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They say the bigger they are, the harder they fall, and few institutions are as big as the New York Stock Exchange. And in the wake of the revelations about the compensation package of the Big Board's now-ex-chairman, Richard Grasso, the organization's reputation has come down a few notches. It may be very hard for the venerable market to regain its former sterling reputation.
I've interviewed Grasso before, most recently on the NYSE floor on the first anniversary of the Sept. 11 attacks. There is probably no one who cares more about the exchange, its traders and employees and its institutional significance than Grasso. You may know the story of how he worked his way up from a lowly clerk to the chairman's seat without the benefit of a college education. And I should emphasize that unlike the Enron, Tyco and WorldCom scandals, Grasso has not been accused of any wrongdoing; the only thing he's guilty of is misreading the public's anger over excessive pay packages and back room deals.
It's fortunate that I will never have to face the temptation that seduced him; my bosses will never offer me $140 million in compensation, so I won't have to agonize over whether I should take it or not. But while everyone is piling on top of Dick Grasso, maybe we should save some of our ire for the old boy network that got him in that tub of hot water in the first place, and is still intact today.
I've said all along, it's impossible to legislate morality or ethics. In our hearts we know what's right and what's wrong. But when we can surround ourselves with sycophants or stack the board with those that only know how to do business on a quid pro quo basis, the greed factor takes over. It's a powerful emotion and motivator, and blinds us to many common sense choices.
Now that the machinations of the NYSE chairman and board are out in the open, expect to see some swift changes. So far one senior executive, Frank Ashen, has announced his "retirement". He was responsible for explaining the compensation package to the board of directors. Mr Ashen also worked closely with the NYSE's co-presidents (and board members) Robert Britz and Catherine Kinney in establishing how much senior executives were paid (that information is still undisclosed). The corporate governance report, being written by the committee on corporate governance, may be delayed in order to give the newly-named chairman, John Reed, time to digest its contents.
In reaching out to Reed, the exchange went outside of its normal brokerage circle. Reed was the former chairman and co-CEO of Citigroup, resigning after losing an ugly power struggle with Sandy Weill, current chairman of Citigroup. Mr. Reed starts his difficult job this coming Monday, and will work for the princely sum of $1.
He has an enormous task before him. Reed must restore some sense of investor trust in this 211-year old institution. After all, the NYSE is the leading self-regulatory organization in the U.S. securities industry, and accounts for more than 85-percent of the public customer accounts handled by broker-dealers. With its integrity impugned, the exchange must decide whether to separate its regulatory and trading arms, or continue with "business as usual".
Expect resistance from some members, but remember that the bottom line is that the sterling image of this august institution must be restored if we want investors to believe that the era of corporate scandal is over and that the Sarbanes-Oxley Act of 2002 is worth more than the paper upon which it is written.
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