Dismember the body now the head is gone

City & Business

THE Michael Lawrence affair is a bit like one of those Agatha Christie country house murders. It gradually unfolds that the victim was so widely loathed that suspicion falls on each and every one of the guests in the house. Everyone had some motive for inserting the pearl-handled dagger.

Mr Lawrence was chief executive of the Stock Exchange for only 23 months, but he accumulated enemies like Hercule Poirot collected clues. With hindsight, the only surprise was that he survived so long.

In the end, it appears that the actual deed was done by Lord Rockley, chairman of Kleinwort Benson, and Martin Owen, chief executive of NatWest Markets, who together went to see the Exchange's chairman John Kemp-Welch last month and demanded Mr Lawrence's head on a plate. But behind them stood a long queue of City folk only too anxious to see the blade go in.

As Mr Kemp-Welch, the Exchange's diplomatic chairman, put it, there was no single reason for Mr Lawrence's sacking, but "an accumulation of incidents". He refuses to go into details, but my soundings of City bigwigs elicit an easy half-dozen grouches against Mr Lawrence.

Black mark number one was his enthusiasm to introduce an order-driven dealing system; one that does away with the need for the market-makers or share wholesalers, the Exchange's most powerful and most entrenched members.

Black mark number two was his deteriorating relationship with the Bank of England over Crest, the move to electronic share registration. Exchange members were also furious about extra costs to them from dual reporting made necessary by the reforms.

Number three was the absurd row with ShareLink last autumn over its plans to introduce a rival share-dealing system on the Internet. The Exchange backed down eventually, but only after reaching the writ-flinging stage and looking very silly.

Number four? Mr Lawrence's decision to publish his letter to the Treasury after the generators' share sale last year, in which he came close to accusing the Government of issuing a false prospectus.

Number five? His agreement to modify the Yellow Book rules governing quoted companies in the wake of the Greenbury report on top pay. In effect, say his critics, he has taken on the burden of enforcing Greenbury.

His sixth black mark was less definable, but it was his inability to deal comfortably with the clubby ways of the City. He failed to consult the board before embarking on some of his more controversial plans. He was arrogant, say some, and preferred public confrontation to quiet negotiation behind closed doors. Even his failure to attend the former chairman's leaving party was considered a serious gaffe in some parts of the Square Mile.

He did some good things. The new junior stock market, the Alternative Investment Market, has got off to a good start. The move to five-day rolling settlement has gone smoothly. And for all the heel-digging of the market- makers, there has been progress on creating an order-driven dealing system.

The Exchange is already starting the hunt for a new chief executive. That is a mistake. The Lawrence saga has exposed the fault lines in this most cracked of institutions.

The Exchange is still trying to play the triple role of commercial organisation, City regulator and trade association - and that is trade association not just to a single species, but to an entire menagerie of competing animals, from small regional brokers to global investment banks.

Instead of advertising for a new head-keeper, Mr Kemp-Welch would do better to consider how to break up the zoo.

On the wrong track

AS we reveal elsewhere in this newspaper, the Government has opted to privatise Railtrack without retaining a "golden share" to protect it from foreign takeover, and to sell 100 per cent of the shares in one fell swoop. In theory, the entire railway infrastructure could within months be in the hands of a Lord Hanson or a Wisconsin Central - the American railroad company that snapped up the Royal Train last month.

Unlike British Gas, British Telecom or British Airports Authority, which were all privatised with golden shares, Railtrack is not considered of the same national or strategic importance. Of course, there is still some protection from takeover: any bid would have to be vetted by the regulator, Ofrail, and could be referred to the Monopolies and Mergers Commission.

The move will make it much harder for Labour to bring back Railtrack into public ownership. If only 51 per cent of the shares were sold, as was once mooted, it would not have been too costly to lift the Government's 49 per cent rump holding back to a controlling position. And anyway a golden share would have given it an ultimate power of veto over changes in ownership.

Now, however, unless Sir George Young, the Transport Secretary, has a last-minute change of heart, or unless the Government falls in the meantime, Railtrack will pass virtually irreversibly into private hands some time in May. A future Labour government could still compulsorily buy back the shares - though that is inconceivable under Tony Blair and anyway would be fought all the way to the European Court. It could mount a bid for the entire company under strict Takeover Panel rules, but that would mean paying a premium price and would still not be certain of success. That too seems highly unlikely.

The only certainty is that the taxpayer is getting a raw deal because of the politicking over Railtrack. If there is one lesson to be learnt from past privatisations, it is that the Government has consistently sold state assets too cheaply. By electing to sell Railtrack in one go, it cannot benefit from any subsequent increase in the Railtrack share price. Two-stage privatisations, like the sale of the electricity generators, produce a better deal for taxpayers.

Labour, meanwhile, is doing all it can to frighten potential shareholders from investing in Railtrack. Brian Wilson, its transport spokesman, said last week any such investment would be "irresponsible" and advised people to "steer clear" of the issue. That can only create uncertainty, deter investment and therefore lower the price the Exchequer gets for the business. There are better ways of attacking rail privatisation than throwing mud at what promises to be a solid investment.