Grasso Quits NYSE After Furor Over $140 Million Pay (Update4)
Sept. 17 (Bloomberg) -- Richard Grasso was ousted as chairman of the New York Stock Exchange, ending a 36-year career that unraveled in less than a month after the disclosure of his $140 million pay package.
The board asked Grasso, 57, to resign a day after the three biggest U.S. public pension funds said the size of his paycheck undermined his credibility as a regulator. Pressure for his departure, unthinkable as recently as three weeks ago, built after Securities and Exchange Commission Chairman William Donaldson demanded details of Grasso's compensation.
``I believe this course is in the best interests of both the exchange and myself,'' Grasso said in a statement. He said he's leaving ``with the deepest reluctance.''
Grasso's fall highlights criticism of excessive executive pay, lax regulation and conflicts of interest on Wall Street that came to light after the collapse of the technology stock bubble in 2000. NYSE board members include executives of companies he helped regulate. Grasso helped pick members of the committee that agreed to pay him more salary in some years than General Electric Co. paid former chairman Jack Welch.
The board asked NYSE director Larry Sonsini, chief executive officer of law firm Wilson Sonsini Goodrich & Rosati, to serve as interim chairman. He will respond to the offer at a 9 p.m. meeting, said Courtney Weber, a spokeswoman.
Board Votes
NYSE directors decided Grasso's fate on a conference call this afternoon. Grasso asked them for a vote on whether he should resign, according to a person familiar with the discussion. Thirteen members voted against Grasso and seven supported him, the person said. Three were absent and three didn't vote.
``I'm delighted -- now the board should follow,'' said Jon Burnham, chairman of Burnham Asset Management Corp., which has $1.2 billion in assets. ``I don't think he'll be missed for long -- everybody's replaceable -- even Mr. Grasso.''
Grasso called the meeting ``in light of the recent discussion surrounding the exchange and his compensation,'' H. Carl McCall said in the board's statement. McCall, the former New York state comptroller who chairs the board's governance committee, said the exchange is ``committed to an ongoing series of governance reforms.''
The board will tonight appoint a search committee to find a permanent replacement for Grasso. It asked Catherine Kinney and Robert Britz to remain in their posts as co-presidents.
Corporate Debacles
In his eight years as chairman, Grasso served as a spokesman for free markets and as a regulator of companies whose shares trade on the world's biggest exchange. He won praise from investors as hundreds of companies joined the NYSE, the price of membership rose to a record and stock prices surged.
His integrity as a regulator was questioned after corporate debacles that the exchange failed to detect brought down companies such as Enron Corp. The biggest U.S. investment banks paid $1.4 billion in April to settle claims they slanted stock research to win business.
SEC chief Donaldson, the top U.S. securities regulator, in March asked all U.S. exchanges to review their governance policies. The NYSE in June said it would disclose the compensation of top executives for the first time.
On Aug. 27, it said Grasso had amassed $140 million in deferred compensation and benefits, enough to pay the salaries of the heads of the Federal Reserve Bank and the SEC for 445 years. Donaldson earns about $142,500 a year.
The exchange disclosed Sept. 9 that Grasso was entitled to an additional $48 million through 2007, which he agreed that day to give up. Board members pressured him to return the money, said people familiar with the board's discussions.
New York State Comptroller Alan Hevesi, in charge of the second-largest U.S. public pension fund, said in a statement that Grasso's decision to resign was ``the right one.''
``However, the issue is not just Mr. Grasso,'' Hevesi said. ``The issue is making fundamental reforms at the stock exchange to restore investor confidence.''
Regaining Confidence
``Confidence cannot be regained if the public believes that in a crunch, the industry's main self-regulatory bodies cannot be relied on to come down on their members as hard and as often as the facts and circumstances warrant,'' said Robert Glauber, chairman and chief executive of the National Association of Securities Dealers.
Grasso's total compensation was $21.8 million in 2000. In 2001, he made $25.5 million, his highest pay ever. That year, the Standard & Poor's 500 Index fell 13 percent and Wall Street securities firms fired 24,000 people.
He received a $5 million bonus in 2001, in part in recognition of his work in reopening the exchange six days after the Sept. 11 terrorist attacks. Former J.P. Morgan Chase & Co. Vice Chairman Kurt Viermetz called him ``our American hero.''
When presented with his compensation each year, Grasso said his response was always the same: ``I am blessed, thank you.''
Grasso's History
Grasso attended but didn't graduate from Pace University and spent his entire career at the NYSE. He was the first and only employee in exchange history to rise to president and chief operating officer, let alone chairman and chief executive.
Mentored by former NYSE Chairman John Phelan, Grasso rose to executive vice president in 1981 and chief operating officer in 1988. Spurned by the board in favor of Donaldson in 1990, he was named chairman five years later, the start of the biggest rally in U.S. stock market history.
Today, board members Henry Paulson, chairman of Goldman Sachs Group Inc., and Stanley O'Neal, chairman of Merrill Lynch & Co., withdrew their support for Grasso, a person familiar with the matter said. Until then, both Paulson and O'Neal -- among 17 board members -- had maintained a public silence on Grasso's future.
Merrill and Goldman ``represent the millions of individual investors and companies that that use and rely on the exchange,'' said Edward Fleischman, former SEC commissioner and now a senor counsel at the law firm Linklaters. ``For the NYSE chairman to lose their support is a very serious matter.''
Last Updated: September 17, 2003 20:31 EDT
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