NEW YORK - H. Carl McCall, who strongly defended the pay of ousted New York Stock Exchange chairman Richard Grasso, said Thursday that he will give up his seat on the exchange's board Monday in order to give interim chairman John Reed a free hand to remake the NYSE.
In a letter of resignation sent to Reed, McCall listed a number of changes he would like to see at the exchange, including separation of its regulatory and business functions. Shareholder activists have long argued that the exchange should not be allowed to regulate itself. But until now, the NYSE has strongly resisted such a change.
An uproar over a huge pay package obliged Grasso to resign Sept. 17 and changes in the board that approved his compensation have been expected to follow. McCall had been the public face for the board as the scandal unfolded and was made lead director when Grasso left.
It was not clear whether other directors would follow McCall's lead, though dramatic changes seem inevitable for the NYSE board. Half of the board's 27 seats are assigned to executives of large investment banks, floor trading firms and brokerage houses - the very businesses the NYSE is charged with regulating.
"As lead director of the board of the New York Stock Exchange, I have tried to provide leadership through this time of crisis," McCall wrote in his letter to Reed, the former co-chief executive of Citigroup who takes over at the exchange Tuesday. "I believe the board has taken significant steps in recent days, and I am delighted that I was able to play a role in bringing someone with your qualifications and reputation to the NYSE."
McCall said he would stay on through the end of business Monday so he could preside over a meeting during which directors would hear public testimony and consider recommendations on how to improve the NYSE. Later that evening, he said, he planned to present the recommendations to Reed.
"What we have learned in the past few weeks is that disclosure is a good thing, and should be done consistently and continually," he wrote in the letter to Reed.
At the close of his letter, McCall listed a number of reforms he hoped the NYSE would enact, including electing directors every year, evaluating directors each year and making sure new board members are picked by independent directors and not the chairman. Previously, directors were elected every two years and most were nominated by Grasso.
McCall also called for "an immediate examination to identify and evaluate ways to separate the regulatory and trading functions to ensure that they are effective, independent and beneficial to the investing public."
Former Secretary of State Madeleine Albright, who joined the NYSE board earlier this year, said she was saddened to learn of McCall's departure and credited him with providing the leadership that led to Reed's appointment.
"I trust that he has made a decision that he feels is in the best interest of the New York Stock Exchange," Albright said in a statement. "I have known Carl McCall for many years and he has always conducted himself with dignity and purpose, as he has done today."
McCall, the former comptroller of New York state and 2002 Democratic nominee for governor, joined the NYSE board in June 1999. He became co-chair of the exchange's governance committee when it was formed in February.
McCall mounted a spirited public defense of Grasso after the chairman's compensation - including a lump sum payment of $139.5-million covering mainly the last eight years - first became public on Aug. 27. At first McCall said he stood behind the decisions of previous boards to approve Grasso's compensation. Shareholder activists and corporate governance advocates however were outraged by the chairman's pay, noting that it had been mostly approved by executives from firms the NYSE regulates.
Calls for Grasso to quit reached fever pitch after the exchange disclosed Sept. 9 that Grasso would forgo an additional $48-million he was entitled to receive over the next four years. McCall then began to back away from Grasso. Sept. 18, he said through a spokesman that he could no longer publicly support the chairman. Later that day, McCall was among 13 directors who voted to accept Grasso's resignation during a conference call of the NYSE board.
McCall then agreed to serve as lead director and chief spokesman for the exchange while directors searched for an interim replacement. He appeared exhausted at a news conference the day after Grasso's resignation and said he hoped his service as lead director would be as brief as possible.
"This really comes as no surprise," said Donald Langevoort, professor at the Georgetown University Law Center in Washington, D.C. "We will see in six months or so whether real reforms are implemented and if they are, McCall will be able to take credit for setting some of those reforms in motion."
- Information from the Washington Post and Associated Press was used in this report.
