Print

Mail

wiki links

A very wealthy Grasso bows out

New York Stock Exchange president Richard Grasso is seen in this undated photo released Tuesday courtesy of the stock exchange. Grasso resigned Wednesday amid a mushrooming controversy over his US$140-million pay package, the exchange said. The NYSE board met in an emergency session one day after large institutional investors joined the call for Grasso to resign to restore the NYSE's credibility as a regulatory body. PHOTO: AFP

Richard Grasso, the head of the New York Stock Exchange (NYSE), resigned on Wednesday in the face of mounting pressure from investors, regulators and top Wall Street firms over his US$140 million pay package.

Grasso's departure, which came two years to the day after he triumphantly reopened the exchange after the Sept. 11 attacks, raises questions about the exchange's dual role as a regulator and for-profit securities market.

While Grasso's record of building the exchange's business was never in question, the public outcry over the size of the 57-year-old executive's compensation and lack of disclosure about it cost him the support of key Wall Street figures.

The criticism mounted in recent days, with calls for his resignation coming from top state pension funds, floor traders and politicians. Grasso bowed to the pressure and tendered his resignation at an emergency board meeting held shortly after the market closed on Wednesday.

Among the board members to call for Grasso's resignation were three leading Wall Street chiefs: Henry Paulson, who runs Goldman Sachs Group Inc; Philip Purcell, head of Morgan Stanley; and William Harrison, head of JP Morgan Chase & Co, a source familiar with the meeting said.

One of the most recent additions to the board, former US Secretary of State Madeleine Albright, was also a voice for Grasso to go, the source said.

"Mr. Grasso's resignation was a necessary step to restore confidence in the exchange," said California Controller Steve Westly, who sits on boards of California's giant state pension funds. "It is a breath of fresh air for the markets."

At a second board meeting, though, which ran from about 9:00pm to 10:30pm EDT, the board failed to persuade one of its own members to run things on an interim basis.

Larry Sonsini, a prominent West Coast securities lawyer and NYSE director, was asked to replace Grasso temporarily, but turned the offer down after being given just a few hours to consider it, people familiar with the matter said.

Board directors instead elected to use the exchange's existing structure. H. Carl McCall, chairman of the NYSE's compensation committee, will serve as lead director, while Robert Britz and Catherine Kinney, its co-chief operating officers, will continue to run the exchange day-to-day.

A tough week

The resignation came at the end of a tumultuous week. Grasso, who worked for the NYSE for 36 years and was its chief executive since 1995, watched his support among the exchange's members weaken dramatically.

Stock market participants were particularly keen to see the furor surrounding Grasso's payout die down -- especially after a batch of accounting and executive compensation scandals in the last three years did little to stave off the bear market.

The decision to push him out was far from unanimous. The final vote was 13 to 7, another source said.

Grasso's supporters on the board included Kenneth Langone, co-founder of Home Depot Inc; Viacom Inc president Mel Karmazin; and James Cayne, CEO of Bear Stearns Cos, the person said.

McCall, who had shown public support for Grasso on Sept. 9, led the board meeting where Grasso was asked to quit.

"Dick offered to submit his resignation if the board requested, and the board did so this afternoon," McCall said.

In a statement, Grasso said, "Today, I shared with the board of directors ... that, with the deepest reluctance and if the board so desired, I would submit my resignation."

Calls to oust Grasso grew louder on Tuesday after New York Comptroller Alan Hevesi and California Treasurer Phil Angelides, who together oversee more than US$300 billion of pension money, called on Grasso to step down.

On Wednesday, two Democratic senators and presidential candidates -- Connecticut's Joseph Lieberman and North Carolina's John Edwards -- also demanded Grasso's resignation, as did Michael LaBranche, the head of the largest specialist trading firm on the NYSE.

Other reforms?

Grasso's resignation is expected to trigger broader discussion over how the exchange is governed. High on the list is the structure of its compensation committee -- including the way in which it approved Grasso's pay.

William Donaldson, the head of the US Securities and Exchange Commission (SEC), said on Wednesday the SEC would review the structure of the NYSE's internal governance structure.

"It's a very sad time for the New York Stock Exchange," said Francis Maglio, a long-time NYSE member. "He wasn't in this alone. Other people have to share responsibility for the demise of a man who spent his entire life at the New York Stock Exchange and loved it."
This story has been viewed 1624 times.