Ex NYSE chairman joins call for board members to resign

Meg Richards

Tuesday, Sept. 16, 2003 | 9:21 a.m.

NEW YORK -- A former chairman of the New York Stock Exchange joined critics Monday in calling for a clean sweep of the boardroom as the best way of quelling the growing storm over Dick Grasso's lavish pay package.

The exchange's directors, who are considering ways to ease outrage over the $139.5 million Grasso received in accrued benefits and savings, were expected to call a meeting later this week.

James Needham, a retired accountant who was NYSE chairman from 1972 to 1976, said everyone associated with the decision should step down, including Grasso.

"It's time to clean house," said Needham, 77, who also served on the Securities and Exchange Commission. "I feel the board just didn't step up to the plate and run that operation properly."

He said he has shared his views with Grasso and SEC chairman William Donaldson, who raised sharp questions about the pay package after it was announced last month. The SEC is currently reviewing the NYSE's response.

Needham likened the appearance of the board's handling of Grasso's pay to the problems at Enron Corp., where directors' conflicts of interest and a lack of awareness of company operations became evident when that company collapsed in scandal in 2001.

"It's nothing easy for me to say, because I think he's the best chairman the exchange has had, including me," Needham said. "But ... in that position, you have to look reasonably perfect."

Traders and seatholders were said to be circulating one or more petitions seeking big changes in top management at the NYSE. The matter was expected to be discussed at a meeting of active seatholders on Thursday, and at a general meeting next month.

Several directors have privately expressed strong views as well, particularly newer members who are said to have been unaware of how much was promised to Grasso in contracts negotiated during the stock market's giddy rise in the late 1990s. Even after Grasso announced he would forgo an additional $48 million disclosed last week, opinions seemed mixed as to whether he should be ousted.

Potential conflicts were revealed this year, prompting several changes as the NYSE took steps to conform with new governance rules applied to public companies after a streak of corporate scandals. In June, the top three executives announced they would leave board positions they held at public companies traded on the NYSE.

In particular, Grasso came under fire for being a member of The Home Depot's board of directors while the company's lead director, Kenneth Langone, was head of the NYSE's compensation committee. Both have since stepped down.

"Is it any wonder that these guys are so well paid, if they're approving each others' salaries?" asked Austin Brentley, manager of corporate governance affairs at the Council of Institutional Investors, an organization of large public, labor funds and corporate pension funds.

In a July report, the council outlined a number of troubling connections among NYSE management and board members, and found few rules to prevent conflicts.

"The more research we did, the more connections we found," Brentley said. "If everybody on the board is a boy scout there's nothing to worry about, but the possibility for conflict is there. Ideally, there should be a situation in place so that the possibility isn't there."

From floor traders to Wall Street executives, few have criticized Grasso's performance. The 57-year-old started his career at the exchange as a floor clerk in 1968, and was the only candidate for the top post when Donaldson left for the SEC in 1995.

Grasso is credited for brokering a truce between the securities industry, the SEC and the office of New York Attorney General Eliot Spitzer over the investigation of research conflicts last year. But he also has been criticized for holding too much sway over the NYSE's 27-member board of directors, which includes the three top executives, 12 representatives from the securities industry and 12 from outside the industry, all hand-picked by Grasso.

Whether the chairman influenced decisions over his compensation -- and Grasso has insisted he didn't -- the arrangement smells rotten, said Nell Minow, editor of The Corporate Library, a private group that monitors governance issues.

"If you asked me what's the best guarantee we'll have some kind of pay abuse, I'd say first you let the CEO pick all of his directors, and then you make it so they don't have to disclose his pay," Minow said. "It's a recipe for disaster."