More fallout from the Clinton stock market bubble and fraud of the 90's, condoned and fostered by Clinton's ineffective SEC chairman, Leavitt, and now corrected by Bush's SEC chairman, William H. Donaldson. Still unwinding the Clinton fraud and corruption, and it will take some time to come. Facts is facts, chumpo.
washingtonpost.com
NYSE Ousts Grasso as Chairman
Size of Pay Package Drew Wide Criticism
By Ben White
Washington Post Staff Writer
Thursday, September 18, 2003; Page A01
NEW YORK, Sept. 17 -- Dick Grasso, who worked his way up from a clerk's job to become the powerful head of the New York Stock Exchange, was forced to step down today in the face of mounting criticism of how much he was paid.
Grasso resigned as chairman and chief executive after board members participating in a conference call voted 13 to 7 to ask him to leave, to help restore investor confidence in the world's largest stock market. He had fought for more than two weeks to preserve his job after the exchange for the first time disclosed his pay package -- which included a lump-sum payment of nearly $140 million.
In a statement, Grasso said he was leaving to best serve the institution.
"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," Grasso said. "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 as chairman and chief executive officer."
The rapid fall of a man who only weeks ago was among the most powerful and respected leaders in the financial world has opened a larger debate about whether the NYSE needs to make major reforms in its practices and oversight.
Grasso's departure, two years to the day after he helped the NYSE reopen after the Sept. 11, 2001, terrorist attacks, caps a controversy that erupted on Aug. 27 when the exchange disclosed that the chairman would receive $139.5 million in deferred compensation, mostly covering the past eight years.
The pay package, unusually large even by Wall Street standards, was criticized by shareholder activists who said it called into question Grasso's independence as a federally chartered regulator of the securities industry and enforcer of governance standards on NYSE-listed companies.
Grasso had handpicked members of the compensation committee that set his pay. Most of the committee members came from firms that the NYSE regulates.
When the NYSE disclosed the $139.5 million payment, William H. Donaldson, chairman of the Securities and Exchange Commission, sent a letter to the exchange saying the payment raised "serious questions" about its governance. Sources close to Donaldson say he was outraged by Grasso's pay. But in spite of the criticism, Grasso vowed to remain chairman until his contract expired in May 2007. He pledged that the NYSE would reform its governance practices.
Then, on Sept. 9, in response to Donaldson's letter, the NYSE announced that Grasso would forgo an additional $48 million he was entitled to receive over the next four years. Calls for Grasso's resignation grew louder. On Tuesday, the heads of the nation's three largest public pension funds said he should step down. Today, two Democratic presidential candidates, Sens. Joseph I. Lieberman of Connecticut and John Edwards of North Carolina, joined in the criticism. Even exchange director H. Carl McCall, the former comptroller of New York state and one of Grasso's staunchest defenders on the board, publicly distanced himself today from the chairman.
Grasso had also begun to lose the support of rank-and-file traders who had once loved him. Today, the head of the largest specialist firm that trades on the exchange floor, LaBranche & Co., called for Grasso to resign. LaBranche is under investigation by the NYSE for alleged trading improprieties.
Traders were outraged that Grasso was being paid so much as their revenue was falling because of lower trading volume and higher fees imposed by the NYSE. Grasso had his biggest paydays, including $26 million in 2001, as the stock market was in full retreat.
The vote to oust Grasso came after a lengthy debate in which a group of directors, led by J.P. Morgan Chase & Co. chief executive William B. Harrison Jr., argued that Grasso's continued presence would be a distraction for the exchange and further damage already fragile investor confidence. Former secretary of state Madeleine K. Albright, who joined the NYSE board earlier this year, was one of the most outspoken advocates of Grasso's resignation, sources said.
Sources said board member Larry W. Sonsini, chief executive of a San Francisco law firm, was asked to become interim chairman. But after a second conference call late tonight, McCall said in a statement that he would serve as lead director. Robert G. Britz and Catherine R. Kinney, the exchange's executive vice chairmen, will manage the NYSE on a day-to-day basis.
While Grasso's resignation marks an end to an embarrassing episode for the exchange and the board that had approved the pay package, it doesn't end the controversy over how the exchange should be run in the future. The NYSE is empowered by federal law to be a frontline regulator of the securities industry, monitoring brokerage firms for practices that harm investors. It also enforces corporate-governance standards for its 2,800 listed companies. Critics say Grasso's lavish compensation demonstrates the inherent conflicts of interest in the current system and calls into question the NYSE's effectiveness as a regulator.
These critics say the NYSE failed to uncover improprieties that hurt investors during the stock market bubble of the late 1990s, including the issuing of biased research advice from Wall Street analysts and improper mutual fund trading practices. Some critics have argued that the SEC should divide the NYSE into two institutions, one to manage the exchange and one to regulate it, following the model of the Nasdaq and NASD. This fall the NYSE plans to submit a number of proposals for changes in its governance structure.
In resigning, Grasso said he will continue to work for the best interests of the exchange. "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. 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." In a statement issued this evening, Donaldson, Grasso's predecessor as NYSE chairman, said the SEC was committed to updating the exchange's governance. "The SEC will continue its review of governance standards and will work closely with the new leadership at the exchange to put an appropriate structure in place that will ensure the credibility and integrity of the governance of the exchange," he said.
Wall Street historians said today that Grasso would always be remembered for his pay. But they added that until the compensation controversy erupted, he was among the most successful chairmen in the exchange's 211-year history.
Grasso joined the NYSE in 1968 after leaving the Army. He began his career as a clerk and rose through the ranks to become chairman in 1995. Along the way he made friends at every level of the exchange, from floor traders to chief executives at Wall Street's biggest investment banks. After the Sept. 11, 2001, terrorist attacks, Grasso emerged as the reassuring public face of the U.S. stock market, working tirelessly to get the NYSE opened six days after hijacked airliners destroyed the World Trade Center, just blocks from the exchange.
Grasso doubled the number of companies listed on the exchange during his tenure as chairman, updated the NYSE's technology infrastructure and successfully beat back challenges from electronic trading networks such as the Nasdaq that threatened the exchange's primacy.
"Up until the last few weeks, Dick Grasso was an exemplary chairman, the best in my lifetime," said Joel Seligman, a securities industry historian and professor at the Washington University law school in St. Louis. "He was wonderful after 9/11. He increased listings, he increased order flow. On issue after issue, he was magnificent. So this is a tragedy. It's saddening. He was so good at what he did but at the end displayed such horrible judgment."
Sonsini, the director who was offered the interim chairman's post, is one of the best-known lawyers in Silicon Valley. He ushered scores of young companies through public stock offerings during the technology boom. Sonsini, who joined the NYSE board in 2001 and who currently serves as chief executive of the Palo Alto law firm Wilson Sonsini Goodrich & Rosati, has advised such companies as Apple Computer Inc., Sun Microsystems Inc. and Netscape Communications Corp.
"There's probably no one who knows more about the field of securities registration than Larry Sonsini," said Jesse Choper, a professor of corporate law at the University of California at Berkeley, where Sonsini teaches a course. "He's been the single most successful lawyer in Silicon Valley. His name is a code word in the valley."
More recently, Sonsini represented Hewlett-Packard Co. last year in its bid to absorb Compaq Computer Corp., helping HP's top managers fight a difficult proxy battle.
Staff writer Carrie Johnson in Washington contributed to this report.
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