CEO, CAUGHT BETWEEN EX-CHAIRMEN, QUITS AFTER TWO YEARS: MAKING IT WORK AT MERC NO CINCH

Job opening: CEO to lead fractured organization. Political skills a must. Position could evaporate through consolidation. Predecessor lasted two years. Two former chairmen will be looking over your shoulder. Pay may not be commensurate with challenge.

Not to be left out of its industry’s tumult, the Chicago Mercantile Exchange late last month witnessed the abrupt resignation of its president and CEO — a move that reflects organizational and technological pressures on the business.

In just a month’s time, each of Chicago’s major futures exchanges has been rocked by either a failed merger agreement, a protest candidate who became chairman or a sudden vacancy at the highest staff level.

The Merc’s T. Eric “Rick” Kilcollin quit, he says, after crafting a strategic plan that positions the exchange to grow “in the extremely dynamic risk-management business.”

Colleagues say he lacked the political savvy and appetite to deal with those dynamics.

“It’s a pure democracy, and democracies are difficult,” says Jack Sandner, a former Merc chairman and continuing power broker at the exchange. The conflict, he adds, frustrated former CEO William J. Brodsky, who left in 1996 to head the Chicago Board Options Exchange.

Merc leaders insist that internal friction has eased in the past two years, reflected by broad approval this month of electronic trading while pits are open.

Former chairman Leo Melamed, often at odds with Mr. Sandner, praises Mr. Kilcollin but says: “I don’t know his actual talent lies in leading a staff of a thousand people.”

Mr. Kilcollin was portrayed as closer to Mr. Melamed than to Mr. Sandner. All parties deny it, but his exit points to the behind-the-scenes string-pulling — often at cross-purposes — of the former chairmen.

Says one exchange leader: “These institutions are difficult places to work. Stockholders live in the building — it’s not like a normal corporation. It may appear so to outsiders.”

Like the Ph.D. economist he is, Mr. Kilcollin acknowledges that he doesn’t have a “comparative advantage” in running a political organization. And while ticking off his accomplishments, he allows, “I don’t want to say that everything is hunky-dory and the industry is static.”

former colleague `shocked’

Still, news of Mr. Kilcollin’s withdrawal shocked one former colleague. “I thought he was doing a fine job and I’m at loss…” says John P. Davidson III, a Morgan Stanley & Co. managing director, who was a senior-vice president responsible for the clearinghouse division at the Merc for 10 years until 1993.

At 49, Mr. Kilcollin has eye on a more entrepreneurial venture in Chicago, all but ruling him out for one job for which he has been rumored, chairman of the Commodity Futures Trading Commission.

Mr. Sandner says the Merc is all but certain to hire an outsider as a successor. That won’t be a snap.

Says executive recruiter Peter Crist: “The challenge for the person is to create a consensus between the disparate groups.”

M. Scott Gordon, who became chairman as a compromise candidate in January 1998, says Mr. Kilcollin’s departure will neither speed nor retard the next stage of the Merc’s plan: finding potential partners among technology providers and other exchanges.

Any outright mergers with other exchanges — say, the Chicago Board of Trade — would have to wait on such joint ventures. “We are clearly looking at various alliance partners, to increase our product breadth,” says Mr. Kilcollin.

Coupled with considerations to convert the Merc to a for-profit, corporate structure, the initiatives are changing the job description of the CEO, bringing it more in line with the challenges confronted at a publicly traded company.

“I wanted to see the exchange having a top-notch staff, which it does, a very stable and strong financial position, which we do, and, most importantly, a strategic plan,” he says. “That really was the last piece of that where I felt I could add value.”

A former COO at the exchange, he was elevated from executive vice president for business development in February 1997 after Mr. Brodsky’s resignation. He had returned the previous March from a stint at Wells Fargo Nikko Investment Advisors. As CEO, he “sort of disenfranchised himself from the politics,” as Mr. Sandner puts it.

In contrast, Mr. Kilcollin’s counterpart at the board of trade, Thomas R. Donovan, a former aide to Mayor Richard J. Daley, is political to the bone. Two weeks after Peter Fitzgerald unseated Sen. Carol Moseley-Braun, Mr. Donovan, though a supporter of his opponent, paraded him around the exchange’s floor.

“The landscape is changing so rapidly,” concludes Nobel laureate Merton H. Miller, an outside Merc director and emeritus professor of finance at the University of Chicago. “You don’t want just a gladhander. That’s not what we need.”

Crain News Service