21 October 2014

Winds of exchange

02 November 2007  |  6805 views  |  0 Source: Gavin Holland, Heidrick & Struggles Gavin Holland

Gavin Holland of Heidrick & Struggles' Financial Services Practice assesses the leadership challenges facing global exchanges.

The exchange industry (inclusive of the broader clearing space) is in the midst of the most significant period of change in its history. Many of the exchange leaders we speak to confess, behind closed doors, that they have no idea what the industry will look like in 18-months’ time. While some see this as an opportunity, others feel very uncomfortable about this lack of clarity about future outcomes.

There is, however, a consensus that increasing competition is inevitable, that the leadership competency model is changing quickly and that Boards of Exchanges need to carefully consider what blending of C-level executives will add most value to their business. Failure to do this could leave firms with leaders that lack the necessary strength and diversity to respond to increasing competition, and may result in the company becoming a takeover target.

Over the past few months we have surveyed executives from around the world on the current state of the industry and their future concerns. Three clear viewpoints emerged: first, that the recent increase in M&A activity among exchanges is the beginning of a new period of consolidation; second, that regulatory changes such as MiFiD and RegNMS have created cross-border opportunities and dramatically increased the potential for competition; and third, that the licensing of technology and alliances will increase as protect and grow strategies are used as a defence against aggressive competition.

These developments are propelling us into a new era. However, executives in the major exchanges around the world have long led a sheltered life with little real competition and limited movement of talent. A review of the leadership of the world’s major exchanges reveals a significant percentage of senior management who have been with the same company for their entire career. This is not to imply that longevity is necessarily bad, nor that that these individuals are of no value. Quite the opposite, in fact: these are the people who need to work side-by-side with newly-injected leadership talent to form a powerful team of executives with complementary skills and experiences.

But there is a clear need for companies to refocus the talent profile in their hiring strategies in order to adapt better to the changing times. There are a number of competencies that will almost certainly prevail in the new world. These include the ability to drive and embrace change, being comfortable with ambiguity, operating across borders with different cultures and being prepared to innovate and challenge existing structures. In addition, the new breed of executive will need to successfully drive an agenda across complex sets of stakeholders, build key networks and alliances, have the ability to analyse data quickly and make informed decisions at pace, and possess the vision to lead from the front.

Some of these new leaders might be found inside the broader financial services industries, for example executives working in successful banks or the electronic execution businesses within investment banks. Also of potential interest are executives who have prior experience of defending incumbent businesses, previous success as a new entrant (the poacher turned gamekeeper), process reengineering skills from the manufacturing industries and those who have experience of driving significant technology transformation programmes. The recent decision by Project Turquoise, the new trading platform designed to compete with Europe’s stock exchanges, to appoint Morgan Stanley’s head of electronic trading Eli Lederman as its CEO is an example of just such an appointment. Similar hires will inevitably follow.

Getting into the right mindset is essential. A good starting point is to assume that your business is under threat and begin building a new leadership competency framework to combat this threat. You must then use the model to assess your current leadership team and where there are gaps, devise a recruitment strategy that analyses in detail where the most logical talent for your business could be sourced from and cast the net wide to create a funnel for talent from all logical sources across a variety of industries. Don’t forget that the old model of leadership competencies is far from irrelevant – the key to success is balancing the old with the new to create a powerful team. Spend time on the process of on-boarding new hires and integrating them with the existing leadership team – a lack of attention here could result in a catastrophic breakdown in the effectiveness of your new team.

Winning is about picking the best (diverse) team and creating an environment of mutual trust and respect within an organisation so that the total contribution is much higher than the sum of the individual capabilities. Brace yourself and your company for the rollercoaster ride and assume that the names of the key industry players will be dramatically different to the current roll-call. To ensure that your company stays at the top you must embrace the change, assess your talent and then recruit complementary skills to create the winning team.

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