One Resignation Is Not Enough
The New York Times
September 21, 2003
OP-ED CONTRIBUTOR
By MURIEL SIEBERT
The resignation of Richard A. Grasso as chairman of the New York
Stock Exchange has created a once-in-a-generation opportunity to improve
the exchange's commitment and ability to serve the public interest.
But if the board and management of the exchange close ranks and resist
further change, investors will know that they can expect business
as usual in the post-Grasso era.
How will we know whether the exchange is serious about reform?
Look for action in three crucial areas: the exchange's board, its management and
its transparency.
The first step for the exchange is to diversify its board of directors.
The days when the Big Board could be governed for and by a small group of
specialists, members, regional brokerages and listed companies should be
long gone. Yet their interests, along with those of the huge financial
conglomerates, still predominate.
A majority of the directors, as well as the board's chairman, should be
from outside the industry. At the very least, the compensation committee
ought to consist solely of outside directors. Institutional investors, shareholder
activists, academics - the same constituencies who have had such
an impact on reforming the boards of public corporations in recent
years - should be given a greater voice.
The structure of the exchange must also be made more efficient,
with management duties separate from regulatory functions. The regulatory
function should be pristine, set apart from the business concerns
of the exchange and the influence of its members, its managers or other industry
insiders. The exchange should name a chief regulator who would
report directly to a committee of independent, non-industry directors. Meanwhile,
a chief executive could oversee the exchange's business affairs and
serve as head cheerleader and administrator.
Finally, the exchange needs to open up its books. Last week's
fiasco has only underscored the degree to which the investing
public is ignorant of how the exchange is run. Much greater
transparency is essential if the public is to have faith in the
stewardship of management and the board.
At a minimum, the exchange should disclose its revenues
and earnings, go public with its management and governance
structure and reveal how it goes about nominating candidates
for its board. These requirements are no more than what the
exchange itself demands from the companies it
lists.
Remember, this is an institution that has considered becoming
a public company itself. Clearly, that idea should be forgotten until the exchange
demonstrates its willingness to conduct its affairs in the light of day.
As necessary and obvious as these changes may be, they will not
be easy for the exchange to swallow. Those who have been running the exchange
for generations would have to cede control to outsiders who serve
the investing public's interests before those of the financial industry.
This opportunity to reconsider the institution, its function and
its responsibility to society cannot be squandered. The New
York Stock Exchange is an integral part of a capital system
that has made America the envy of the world. It is no accident
that most technological breakthroughs come
from the United States. In part because of the
exchange, American companies have the funds they need
to innovate, grow and start whole new
industries.
Now we must restructure the exchange so that we can
maintain and enhance its vitality and credibility. We can only
hope that the current board, having acted wisely and ethically
in seeking Mr. Grasso's removal, will follow its impulse for
reform to its logical conclusion.
Muriel Siebert, the first woman to own a seat on the
New York Stock Exchange, is chairwoman and chief
executive of Siebert Financial Corp.
Copyright 2003 The New York Times Company
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