The warning signs are when the chief executive comes to think that he (and it usually is a he) has made the company what it is, and should be allowed to continue in post unchallenged and for as long as he wants. When the chief executive gives the impression that the rules are for the little people, it is time for the board to tell him he has reached his sell-by date.
When a board does take such a momentous step, the shareholders must support it. Taking these tough decisions is the whole point of having a separate chairman and a board with a majority of strong, experienced independent non-executive directors.
Even then, it is hard for directors to summon up the nerve to confront a powerful chief executive. If they think that the whole decision may subsequently have to be explained in every last detail in public, many will shrink from taking the action.
That is a general point. The current London Stock Exchange case, where the chairman faces ousting at an extraordinary meeting called by an infuriated hedge fund, goes even further. The shareholder’s declared intention is to reverse a board decision, and that will arouse concerns well beyond the Square Mile.
It is not for me to say whether the desire to set limits on the conduct and tenure of chief executive Xavier Rolet lies at the heart of the current row at the Stock Exchange. But it is a possibility that should be considered, given that he expressed his willingness to step down at the time of the proposed merger with Deutsche Börse a year ago but there has been silence since that merger was blocked.
It is also possible that he might not take kindly to being pressed. A former colleague from his days at Lehman claimed, not without admiration, that “beneath that Gallic charm lay a classic French autocrat”, and it is common knowledge that the three-month hand-over in 2009 when Rolet picked up the reins from departing chief Clara Furse had its share of storms.
More pertinent, however — though surprisingly little-known outside the closed inner circle of the City — is that Rolet’s relationship with former chairman Chris Gibson-Smith had degenerated by the end of the latter’s tenure to the point where they were barely on speaking terms. Investment banker Simon Robey even accompanied both to Rolet’s house in France for a few days, specifically to engineer a reconciliation. It is instructive that he failed.
This can, of course, be dismissed for the corporate tittle-tattle it undoubtedly is. However, it does not affect the bigger principle that if shareholders want boards to have the courage to take tough decisions, they should not second-guess them when they do.
In this particular case, TCI — the hedge fund concerned — and its hard-driving principal Sir Christopher Hohn seem also not to understand that even if they win, they will lose.
The London Stock Exchange group controls the exchanges here and in Italy plus the systemically important LCH.Clearnet. Because of this, it comes under the watchful eye of both the Financial Conduct Authority and the Bank of England. However grateful these organisations may be for what Rolet has achieved — and they should be — it is inconceivable that they would support his open-ended restoration to power, given what has transpired.
Neither the FCA nor the Bank would want the world to gain the impression that the fate of such a systemically important financial institution could be determined in this way. Imagine the consequences for a post-Brexit Britain if it appeared that the strings of the country’s financial regulators were pulled by hedge funds. It is not going to happen.
It is also worth reminding ourselves finally that Rolet did already announce his planned departure a year ago to help facilitate the proposed merger with Deutsche Börse. People were relaxed about his leaving then, so it is doubly unfortunate that it should cause all this fuss now — particularly as it had no impact on the share price.
As a rule, when emotions triumph over reason, it seldom delivers good outcomes. This case seems no different.
