Governance Issues at the New York Stock Exchange

"The New York Stock Exchange is long overdue for a very serious and thorough examination and overhaul of its governance. The very fact that they nominate their own board without any input from anyone else should not be tolerated."

- Nell Minow, Editor, Corporate-Governance Research Firm - The Corporate Library in August 2003.¹

"Today, we take an important step towards a governance architecture with standards of independence and disclosure that are comparable to or stronger than those we require of our listed companies."

- John Reed, Interim Chairman & CEO - New York Stock Exchange (NYSE) commenting on the proposed NYSE reforms, in November 2003.²

Governance Issues at the New York Stock Exchange: Payback Time at NYSE

On September 18, 2003, Richard Grasso (Grasso), Chairman and CEO of NYSE resigned amidst widespread criticism of his pay package and governance practices at NYSE. Earlier in August 2003, NYSE announced that Grasso had been given a lumpsum amount of $140 million from NYSE (covering two decades of deferred compensation, and retirement benefits). It also announced that Grasso's contract had been extended upto 2007 with an annual pay of $1.4 million, and an additional $1million annual bonus. William Donaldson (Donaldson), Chief of the Securities and Exchange Commission (SEC)3, commented that Grasso's compensation details raised serious doubts about governance standards at the NYSE. Donaldson sent a letter to the compensation committee head - Carl McCall (McCall) asking for more details about how Grasso's compensation package had been decided. The misgovernance at NYSE came to light in August 2003 when the Council of Institutional Investors (CII)4 published a report which highlighted the shortcomings in NYSE's governance practices.

The Grasso episode provided more ammunition to the critics of NYSE, who were demanding greater transparency in its working. In September 2003, former Citigroup Co-CEO, John Reed (Reed) was appointed the new interim chairman and CEO of NYSE. Soon after taking over the charge, Reed announced that his first priority would be to reform the working of the exchange.

On November 5, 2003, Reed announced proposed reforms in the governance practices of NYSE. The media, general public and industry sources welcomed the reforms saying that they were the step in the right direction. However, some were of opinion that more drastic changes should be brought in to ensure transparency in the operations of NYSE.

Next >>

---

1] NYSE Management, Board Conflicts Criticized By Investors Group, www.securities.stanford.edu, August 1, 2003.
2] NYSE Outlines Proposals to Strengthen Governance and Names Candidates for New Board of Directors, Press Release on www.nyse.com, November 5, 2003.
3] Founded in 1929 by the U.S. Congress to monitor the securities industry and enforce punishments to those who violate the industry's regulations.
4] Founded in 1985, the Council of Institutional Investors with around 130 pension fund members and more than $2 trillion in assets, seeks to address investment issues that affect the size or security of plan assets. Its objectives are to encourage member funds, as major shareholders, to take an active role in protecting plan assets and to help members increase return on their investments as part of their fiduciary obligations.