Financial officials propose a number of changes, including splitting the NYSE's regulatory functions from its business.
By Associated Press
Published September 25, 2003
NEW YORK - State treasurers and pension fund leaders urged the New York Stock Exchange to condense its board and give regular investors more say as part of sweeping changes recommended Wednesday after the pay scandal that forced the resignation of chairman Richard Grasso.
Officials from seven states, who oversee more than $586-billion in public pension funds, also called for the exchange's regulatory function to be made independent from its business and suggested that the jobs of chief executive and chairman be separated to prevent conflicts of interest. The NYSE and its board came under fire for approving a $187.5-million compensation package for Grasso, who was ousted last week amid a furor over the size of his pay.
The state financial officials, who presented their recommendations to board members at a closed meeting Wednesday, also said there should be a thorough, independent review of the NYSE, perhaps led by the Securities and Exchange Commission.
"We're not talking about just rearranging chairs in the board room," said California state treasurer Phil Angelides, an influential board member of the California Public Employees' Retirement System, the nation's largest public pension fund. "We're talking about the New York Stock Exchange doing a re-examination of its role in undertaking fundamental reform at the exchange."
At a news conference after the meeting, state officials said the 10 directors who participated seemed sincere about bringing positive change to the institution.
"I do think they really understood why we were there. And they were welcoming, saying, "We want to hear more from you, we understand our credibility is on the line,"' said North Carolina treasurer Richard Moore.
NYSE acting lead director H. Carl McCall described the meeting as "very constructive."
"Importantly, the attendees expressed a desire to partner with the NYSE and the SEC to consider what reforms should be made with regard to the exchange's governance and we welcome their continued input," he said in a statement.
A frequent criticism of the NYSE is that its 27-member board is dominated by the securities industry. Half of the current directors are executives at large investment banks, brokerage houses and floor trading firms - the very businesses the NYSE is supposed to regulate.
State finance officials said the 85-million investors who hold NYSE-listed stocks have not been properly represented.
"Nearly half of Americans now have investments in the stock market ... whether through their individual 401(k) or pension," said Kentucky treasurer Jonathan Miller. "It's our goal here to be sure it's not just the barons of Wall Street who are being represented by this board, but the retired teachers in Paducah and the police officers in Eugene, Ore., and the farmers in Des Moines, Iowa."
Interim chairman John S. Reed, the former Citigroup co-CEO drafted to lead the world's richest market through its current crisis, has expressed a preference for a smaller board, with perhaps 12 directors. Reed did not participate in Wednesday's meeting. He will be briefed when he takes over as interim chairman next week.
A statement issued by the SEC, which oversees the NYSE's regulatory function, did not address the idea of an independent review.
"Chairman (William) Donaldson is committed to working with John Reed ... toward a process that will ensure the highest standards of governance at the exchange," the statement said. "Clearly, there are many views on how this process should proceed. We look forward to hearing those views and working with John as he helps the exchange to effect meaningful reform."
Grasso, who resigned Sept. 17, was paid $139.5-million in accrued benefits and savings last month. In the face of public uproar a week before he stepped down, he said he would forgo an additional $48-million in vested funds.
He did not sign a waiver to that effect, however, and it's not clear how much severance pay he'll receive. He is due an additional $9.6-million, according to his contract. Negotiations over his separation agreement are continuing.
Angelides said the board should make "all efforts to ensure that this compensation package is rational and appropriate, and at a minimum whatever is done is made fully transparent to the investing public." He added that he would like to see Grasso return some of the money.
Meanwhile, Donaldson, who headed the NYSE before Grasso, has asked all the other U.S. exchanges for information on how they govern themselves and the compensation of their executives.
Donaldson sent letters this week to the Nasdaq Stock Market, the American Stock Exchange and others seeking information on the number of public representatives on their boards, the process they use for choosing directors and how they set executive pay, an SEC spokesman said.
The letter also went to the self-policing organizations that supervise the exchanges, the spokesman said. Donaldson set an Oct. 3 deadline for the exchanges to respond.
Also Wednesday, the House Financial Services Committee announced plans for hearings to examine the way U.S. financial markets operate, including whether they should continue to regulate their own operations.
A committee news release said that while corporate governance at publicly traded companies has been the subject of new law under last year's Sarbanes-Oxley Act, "little attention has been paid to the state of governance at the exchanges themselves."
- Information from Bloomberg News was used in this report.