NEW YORK STOCK EXCHANGE

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GOVERNANCE STRUCTURE AT NYSE

NYSE's governance structure comprised of five important elements: Board of Directors (BoD), standing and advisory committees, a nominating committee, professional executive management and not-for-profit status.

BoD & Standing and Advisory committees

The 1366 broker-dealer members of the exchange elected the BoD which consisted of 27 members (12 - industry directors, 12 - non industry directors and 3 members of the office of the chairman)[1] . No director was allowed to be on the board for more than three consecutive two-year terms. The NYSE constitution defined industry director as " (1) an individual member, (2) an individual who is a principal executive, general partner or control person of a member organization, or (3) a principal executive of an organization whose "principal" subsidiary is a member organization."[2] The day-to-day working of the exchange was overseen by the board. The board played an active role in formulating policies and programs governing the working of the exchange. Further NYSE constituted various standing and advisory committees which comprised of NYSE directors for regulating the functioning of NYSE. .

The exchange had five standing committees, ten advisory committees and four international advisory committees.

Nominating Committee

The nominating committee consisted of eight members - four from industry category and four from non-industry category. The members of the nominating committee were elected for two years and no member could be re-elected for the second consecutive term. The nominating committee nominated members to be elected to the BoD.

Professional Management

Though till 1970s, members of the exchange oversaw the day-to-day functioning of the exchange, from early 1970s, a professional management team was appointed by the Chairman and CEO with the approval from the board to oversee the administrative matters. But executive vice-president was directly elected by the board.

Not-for-Profit Status

Initially NYSE was a formed as membership organization and in 1971 it was incorporated under Not-for-profit Corporation Act. The main aim of the exchange was to maximize the reliability and integrity of market functioning rather than to maximize profits.

NYSE COMES UNDER A FLAK

Over the years, governance at NYSE attracted lot of criticism. Analysts pointed out that the governance structure at NYSE failed to deliver results. They felt that NYSE failed to safeguard the interest of the general public. NYSE attracted criticism due to the alleged misgovernance, and the role of specialists. However the controversy regarding the CEO compensation received the wrath of the media and general public the most.

Analysts opined that while NYSE demanded greater transparency in the operations of the companies it regulated, it never bothered to bring in transparency in its working processes. It was alleged that the process of electing the NYSE board was not transparent and the Chairman handpicked the board. Though the exchange claimed that its election process was fair and transparent, analysts pointed out that the candidates to be elected to the board were nominated by the nominating committee, which itself was regulated by the chairman and members themselves.

In early 2003, with increasing criticism against the working of stock markets, Donaldson asked all the regulatory bodies and exchanges to review their governance processes. NYSE requested CII to prepare a report on the governance practices at NYSE. In August 2003, CII submitted a 47page report on the governance practices at NYSE. The CII in its report said, "The exchange's public purpose is to protect investors - but it is owned and operated by a profession that has its own needs to tend to. The big banks - the so-called broker-dealers - are not the only groups with interests to be considered, yet they wield massive influence over the NYSE."

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