these have managed the transition to PLC status without becoming a laughing stock.

True, the Exchange's board got one thing right at the start of the year, when it decided that the status quo, with the LSE as an independent, national exchange, was unsustainable. Investors want to place their money in the best companies, wherever domiciled. They want their stock markets to offer the biggest choice of international stocks and shares, with the lowest transaction costs and the smallest risk of illiquidity.

To break free of its national boundaries, the LSE was able to mull two separate deals earlier this year. The merger with Nasdaq, the successful US market for growth stocks, had the quiet backing of the Treasury. Nasdaq had made a high-profile commitment -- supported by the chancellor, Gordon Brown -- to establish a European offshoot with headquarters in London.

But the US exchange lacked the funds and experience of European markets to setup Nasdaq Europe alone, and it had terrible difficulty finding a partner. The Stock Exchange was therefore in a strong position to dictate terms.

Unfortunately, its board, although attracted by the business logic of a Nasdaq link. thought negotiations would be interminable, due principally to the US market's convoluted ownership and decision-making structure. And Nasdaq was more interested then in a European joint venture than a full-scale merger. But plenty of senior City and government figures believe it could have been coaxed into the big deal.

However, the Exchange's board was seduced by Werner Seifert, chief executive of Deutsche Borse in Frankfurt, into an unshakable conviction that there was a once-in-a-lifetime opportunity to crunch the London and German exchanges together. …

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