IT’S THE CHICAGO BOARD OF TRADING BARBS: SUPPOSEDLY SMOOTHED, POWER STRUGGLE SEEN BREAKING OUT ANEW

This was supposed to be a relatively upbeat season for the Chicago Board of Trade.

A power struggle between its chairman and president had been papered over. A long-awaited task force report on restructuring was due next month. And, despite last-minute snags, a promising agreement was in place for an electronic alliance with a European exchange.

Now, it’s clear, Chicago Board of Trade governance has devolved into an institution-threatening stalemate, with Chairman David P. Brennan and President and CEO Thomas R. Donovan as far apart as ever.

Seat prices have plunged, the restructuring task force is stymied and an unnerved Mr. Donovan, 62, worries about morale as he slashes budgets and staff.

One dismayed supporter of Mr. Brennan and fellow soybean trader, 17-year member Bruce Williams, says: “It’s really frustrating to see the (CBT) in this state. It’s really an embarrassment.”

Mr. Brennan’s backers and opponents alike worry that the 42-year-old novice chairman has not made the tricky transition from bean trader to corporate leader since his election last December.

Rejecting such portrayals, Mr. Brennan says a baseball in his office is there as a reminder to keep his eye on the ball. “I fully expect I am up to the task,” he adds.

Recently, however, the CBT’s fractious membership has presented new challenges for Mr. Brennan, reflecting deep divisions over how quickly the exchange and its trading pits need to adapt to the threat of computerized trading.

His peril is illustrated by his increasing political distance from his core constituency: independent traders who figure to be the least enthusiastic about change.

Asked about the probability that restructuring recommendations will be delayed until early next year, Mr. Brennan replies, “We don’t have anything to report yet. That should speak for itself.”

Critics charge that the chairman is not doing enough to educate his troops. Mr. Brennan counters that, “in some sense, yes,” he’s powerless to prevent members from advancing petitions aimed at embarrassing him and eroding the prestige, if not the power, of the CBT’s 27-member board of directors.

In the most recent flurry of petitions, directors rejected all but one, making likely a membership vote to override the board’s rulings.

Mr. Donovan tried to head off one ultimatum — that senior staff salaries be disclosed — by authorizing directors to divulge his pay ($1.4 million annually, he says). “While we do this, Rome is burning,” he fumes. “I’m watching the Board of Trade drift back rather than move forward.”

CBT staffers say Mr. Brennan is rarely seen on the executive floor — a statement he disputes. Mr. Donovan says Mr. Brennan is cordial in one-on-one meetings but rarely initiates them.

seat prices plunging

Manifesting these divisions and other problems, CBT seat prices have plunged more than 25% in the past couple of weeks, to $405,000 for a full membership; that’s less than half the historic peak in 1997 and lower for the first time since 1995 than corresponding values at the Chicago Mercantile Exchange.

Meanwhile, five top-tier investment banking firms, including Goldman Sachs & Co. and Salomon Smith Barney Inc., have rejected a chance to render advice on the CBT’s intent to convert from a membership-based organization to a for-profit corporation.

As a result, according to insiders, the CBT is left with two possibilities — Lehman Bros. Inc. and Merrill Lynch & Co. — whose appeal is diminished by a lack of exchange-related experience or by an existing relationship with a CBT competitor.

“It’s a tough time,” sighs Nicholas C. Zagotta, a grain trader and CBT director for nearly two years. “The membership needs to be aware of the fact that we’re having trouble hiring an investment banker to work on the conversion.”

In a letter to members last week, Mr. Brennan warned that these investment bankers, as well as management consultant A. T. Kearney Inc., have questioned the CBT’s long-term viability. “(K)eeping the status quo is not an option,” Mr. Brennan wrote.

At the same time, in a move that one board member says reveals the chairman’s lack of command, Mr. Brennan went on to solicit membership suggestions on how the CBT should be restructured.

Says Jacob J. Morowitz, president of the USA Trading division of First Options of Chicago, who is seeking the board’s No. 2 position (first vice-chairman) in December elections: “David has many good things to offer the exchange, but he’s made himself much less effective than he would be in another setting.”

Crain News Service