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Pay Controversy Brings Sad End to Grasso's NYSE Career
Thu Sep 18, 1:00 AM ET
By Gaston F. Ceron
NEW YORK -- After more than three decades on Wall Street, the career of Richard Grasso at the New York Stock Exchange (news - web sites) came to an abrupt end Wednesday.
Mr. Grasso's resignation - an unthinkable development just months ago - arrived as the exchange was immersed in a major controversy over Mr. Grasso's pay, one which only his exit seemed likely to abate. And so the end came.
"Today, I shared with the board of directors in a conference call that, with the deepest reluctance and if the board so desired, I would submit my resignation," Mr. Grasso said in a statement late Wednesday. He was said to be unavailable for further comment.
It was an unlikely end for a man who spent his career at the exchange, rising from mere clerk to become the Big Board's first staff-bred chairman and chief executive; a scrappy young man from Queens, New York, who consorted with business titans and heads of state when they came to the exchange to ring the opening bell.
When Mr. Grasso joined the NYSE in 1968, the exchange's daily volume hovered around the 13 million share mark - by contrast, the exchange's busy days now can total well over two billion shares. But to the 21-year-old college dropout, joining the prestigious NYSE was still a "terrifying experience," he said in a 1998 interview.
Starting out as a listings clerk fresh out of the U.S. Army, Mr. Grasso gradually climbed the NYSE's ladder. In 1973, Mr. Grasso became director of listings and marketing; in late 1977, he was promoted to vice president in charge of corporate services; four years later, he became senior vice president for corporate services, with added duties for liaison, coordination and support for NYSE-listed companies.
In 1983, Mr. Grasso became executive vice president at the exchange's marketing group; in 1986, he was executive vice president for capital markets. In 1988, Mr. Grasso became the NYSE's first staff-bred president and chief operating officer. Although he would fail in an attempt to rise to the chairmanship, which instead went to William Donaldson, now the Securities and Exchange Commission (news - web sites) chairman, Mr. Grasso remained at the NYSE. In 1995, Donaldson left and Mr. Grasso succeeded him as chairman and CEO.
Mr. Grasso's commitment to the exchange was legendary. The exchange chairman was known for the publicity stunts he orchestrated to promote the NYSE's listed companies, such as helping Gap Inc. (GPS) outfit floor traders with its clothing. His dogged pursuit of new listings was well-known: For example, Mr. Grasso never gave up his quest for technology powerhouses Microsoft Corp. (NasdaqNM:MSFT - News) and Intel Corp. (NasdaqNM:INTC - News) , which have chosen to remain at the Nasdaq Stock Market.
Mr. Grasso, said John Goldsmith, former chief executive of the Tucker Anthony Sutro securities firm, was the "in early, worked late" type. Although Mr. Goldsmith and Mr. Grasso disagreed on issues such as the conflicts between the NYSE's marketplace and regulatory roles, Mr. Goldsmith respected Mr. Grasso because he "fought for what he believed in."
Mr. Grasso was aware of the power, symbolic and real, that the exchange had world-wide. He used the NYSE's prestige to solicit listings overseas. And in 1999, he trekked to Colombia to preach the virtues of capitalism to that country's leftist rebels.
In recent years, Mr. Grasso steered the exchange through a period when the NYSE was threatened by competition from a rising Nasdaq and when its future in an age of electronic stock trading was increasingly being questioned. But the NYSE defied critics: Now, it is Nasdaq that is on the hot seat as its business model is being challenged.
In 2001, Mr. Grasso and other Wall Street leaders faced a crisis when the terrorist attacks of Sept. 11 left a huge loss of life in their wake and shut down trading. Working around the clock, Mr. Grasso brought back the NYSE. " America's economic system is intact," a beaming Mr. Grasso proclaimed shortly after reopening the stock market on Sept. 17.
But the collapse of the stock-market bubble was a difficult period. Not only was Wall Street facing lost business and steep layoffs, but Mr. Grasso and other leaders came under pressure to reform the Street's stock-research conflicts of interest and clean up Corporate America's governance practices. Mr. Grasso and the NYSE played a big role in these reform movements, but the chairman was often a step behind critics who urged him to act faster and more aggressively.
Eventually, the NYSE's own governance came under the microscope. Problems ranging from the practice of allowing NYSE executives to sit on the boards of the exchange's listed companies to the composition of the NYSE board brought a drumbeat of negative publicity. Separately, an investigation of NYSE floor- trading practices brought more bad news this year.
Earlier this year, the exchange convened a special committee to study its governance. That panel's work led to the adoption of a set of initial governance improvements; more are expected.
Mr. Grasso's own pay proved to be the one monster he couldn't slay. When word first filtered out in May, through an article in The Wall Street Journal, the size of his pay package raised eyebrows among critics who saw the amount as unseemly for an official who was, in large part, a financial regulator. In August, when the NYSE announced a new contract that would keep Mr. Grasso at the exchange through May 2007, the exchange said that he would take home $139.5 million in deferred pay he had accumulated over the years.
This escalated the furor: Regulators, including Donaldson, grew suspicious and demanded more information about how Mr. Grasso's pay had been determined. NYSE seat owners, who felt squeezed by the bear market and by exchange fees, felt betrayed. And the disclosure that one of Mr. Grasso's bonuses, for $5 million, had been paid for his work after Sept. 11, 2001, incensed critics who saw such an award as inappropriate.
Matters grew even worse last week, when the NYSE board met and apparently discovered that Mr. Grasso was owed another $48 million in future payments. Although Mr. Grasso gave up the money, calls for his resignation soon grew in number and influence, as key floor traders and large pension funds asked that he step down to save the integrity of the exchange. The board's judgment was seriously questioned.
And so on Wednesday, Mr. Grasso resigned at a special board meeting. In quitting, Mr. Grasso spoke of his affection for the organization to which he devoted his life. "For the past 36 years, I have had the honor and privilege of working for what I believe is the greatest equities market in the world - the New York Stock Exchange," Mr. Grasso said.
"Throughout my career and on behalf of all exchange constituents, I have worked with great partners to build and enhance the value and brand of the NYSE, " he added. "I look forward to supporting the board and the exchange in bringing about a smooth transition to a successor. I believe this course is in the best interests of both the Exchange and myself."
Mr. Grasso's exit doesn't solve all the NYSE's problems. Criticism of the board is likely to continue. The Big Board's internal morale must be rebuilt. And, perhaps most importantly, Mr. Grasso's successor isn't yet known. No interim chairman was been named; board member H. Carl McCall will serve as lead director while two Mr. Grasso lieutenants, Catherine Kinney and Robert Britz, manage the exchange's day to day operations.
Mr. Grasso's exit will leave a void. "I think it's a big loss," said Wall Street lawyer John Lifton. "I think Dick is unique in the history of the exchange. I think he's played an extremely critical role in helping the exchange continue its role as a a vital part of the equities market."
But on a personal level, leaving the NYSE will leave Mr. Grasso without a role that had become ingrained within his competitive persona. "I think it's sad, the way it went down," Mr. Goldsmith said. Lifton said he hoped people would remember Mr. Grasso's accomplishments and not let them be overshadowed by the pay issue. "That's not the one thing people should remember about Dick Grasso's career," he said.
Indeed, despite the tumult of the past few months, it is difficult to imagine the NYSE without Mr. Grasso. "He was," said an NYSE board member, back in 1998, "born to be chairman of the New York Stock Exchange."
By Gaston F. Ceron, Dow Jones Newswires; 201-938-5234; gaston.ceron@dowjones.com
(Phyllis Plitch and Cheryl Winokur Munk contributed to this article.) |
