By Associated Press
Charges of conflict of interest in an era of corporate scandals contributed to Richard Grasso's downfall.
NEW YORK - New York Stock Exchange chairman Richard Grasso resigned Wednesday amid rising fury over his $139.5-million pay package, his 36-year career ruined by cries that he made too much money running the world's richest financial market.
At an emergency meeting of the NYSE board shortly after the market closed, Grasso offered to resign as chairman and CEO if the board requested, said H. Carl McCall, chairman of the NYSE compensation committee.
"The board did so and accepted that resignation," said McCall, who chaired the meeting.
Grasso had a remarkable rise at the exchange, from a clerk earning $82.50 a week in 1968 to its top executive in 1995.
In a statement, he said he was stepping down after eight years as chairman "with the deepest reluctance." But he added, "I believe this course is in the best interest of both the exchange and myself."
Grasso gets to keep the $139.5-million in accrued compensation already cashed out and could get $10-million more in severance pay, along with other benefits such as lifetime health insurance.
He is the latest prominent figure in the business world to fall in a three-year storm of public outrage over outsized pay and questionable practices in corporate boardrooms and executive suites. That anger was fed by the collapse of stock prices in 2000 and the scandals at major companies beginning with Enron Corp.
No one was suggesting wrongdoing by Grasso of the type that has brought criminal charges against executives at Enron, WorldCom Inc. and other companies. But some critics saw conflicts of interest among board members and too little control over Grasso's influence.
"Richard Grasso has done the right thing. He's fallen on his sword, which is very significant and important for the New York Stock Exchange and its credibility," said New York state Comptroller Alan Hevesi. "In an era of corporate scandals, you can't have the regulator of the world's largest stock exchange take tens of millions of dollars in remuneration from the people he's regulating. That's a conflict of interest.
"The issue is larger than any one individual, the issue is cleaning up the scandals and reforming corporate America. Mr. Grasso's resignation is a step in the right direction."
The charismatic Grasso was more than just the head of the NYSE; he was its biggest promoter and cheerleader, transforming the opening and closing bells into public happenings. After the Sept. 11, 2001, terrorist attacks, he turned the resumption of trading - two years ago to the day Wednesday - into a tribute to the dead and also a first step toward the recovery of the financial district.
"I have worked with great partners to build and enhance the value and brand of the NYSE," Grasso said. "I look forward to supporting the board and the exchange in bringing about a smooth transition to a successor."
The board was to reconvene later in the evening to name an interim replacement. Larry W. Sonsini, a well-connected corporate lawyer who leads a Palo Alto, Calif., law firm, was considering whether to accept the interim slot.
Grasso's tenure unraveled in just three weeks after the NYSE on Aug. 27 extended his contract through 2007 and disclosed that the deal included a payout of $139.5-million in savings and benefits accumulated since he started working for the exchange in 1968, most of it in the past five years.
Critics called the pay excessive, and on Sept. 2, Securities and Exchange Commission chairman William Donaldson sent McCall a letter asking for details.
The NYSE responded that Grasso actually was entitled to $48-million more, which he quickly said he would forgo. But the sum had caught even some board members, including McCall, by surprise, and outrage spiraled. Floor traders reportedly circulated petitions and board members started calling for special meetings with seatholders.
On Monday, former NYSE chairman James Needham joined calls for Grasso to go, followed Tuesday by influential pension officials in California and New York and on Wednesday by Democratic presidential hopeful Sen. Joseph Lieberman of Connecticut - and, finally, by some of Wall Street's biggest firms.
Grasso has insisted he did nothing to influence his pay. At a Sept. 9 news conference, he said that each year, when informed of his compensation, his response was: "I'm blessed. Thank you."
Critics, from investor advocates to politicians and traders, said the lavish pay undermined the credibility of the exchange, a not-for-profit, member-owned institution that also serves as a regulatory watchdog.
A source familiar with Wednesday's meeting, which lasted about an hour and 45 minutes, said the vote to accept Grasso's departure was 13-7, the Associated Press reported. The three managers who hold seats abstained, three directors were absent and one seat is vacant, the source said, speaking on condition of anonymity.
Those urging that Grasso leave included most of the Wall Street executives, Avon CEO Andrea Jung and former Secretary of State Madeleine Albright, the source said. Those who thought Grasso should stay included Kenneth G. Langone, Home Depot co-founder and former head of the compensation committee, and William B. Summers Jr., chairman of McDonalds Investments Inc., a unit of Midwest banking giant KeyCorp, the source said.
According to Grasso's new contract, he is entitled to nearly $10-million in severance pay - equal to his salary and target bonus for the next four years, as well as health and life insurance for himself and his wife for the rest of their lives. But he has declined several of the contract's provisions.
- Information from the New York Times was used in this report.