Richard Grasso was forced to resign as head of the New York Stock Exchange Wednesday, amid a furor over his $140 million compensation package. The disclosure and resignation plunged the 211-year-old institution into one of its most serious crises.
The New York Stock Exchange is the world's biggest and most powerful equities markets. The value of the hundreds of companies listed on the exchange exceeds $10 trillion. The exchange is owned by its members, who pay up to $2 million to purchase a seat.
Mr. Grasso had been its chairman since 1995. A self-proclaimed spokesman for global capitalism, Mr. Grasso won acclaim for getting the exchange back into operation only six days after the terrorist attacks on the nearby World Trade Center two years ago. A college dropout who grew up in a working class New York neighborhood, Mr. Grasso spent 36 of his 57 years at the Exchange.
Following disclosure last month of Mr. Grasso's pay package, major investors like the state of California pension fund began challenging the apparent conflict of interest in having Mr. Grasso's compensation determined by the very companies he was supposed to be regulating.
Bill Seidman, a former government financial regulator, now a television commentator, says, following accounting scandals that brought two leading companies - Enron and WorldCom - into bankruptcy, the stock exchange needs to make its operations transparent.
“They've got to go [with] the kinds of rules corporate America is going to, with respect to independence,” he said. “And in addition, they're going to have to separate the regulatory part of their structure the way the Nasdaq [stock exchange] has. Self-regulation hasn't worked for accountants and others, and the New York Stock Exchange is going to have to do the same thing.”
Mr. Grasso often described his work as two-thirds administrative and one-third regulatory. Muriel Siebert, a member of the Exchange, agrees that it does not make sense for the companies that are being regulated to determine the pay of the regulator.
“In my opinion, it is very hard when your compensation is being determined by industry people, and you're sending examiners in to look at their books,” she said.
William Seidman applauds Mr. Grasso's departure, and says it is a further move to improve the ethics of American corporations.
“It is one more step in cleaning up the problems we got into in the 1990s,” he said. “Don't forget, Grasso didn't do anything he hadn't learned from corporate America.”
The exchange has appointed an interim chief executive, and opened a search for a new chairman. Floor traders and executives of the blue chip companies traded on Wall Street hope that permanent damage has not been done, and that the exchange will win back the respect of the investing public.