Home' Trinidad and Tobago Guardian : May 4th 2014 Contents MAY 4 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
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When Alexander the Great
was 33 years old, legend
goes, he wept because he
had no worlds left to con-
quer. He d overlooked one.
Alexander may have been
an unrivaled general but his
succession planning was
Asked on his deathbed who should rule in his wake, the
great conqueror supposedly answered, "the strongest." This
sort of woolly thinking drives business professors mad.
Before long, a power struggle caused the empire Alexander
had built to crumble.
Titans are hard to follow. Last year a modern-day Alexander
also faced the tricky problem of handing over a thriving
kingdom: Sir Alex Ferguson retired as the most successful
soccer coach in English history. In 26 years at the helm of
Manchester United, he won 13 Premier League titles and
two Champions League finals. On April 22 the outsider he
had recommended to replace him, David Moyes, formerly
of Everton, was given the boot. The team that had cantered
to success the year before is now languishing.
Others prefer to promote from within. Liverpool, United s
bitter rivals, conquered all in the 1970s and 1980s by pro-
moting managers from within their "boot room." In business
Ford Motors also is banking on the "boot room" model,
backing a trusted insider, Mark Fields, to continue the work
of Alan Mulally, one of the carmaker s most illustrious boss-
es.Then again, so did Tesco. In 2011 it chose Philip Clarke
as its new boss, from its own ranks. Clarke has faced derision
for failing to match the impossible standards of his pred-
ecessor. Sir Terry Leahy had turned the firm into Britain s
largest retailer, with a market share of better than 30 per
cent. Its recently announced annual profits of US$5.5 billion,
and 29-per cent market share, look shoddy in comparison.
Promoting from within a successful firm seems to make
sense, but may prove no better than looking outside. Julian
Birkinshaw of London Business School says that some dom-
inant CEOs, driven by ego, do not tolerate other alpha types
around them. When the time comes for them to go, therefore,
the insiders are too weak to step into the breach. Others
champion executives in their own image, regardless of
whether they will have the right skills for the future.
Management pundits say that succession planning is one
of a boss s most important jobs.
"The day you are appointed as a new CEO," says Michael
Useem of Wharton Business School in Philadelphia, "you
should start work on who will replace you."
Those who have bestrode their fiefs for decades often get
to decide their departure date. With an eye on their legacy,
they may choose the moment at which a firm reaches its
zenith. Successors, internal or external, must then manage
a reversion to the mean.
Those who replace corporate Titans face a conundrum.
If they are carbon copies of the big man, as Clarke seemed
to be, they risk being judged as pallid by comparison. Some
therefore strive to be as distinctive as possible. Reginald
Jones had already made General Electric a global giant before
handing it over to Jack Welch in 1981. Welch then stamped
his own neutronic personality on the firm by mercilessly
slashing bureaucracy, driving it to even greater heights.
Welch was determined not to be irreplaceable himself.
He identified three internal finalists to compete in a "bake-
off" to replace him, Useem says. The winner, Jeffrey Immelt,
at first was judged worthy of Welch s mantle, but his record
since then has lacked the same luster.
Whether Bill Gates at Microsoft or Lee Iacocca at Chrysler,
most companies ultimately find it impossible to replace
omnipotent bosses, Birkinshaw says.
Pity poor Manchester United.
@2014 The Economist Newspaper Ltd. Distributed by
the New York Times Syndicate
Chucking out the chosen one
Thin margins, tough regulations
and worries about reputation
make trading commodities
look like a source of worries,
not profits, for nervous bank
bosses. Barclays, one of the
biggest banks in the business, is the latest to
head for the exit.
Last week it announced that it would give up
most of its metal, crop and energy trading.
Barclays is following JP Morgan Chase, which
last month sold its physical-commodities divi-
sion to Mercuria, a private trading firm based
in Switzerland, and South Africa s Standard
Bank, which sold its London-based commodi-
ties unit to Industrial and Commercial Bank
of China in January.
In December Morgan Stanley sold its phys-
ical-oil-trading division to Rosneft, the Russian
oil giant, even as Deutsche Bank said that it
would stop trading most raw materials. Earlier
last year UBS decided to shrink its commodities
Others, notably Goldman Sachs, are staying
firmly in the business, and most banks are
still buying and selling for their clients. Returns
are weak, however. Commodity-trading rev-
enue for the 10 biggest banks was US$4.5
billion last year, down from more than US$14
billion in 2008, according to Coalition, a
That makes commodity-trading an ineffi-
cient use of capital at a time when other mar-
kets, such as equities, are booming. Margins
are scanty, particularly in oil, where prices are
Shipping natural resources around the world
ties up a great deal of money, and profitability
comes from using ships, terminals and ware-
houses efficiently at every leg of the journey,
from mine to end-user.
Big, integrated trading houses are likely to
do that better than banks can.
Meanwhile the dangers are mounting. Com-
modities trading, especially when accompanied
by fancy derivatives, creates complex risks.
Regulators and some influential American sen-
ators worry about banks being in natural
resources at all. When highly indebted financial
institutions own big industrial assets, an indus-
trial accident may be a financial catastrophe
as well as an environmental one.
Perhaps more ominously, the Federal Reserve
and other oversight bodies suspect that temp-
tations arise when the same people are involved
in a physical market, and thus help to fix prices
there, while also trading derivatives based on
shifts in those prices.
Detecting whether private traders are engag-
ing in untoward antics is hard, but the author-
ities can, and do, pore over banks transac-
Another cost, and risk, is the network of
wily, well-informed human sources needed
to gain an edge in commodity trading. Reports
of port congestion and equipment breakdowns,
security problems, aerial photography---perhaps
clandestine---and weather forecasts all help
paint the fullest possible picture.
Such intelligence-gathering is not part of
banks core business and, when the information
comes from sketchy characters, perhaps with
payment involved, compliance officers and
regulators get twitchy. It all looks increasingly
unattractive, especially for managers whose
necks are being warmed by regulators breath.
As banks move out of commodities, others
are moving in. Hong Kong Exchanges and
Clearing, which used to focus on equities,
bought the London Metals Exchange in 2012.
Now it is planning to offer local futures con-
tracts for zinc, copper and nickel, in Chinese
renminbi, and for thermal coal in dollars.
Hong Kong may find it hard to compete
with the big, fast-growing mainland Chinese
commodities exchanges in Dalian, Shanghai
and Zhengzhou. Nonetheless, few doubt the
overall shift in power from West to East in
setting both prices and rules. Shanghai s Inter-
national Energy Exchange says that it will start
trading crude-oil futures this year. Similar
moves into other commodities are expected.
Asian customers recall with bitterness how
Western banks cut their credit lines during
the financial crisis, leaving them painfully
exposed; another mispriced risk in a business
which bankers are lining up to leave.
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Banks and commodity trading:
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