The leadership changes in Louis Dreyfus and Bunge are a good reminder that chief executives do not stay forever – and a wake-up call for some big trading houses facing a “key-man risk”

June 21, 2013 8:52 am

Commodities traders need to wake up to key-man risk

By Javier Blas in Hong Kong

The leadership changes in Louis Dreyfus Commodities and Bunge are a good reminder that chief executives do not stay forever – and a wake-up call for some big trading houses facing a “key-man risk”.

The names of the chief executives of trading titansGlencore, Wilmar, Trafigura and Vitol are so closely associated with their firms that they are almost inseparable. But at some point Ivan Glasenberg, Kuok Khoon Hong, Claude Dauphin and Ian Taylor will retire.The chief executive’s retirement, after serving many years at the top, could prove difficult – both for outside investors and for the business itself. Some investors, both on the debt and equity side, say they are concerned that some big commodities trading houses are not planning succession well ahead.

The problem is not academic. Noble Group, the Singapore-listed commodities trading house, suffered for more than a year when Richard Elman, its charismatic founder and current chairman, first relinquished his executive functions. Other trading houses could face the same problem – worse, the size and complexity of the trading titans is today much bigger than when the current breed of chief executives took over 10-20 years ago, making proper succession planning more difficult.

Of the companies closely associated with their bosses, Vitol is the one that has a bigger room for manoeuvre. After all, it has a limited exposure to institutional investors, raising money only through private placements in the US capital market. Mr Taylor, 57, has been at Vitol since 1985, becoming CEO nearly 18 years ago.

Trafigura has a limited exposure too, but over the past two years it has raised nearly $1bn through a five-year eurobond and a Singapore-listed perpetual bond. Mr Dauphin, 62, has been chief for the past 20 years, and investors say his departure could prove difficult even if the public face of the trading house for the last few years has been Pierre Lorinet, chief financial officer.

The serious key-man risk problems are for Glencore and Wilmar. Both Mr Glasenberg and Mr Kuok are so closely associated with both companies that few investors ever imagine them without them. Neither company has made it clear to investors that there is a succession plan in place.

Glencore is Ivan. And without Ivan, Glencore does not look equally attractive

– Asia-based Glencore investor

Mr Glasenberg, 56, has been Glencore’s chief executive for the last 11 years, steering the company through the global financial crisis, a multibillion-dollar listing in London and Hong Kong and, this year, the takeover of mining group Xstrata. “Glencore is Ivan,” says an Asia-based investor in the company. “And without Ivan, Glencore does not look equally attractive.”

Wilmar faces a similar problem, investors say. Mr Kuok, 62, has been running the business since he co-founded in 1991 the company that later became Wilmar. Mr Kuok rarely speaks publicly, but for investors he is key.

Perhaps investors can take some comfort in the example of Dwayne Andreas, one of the most celebrated executives of the industry who ran Archer Daniels Midland for more than a quarter of a century. Some of the trading house bosses have a few more years yet before beating his record.