Think at London Business School: fresh ideas and opinions from LBS faculty and other experts direct to your inbox
Think at London Business School: fresh ideas and opinions from LBS faculty and other experts direct to your inbox
Chris Gibson-Smith, chairman of the London Stock Exchange and British Land offers a unique perspective into the role of business in society and in creating wealth: “Business is a team-based enterprise; there are no exceptions.”
Experience and training prepare business leaders for many eventualities. Not all, though. Imagine if an encampment of anti-capitalism protestors appeared overnight outside your headquarters and your organisation was the focus of their wrath. Imagine if you faced five hostile takeovers in six years. And, finally, imagine if the work of your organisation was at a unique intersection between technology, high finance, politics, global regulation and the world’s economic crisis.
These have been just some of the experiences of Chris Gibson-Smith over recent years. The chairman of the London Stock Exchange since 2003, he is also chairman of British Land, Europe’s second largest property group.
Some people interpret the role of chairman as a more sedate role, a world of diplomacy set apart from the action-focused hurly burly of executive leadership. Despite the well-heeled splendour of his two offices – on the seventh floor overlooking Paternoster Square at the London Stock Exchange and close to Hyde Park with British Land – Chris Gibson-Smith takes a more robust view. Indeed, his views are as robust as they are wide ranging and well informed.
He believes that business needs to have a voice and that traditionally businesspeople, in the UK at least, have been overly polite to politicians. “We’ve actually understood for thousands of years how to organise complex societies, and now we seem to have forgotten, through taking it for granted,” he laments. “The foundation of our modern complex society is not politics; it’s administration. Politics’ role should be 10 per cent and administration should be 90 per cent. Administrators need to be superb, because society after society collapses through bureaucratic failure as they reach unsustainable levels of complexity. We’re at that point and the way we use politics at the moment is accelerating the likelihood of failure.”
Gibson-Smith points to the Chinese separation of the political and administrative through having a Premier and a Prime Minister – “In its heyday, Confucianism was one of the great examples of exemplary bureaucracy”. It is also interesting that when the going gets tough, governments often turn to steady administrators rather than charismatic presidential figures – for example, Mario Monti being brought in as the Italian bureaucrat-turned-saviour.
Gibson-Smith spent more than thirty years working with one of the administrative giants of the modern corporate world: BP. He joined the oil company in 1971 armed with a degree in geology from Durham and a PhD in geochemistry from Newcastle.
His thirty years with BP followed the career template of the times, a heady mix of international assignments (sixteen job moves) and rapidly rising responsibilities. He became BP Group’s youngest chief geologist aged just 36. “The scale of the challenges available to you just got bigger all the time,” he recalls. “I had 300 or 400 scientists and 150 PhDs working for me, with an exploration budget of $1 billion a year.”
For the scientist this was nirvana. With its focus on continual career development, BP set about moving Gibson-Smith into the world of management. He did an MBA at Stanford as preparation for the switch. “At BP you had to learn the language of geophysics, or the language of petroleum engineering, or the language of construction engineering, and that required formal education. And then you had to learn the language of strategy in-between,” he says. “Studying for an MBA changed my life. It introduced me to the awesome wonder of business knowledge, and it made it possible for me to walk away from a much purer science existence into a business existence.”
Armed with his new knowledge, Gibson-Smith returned to run the company’s North American exploration and production business. Eventually, he became one of the company’s five group managing directors reporting to the CEO, John Browne.
Gibson-Smith left BP in 2001. From the career cauldron, he headed to a political minefield in the shape of the privatisation of the UK’s air traffic control system under the Labour government. He served four years as chairman of National Air Traffic Services sorting out what had been a particularly messy privatisation. “It was bankrupt when I arrived and the bankers wouldn’t believe it. So a week after I took over, 9/11 happened, transatlantic traffic fell 15 per cent, and then it was formally bankrupt! It probably took four times longer to fix than if we’d simply been dealing with a business system rather than a political system.”
Even so, he reflects that frustration was offset by fascination at what it took to make things happen outside the corporate world. “It required more invention and persuasion than I’d ever had to employ before in my life. And it got done.”
The career move from day-to-day executive leadership to becoming a chairman is a classically difficult one. Great CEOs can become interfering chairmen. With limited time – Gibson-Smith splits his energies between the London Stock Exchange and British Land with two days each – and a very different sort of power, the chairman’s role is not for everyone. (Influencing is also a full-time job, he points out. “You’re present seven days a week in your head, so you’re telephoning, talking, emailing, thinking, reading seven days a week.”)
To Gibson-Smith experience is the foundation: “I couldn’t comprehend being a business chairman without a complete grasp of business, so that you look at what’s happening with total comprehension, you can gather the data flows, you can look at the accounts, you have it all at your fingertips with the level of insight that comes from 40 years of experience.”
But, if experience is essential, it is still a very different role. “What you’re not doing any more is the daily drive of leading the team in the very heavy lifting and detailed work. The chairman’s role is wonderful at the end of many decades of doing the heavy lifting yourself, because it’s more contemplative, it’s more purely thoughtful, and it has a longer wavelength because you’re influencing the performance of a 250-year old company through other people. Where your input is overwhelmingly influence rather than overt leadership is so interesting. The choice of your chief executive is your primary weapon and I have two chief executives –Xavier Rolet at the London Stock Exchange and Chris Grigg at British Land -- whom I respect and admire, who have extraordinary backgrounds and with whom I really enjoy working. Now that seems to me the secret of happy chairmanship.”
Pushed to describe his chairing style, Gibson-Smith defines it as “incisive collegiality” – “It’s about aligned, cooperative, team-based examination of the issues and challenges in which I have no wish to take away the leadership role of the chief executive. So they get that collegiality from me, but they get it in the context of my business capability.”
As chairman of the London Stock Exchange, Gibson-Smith has had an event-filled nine years. He reflects that fighting five hostile takeovers in six years is probably one of those records that will, like Bob Beamon’s long jump, last a long time.
One of the primary methods of defence against the complex incursions of Nasdaq and others was faith in mathematics. “I’d like to think we did the hostile defences very well,” says Gibson-Smith. “They were based on a piece of mathematics. We’d modelled the growth in trading volumes and discovered that it was logarithmic. And we wrote an equation to fit the past three years’ data in 2003 which predicted the forward volumes on a half-yearly basis to within plus or minus two per cent for the next seven years; a brilliant piece of mathematics. And that equation meant that we knew where we were going to be in nine months’ time and that our volumes were growing exponentially. All the bidders underestimated that.
“So, interestingly, that equation was the basis for our defence, and we were right. Our shareholders stayed with us because the volumes were where we said they would be. The bids failed to take account of where the volumes would be in nine months’ time when the vote was taken.”
Defending yourself against hostile bids is, of course, draining work. “You just have to work very hard. So every day starts with a Defence Committee meeting with your bankers, your primary team, and you decide the strategic and tactical actions for the day, but you do it every day throughout the defence.”
While the London Stock Exchange was fighting off unwanted attention, it had also to take care of day-to-day business, including its merger with Borsa Italiana in 2007. Here, also, there was a great deal of work to do, says Gibson-Smith. “It was a very different challenge from anything I’d done before. It was a company that needed sorting out and had so much to do; we’re actually still engaged in that, which is why we’re in such a deal-making fervour at the moment. It’s a completely transformed institution from when I arrived, in its capabilities, outlooks and aspirations.”
He anticipates that the “revolutionary pace” of change will continue – “We’re on a surfboard and we’re somewhere in Hawaii in the big wave season – that is how I think about it”.
It is perhaps just as well that Chris Gibson-Smith is a keen student of history, the broad sweep of evolution and revolutions. He argues that the invention of the joint stock company was a major historical event in that the ability to share risk among unrelated people made possible participation in wealth creation. The ability of joint stock companies to take on risk – and make fortunes – was something that family companies simply couldn’t do. A glorious adventure to swap British wool for Russian furs only had to go wrong once and they were finished.
This sense of liberating wealth creation is something which he believes remains central to the Exchange’s role. But there is also a broader perspective, he explains. “Business is the wealth-creating vehicle for society. Wealth creation is no more than doing things for each other. I may be producing iron ore, or I may be serving a table, but they only work if I’m doing them for the wider community. We’ve invented the system of money which measures the value of the contribution that’s being made, but all that contribution is about my doing something for you. And so to not understand that business is the vehicle through which this gets done most and best and most efficiently is not to see the profound role that it has in any society.”
History is also an intriguing element at Gibson-Smith’s other major role at British Land. It is a business with a fascinating history and a very different and challenging present.
British Land was set up in 1856 by three Liberal MPs in an effort to expand the right to vote. It was created as a company holding land which was then sold in penny shares. This meant that if you bought a penny share you were effectively a land owner and could vote. It played a significant part in broadening the franchise in Britain which saw the number of voters increase from a mere 366,000 in 1831 to nearly eight million in 1885.
Today, British Land owns 27 million square feet of retail space as part of a £10 billion property portfolio. Its properties include Sheffield’s Meadowhall Shopping Centre, Debenham’s in London’s Oxford Street, and the Broadgate office estate around Liverpool Street station.
The British Land portfolio seems a long way from BP or the London Stock Exchange. Retailing is a fast and sexy world. “But it’s an interesting world, isn’t it?” responds Gibson-Smith. “The beauty of business is that it’s all very difficult, that it’s all phenomenally competitive, and it isn’t true that this is either more interesting or more beautiful than that. They’re all incredibly interesting. But can you get your brain around it and be right?
“The technical challenges of running property effectively are enormous, and most people don’t see that. The business of putting up buildings is a naturally complex business, but more property companies go bust than any other form of large company because people don’t understand the complexity of the interaction between the macroeconomy and the valuation of property.”
Unfashionably, for the moment at least, Gibson-Smith is a passionate European. This, he explains, is “the legacy of much of my life not being spent in the United Kingdom, so I’ve had a lot of time with other people and other cultures. When you find yourself working with Germans, Spaniards and Italians, and you’re also reading their literature and listening to their music, you can’t but realise there’s nothing special about us in relation to them. But at the same time, if you look at our contribution to the total culture of Europe, we’ve made an important contribution, so we absolutely are part of it”.
He laments British ambivalence towards Europe. “The British have left themselves out of the vision that Europe represents. The French and the Germans actually came out of the Second World War with quite remarkable visions of how to generate peace and prosperity for Europe in the future, and the British didn’t. So we didn’t participate in probably the single most important constructive political act of the 20th century -- the formation of the European Union. The British still don’t begin to understand it, so we’re talking about marginal issues while the biggest block of wealth and prosperity for 550 million people that one could imagine has been created.”
Perhaps Gibson-Smith has missed a political calling. He laughs and gives this short-shrift: “Politics is defined, overwhelmingly, by party politics, and I have no interest in party politics whatsoever.” Instead, the scientist has become enraptured by the human side of enterprise. “Business adds the human dimension without which the data and the science go nowhere; and that’s what I think is so interesting and magical about it.”
Impossibly entrepreneurial: The way in which business is carried on must be part of the solution, but we have quite deeply institutionalised barriers to high performance. The United Kingdom government is the only one in the western world that taxes equity capital four times. That single thing institutionalises the almost impossibility of entrepreneurial behaviour as the foundation of new wealth in our society.
Stale blue: The wealth generated by globalisation is not reaching the bottom 50 per cent of our society. It stopped in America 30 years ago; there has been no increase in the real wages of blue-collar American workers for 30 years; that is now true for the last ten years for the United Kingdom. And the origins of that are systemic and profound, and the forces generating it are very difficult to deal with.
Working challenges: The bottom half of our society is failing to compete with the top half of the emerging world. They’re failing to compete with technology; technology doesn’t enhance these people, it replaces them. The advent of women into the workforce in the United Kingdom has largely been the substitution of male jobs for female jobs, so we’re even in competition with each other. And then the rise of labour migration in Europe has let in vastly better educated people from Eastern Europe into this country to do service jobs. There are no short-term solutions.
Job satisfaction: I get inordinate pleasure out of being a businessman; it’s more satisfying than almost one can describe to friends who are not businessmen. I have five-year test-points. My next test will be at 70. The test is: Am I still really enjoying it? Am I still actually making a difference?
Carrots and sticks: Making money is a consequence of my amused participation. I have followed my curiosity more than my ambition. And I think that’s a more winding trail.
What you know: You can’t be a modern businessman without profound grounding: grounding in strategic thinking, accounting principles, finance, macroeconomics, microeconomics, human behaviour, organisational behaviour. You shouldn’t wait to acquire it by accident.
The wisdom of teams: Business is a team-based enterprise; there are almost no exceptions. The combined brain is a bigger brain than the individual brain. There is almost no problem that is not better solved by engaging a group of the right sort of people with the right skills in the solution harmoniously.
Questions and answers: I think the questions you ask are always the most difficult thing; answering the question is somehow easy if you’ve found the right question. There are 100 wrong questions for you to grab onto and completely waste your time with, but if at the beginning you can find the right question…
Bedside reading: I read all the time, up to ten books at a time. I have two wonderful books at the moment. One is by John Keane, The Life and Death of Democracy; every citizen should be required to read that. And there’s another by a Stanford professor called Ian Morris, who’s a historian and archaeologist, called Why the West Rules (For Now), which looks at the totality of our historic developments since the end of the Ice Age and what’s happened. It is the most wonderful description of how society has evolved and emerged and what the issues are associated with them.
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