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Man at the Merc

The last business book he read was about the Enron disaster - which might go some way to explaining how Craig Donahue, CEO at the ...

By Anthony Landale 01 June 2006

The last business book he read was about the Enron disaster - which might go some way to explaining how Craig Donahue, CEO at the Chicago Mercantile Exchange, stays alert to the pitfalls which often accompany major change initiatives. Here Anthony Landale reports on the roaring trade at the Merc.Man at the MercHowever comfortable you might be with big numbers, $638 trillion takes a bit of kicking around. It’s more than ten times the size of the gross domestic product of the United States and it also happens to be the underlying value of the billion plus contracts that the Chicago Mercantile Exchange (CME) traded last year. Pretty good for an organisation that started out dealing in butter and eggs.

Today the Merc, as it is also known, is the world’s largest financial exchange, and it continues to outperform its competition. When you want to bet on interest rates, commodities, future market index moves or even the weather the Merc, it appears, is the place to go.

The man who is currently riding the wave at CME, and who has been credited as being behind much of its transformation, is CEO, Craig Donohue.

Donohue joined the organisation in 1989 as a staff attorney and has been a classic fast tracker with a range of executive roles including running business development. Now in the top job he suggests that the Merc’s current success is underpinned by innovation.

In brief, what Donohue and CME have pulled off is to achieve remarkable growth at the same time as transforming itself; moving from a mutual organisation, where it was owned and run by trading members, to being a publicly traded company. And the innovation that has provided the necessary acceleration and glue during this transition has been technology – most notably its Globex trading platform.


Volume and metamorphosis


Of course CME was investing heavily in information systems long before Donohue took the helm – but whereas a few years ago it was reported that customers were griping about service and complaining about outdated technology now its platform is seen as one of the fastest and most reliable around.

So how has this been achieved?

A part of Donohue’s success has been to make his technology department responsible for the systems that allow traders to trade faster and with an increasingly diverse range of products. Along the way, confidence has been boosted by a major systems upgrade that has slashed response times and also by the market’s increasing acceptance of automated trading systems. But at the same time Donohue has backed his judgment and now employs five times as many technologists as were engaged just a few years ago. Combine all these factors and they go a long way to explaining last year’s 33 per cent increase in volume and the quintupling of trade compared to 2000.

“The metamorphosis in this enterprise hasn’t only been achieved by the way we have applied technology. We have also been through a radical culture change – and steering the company through demutualisation and taking it public has required a major restructure,” says Donohue. “It has meant we have had to evolve our skill sets and become much more entrepreneurial.”

Such change is never pain free. During the transition some employees, as the current euphemism goes, “had to be offered to industry” while others had to be retrained. However, the clear and unequivocal message from the top was to ensure that people understood the real challenges that the organisation faced and to get clear that change wasn’t an option, it was essential to their survival. No longer does the Merc look slow and vulnerable. Today, it is the exchange that everyone wants to emulate.


Rewarding behaviour


Complementing Donohue’s focus on IT systems is also a welcome emphasis on working through his people. And this not only shows up in wanting to hire the brightest and best but in his commitment to their development.

“As a leader I have to encourage innovative thinking and I really enjoy helping bright people think beyond what is expedient or obvious,” continues Donohue. “In business we have to come up with great solutions and I always challenge teams to come up with more than one answer to any of the problems they face. This is a very creative process and it helps people both to learn and to come up with better decisions.”

Donohue has a reputation as someone who enjoys pushing people to give of their best – so what happens when his people make a decision and it still goes awry? Surely in every entrepreneurial business failure is a necessary companion to success.

“Yes, we are careful and disciplined but we do have to take risks,” agrees Donohue, “and there has to be some failure. How I deal with this is to ensure that I reward behaviour and not just outcomes. It’s when people have been involved in a project that hasn’t worked out that you have to reach out. For example, I remember one merger and acquisition project where it just didn’t happen. We had a strong team and our professionalism was great and we just didn’t get the result we wanted. Leaders have to deal with such disappointments, learn from them and ensure that the learning people have gained is taken onto the next project.”

Learning is one of Donohue’s consistent leadership themes. As we all know, financial rewards and positional status may be motivating for awhile but most people want more than this. According to Donohue at CME people engage more when they are learning something valuable.

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