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19 June 2013

The race to replace Martin Abbott

The upcoming few months of rumour, speculation and guesswork will be interesting for LME-watchers, as time moves on inexorably towards Martin Abbott’s departure from his ceo role.

What sort of person will they seek? Will they go for an outsider or an internal candidate?

If, as one might suspect, part of the reason for Abbott’s decision was the changed emphasis of the job now that the new owners are firmly in charge, what will the job specification look like?

For me, the most intriguing issue will be the insight offered into the thinking behind the LME’s positioning.

Up until now, it has been part of the non-ferrous metal industry, and ceos (or their predecessors under a different title) have largely, although not exclusively – think airline executives – come from a background in that industry in some way or another.

That has been pretty obvious. Previously, the LME effectively existed as a sort of club, with its purpose being the facilitation of business for its members.

The ceo was not so much responsible for P and L as he was for creating and maintaining the right atmosphere for members to operate.

It was all very straightforward. The ceo’s role was to manage the expectations of members, ensure the exchange complied with regulatory requirements and keep the exchange's profile high in the industry.

Now, though, the requirements are a bit different.

All those things still apply, but additionally there is the requirement to make a profit – not a ‘constrained profit’, working to keep members’ fees low(ish), but an actual, commercial-world, return-to-shareholders profit.

Change of emphasis

I think that is a fundamental change and it moves the LME from being a part of the non-ferrous industry to being a part of the exchange-running industry.

I am not going to talk about the way that may change life for market users – I’ve done that before, and I’m sure I’ll do it again – but in the context of Abbott’s replacement, it does have implications.

It would be entirely logical for HKEx to appoint a new ceo, either from within their own pool of talent, or from outside, who has no experience of non-ferrous metals, but who is an expert in running exchanges.

After all, the shareholders’ requirement is to see the acquisition pay for itself, which means smooth running, integration into the HKEx platforms to reduce costs, the widest possible dissemination of the electronic platform and so on.

Of course, these are all laudable aims and have no doubt largely been followed by the current management. The emphasis is different, however, which is why it is conceivable that Abbott’s successor may have more knowledge of the technical aspects of exchange operations than of the interaction with the core customer base.

On the other hand, it may be that this would be trying to take too big a step. Perhaps the thinking will be to keep one foot in both camps, as it were.

There are still market users – particularly among the small and medium-sized market participants – who retain a degree of scepticism towards the ownership change. To ease the whole customer base smoothly into the new world, it may make sense to install a (possibly short-term) executive from a metals background to facilitate the transition.

Abbott has done the task of seeing the takeover through, but the next task is one of integration, which needs to take the membership and users along with it.

That could very well be more easily achieved by a figure familiar to the business, and let’s face it, there are lots of people out there who could fulfil that role.

Of course, the ideal solution may be a combination of the two; a technocrat – who may well already be within HKEx or indeed the LME itself – to ensure the business of the exchange moves in the right direction, combined with a familiar figure to make sure that the non-ferrous industry goes with it.

And I’m sure that sorting out the relevant titles would be straightforward enough.

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