by John M. Curtis
(310) 204-8700

Copyright September 18, 2003
All Rights Reserved.

itting the mat, Chairman and CEO of the New York Stock Exchange Richard A. Grasso resigned under duress, following three tumultuous weeks after disclosing his whopping compensation package. Adding insult to injury, the NYSE announced that Grasso was slated to receive a $140 million in deferred compensation and retirement, in addition to his annual salary of $2.4 million. Over three years into the worst bear market since the great depression—shedding more than $3 trillion in personal and corporate wealth—Grasso had no compunction about flaunting the most shameless greed, ordinarily celebrated in business circles but now inducing reverse peristalsis in the investment community. In the wake of shocking corporate scandals, insider trading and record investor losses, Grasso's big payday couldn't pass unnoticed, triggering a tidal wave of bad publicity.

      Grasso's extravagant payday sent shockwaves through the investment world, especially traders at the New York Stock Exchange. It was, after all, Grasso's personal appointments on the exchange's board of directors that approved his astronomical package, only recently disclosed under relentless pressure from Congress and the Securities and Exchange Commission. Though Grasso railed against his ouster, he symbolized the same shameless greed leading recently to some of America's most despicable corporate scandals. Since 1995, Grasso was responsible for regulating 2,700 publicly traded companies, adhering to the rigorous standards imposed by the nation's most prestigious stock exchange. Grasso showed little guilt about taking the $140 million, after already receiving $59.3 million over the last three years, when ordinary investors took the worst beating in decades.

      Grasso and his supporters believe he did nothing wrong—violating no securities laws or committing any other legal or ethical breaches. For three weeks, Grasso refused to step down, getting the unqualified support of trusted cronies on his handpicked board. When California Treasurer Phil Angelides and New York state Comptroller Alan Hevesi joined the chorus seeking Grasso's head, the 56-year-old Queens native finally called it quits. “We believe it is fundamentally important that Grasso resign so that the New York Stock Exchange can be a credible force for corporate reform,” said Angelides, whose state employees' and teachers' retirement funds account for $240 billion in assets. “Mr. Grasso's pay package is in the stratosphere and is flat-out wrong,” said Jack Echnes, chief executive of the California State Teachers' Retirement Fund, reflecting the visceral outrage prompting Grasso's resignation.

      Grasso's pay wasn't that different from other CEO's of leading exchanges, including the Nasdaq, New York Mercantile Exchange and Chicago Options Board, all of which act as quasi-regulatory bodies, in that they're responsible for SEC compliance and establishing internal standards for due diligence. “Grasso has straddled the line between regulator and rainmaker,” said Carol Bowle, director of corporate governance at the Investor Responsibility Research Center in Washington, questioning whether the NYSE can both promote its own business and regulate itself. After malfeasance swept through the tech-rich Nasdaq, its board acquiesced and created a separate regulatory agency. Grasso's sweetheart deal gives a free X-ray into the secrecy and backroom antics that go on inside the Big Board. Wheeling and dealing, Grasso ran the NYSE like his own personal club.

      Minutes before he resigned, Grasso showed the same big ego demonstrated by his cryptic approach to running the exchange. “Nothing has changed,” said Grasso, defiantly hanging on, until the NYSE board met in emergency session to deliberate over Grasso's fate. Under intense scrutiny and faced with an avalanche of criticism, Grasso's cronies sold him out to salvage the exchange's credibility. “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,” said Grasso, exposing his grandiosity that he was indeed entitled to his pay. As long as he greased enough palms and made the right backroom deals, Grasso earned his keep. Grasso's pay flap is only the tip of the iceberg, exposing the systemic problems inside the NYSE. Oriented toward secrecy and backroom deals, the Big Board must now change its ways.

      Grasso's pay brouhaha exposes an ugly crack in the nation's oldest and most prestigious stock exchange. No one should blame Grasso for paying his dues, working his way to the top and cashing in. Yesterday's good old boys' clubs must now yield to a new era of accountability in the investment world. With the SEC and Justice Department still busy prosecuting corporate scandals, the public must be reassured that the nation's most prestigious exchanges set high standards for themselves and publicly traded companies. “There needs to be a real reassessment about whether the stock exchange can continue to serve in a regulatory role,” said Ann Yerger, deputy director of the Council of Institutional Investors in Washington, questioning whether the NYSE can effectively police itself. Grasso's big ego and inflated sense of entitlement only puts a public face on a broken system that needs to be fixed.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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