nyse's grasso resigns

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    In case any of you have not yet heard, NYSE Chairman, Dick Grasso, has this morning (our time) resigned from his position with the NYSE.

    The implications of Grasso's resignation will flow through into exchange and trading activities, today and tonight. In the meantime, fallout from the resignation is likely to hit home here in Australia, as both ASIC and the ASX continue to struggle with bringing into play a new era of continuous disclosure, and proper governance management arrangements.

    A copy of the Wall Street Journal's spin on this, is set out below, along with a copy of today's AFR article on the ASX (@p64):

    September 17, 2003 7:40 p.m. EDT



    Weakened NYSE Faces
    Host of Challenges

    SEC Is Investigating Governance;
    Rivals May Be Able to Capitalize;
    Lobbying in Capitol Is Hampered
    Staff Reporters of THE WALL STREET JOURNAL

    With Dick Grasso stepping aside, the New York Stock Exchange now faces a series of challenges without its most ferocious and familiar advocate.

    The NYSE chairman and chief executive officer tendered his resignation at an emergency board meeting late Wednesday, ending a 36-year career at the Big Board.

    Mr. Grasso's resignation came amid intensifying criticism about his compensation, details of which were released in late August. The compensation package included $139.5 million in deferred compensation that Mr. Grasso had agreed to withdraw as part of a contract extension into 2007. Last week, the NYSE disclosed that he had also opted to forgo an additional $48 million in deferred compensation. The Wall Street Journal had reported details of Mr. Grasso's compensation in May.

    Among the issues facing the Big Board were a Securities and Exchange Commission inquiry into the NYSE's corporate-governance policies; an SEC examination of market structure; and questions about the NYSE's status as a self-regulatory organization.

    NYSE Chairman Dick Grasso spoke last week at a panel discussion on corporate governance in Washington.

    The emergency board meeting, called by Mr. Grasso, came about despite Mr. Grasso's call late Tuesday to hold a Sept. 24 board meeting to discuss corporate governance and other board issues.

    On Tuesday night and Wednesday, Mr. Grasso polled directors on their feelings about his pay and tenure, according to people familiar with the matter. Several directors stressed that Mr. Grasso didn't pressure them to take any particular position during the calls, and instead listened patiently to what they had to say. One of the board's chief worries, people familiar with the situation said, was the lack of a clear successor to take the reins if Mr. Grasso were to leave.

    Indeed, according to NYSE directors, Robert Britz and Cathy Kinney, the exchange's co-presidents, would have their positions reaffirmed during a second board telephone-call meeting later Wednesday evening. But just who would head the NYSE in the interim remained unclear.

    During his eight years in the top job, Mr. Grasso, 57 years old, has come to epitomize the exchange. In opening-bell ceremonies, regulatory settlements and charitable functions, his image has been broadcast around the world. His leadership in the face of adversity has earned him respect even from the NYSE's critics. And within the exchange, staff members from the luncheon-club waiters to the most powerful floor traders count him as a friend.

    In addition, Mr. Grasso helped the NYSE maintain a juggernaut on trading-market share. Even with the rise of electronic competitors, the NYSE maintained a greater than 80% share of volume in its stocks. By comparison, the Nasdaq Stock Market trades fewer than 20% of the volume in its stocks.

    The NYSE chairman's exit throws into question the delicate framework of the 200-year-old exchange, which Mr. Grasso managed closely since he became president and chief operating officer in 1988, keeping a watchful eye over trading, listings, marketing, lobbying and customer relationships all at once. In 1995, he became CEO and chairman.

    With uncertain leadership at the helm, "their competitive position vis-a-vis the listing business is weakened to some degree," said Matt Andresen, head of global trading at Sanford C. Bernstein & Co. If companies view the Big Board as an unstable home, he added, they might consider abandoning the exchange and listing on the Nasdaq Stock Market, its top competitor, instead.

    In addition, said Mr. Andresen, the NYSE's political position may weaken. "In Washington, the perception is that they're going to be a political hot potato," a view that could affect pending SEC decisions that are important to the exchange.

    Losing ground in Washington could be a significant blow for the Big Board, which has been lobbying hard in recent months to counter certain other markets' reform efforts. Among other things, the SEC is considering whether to repeal the "trade-through rule," which prevents market centers from ignoring superior stock prices on other exchanges. Nasdaq and other markets argue that the trade-through rule has preserved the Big Board's dominance in its own stock trading by making it difficult for other market centers to compete with it. The NYSE, which has so far sought to preserve the rule, disagrees.

    In addition, the SEC earlier this year began asking questions about the NYSE's corporate-governance policies, especially how the exchange's board and board committees are constituted. The late August extension of Mr. Grasso's contract through 2007 before the completion of the SEC-mandated review raised the ire of William Donaldson, the SEC's chief, who, in turn, requested details about Mr. Grasso's compensation and contract. The kerfuffle over Mr. Grasso's compensation subsequently snowballed. By Wednesday, Democratic senators and presidential hopefuls John Edwards and Joseph Lieberman were calling on Mr. Grasso to step down.

    It's a hard fall for the exchange chairman, who rose from a hardscrabble upbringing in the Jackson Heights section of New York City's borough of Queens to become a Wall Street celebrity with a seven-figure salary at the age of 48. But difficult as the transition may be for Mr. Grasso, it may be even harder for the Big Board, whose 4,500 staff members and floor workers have come to count on him as a fearless, industrious leader with a knack for attracting new companies and hanging on to the exchange's trading share.

    Even Wednesday, Mr. Grasso still had strong support from the exchange floor. "I don't want to see him go," said Karen Nelson Hackett, a longtime broker. "Who knows what happens in the future with someone we don't know."


    ASX mustn't let the grass grow
    John Durie

    The chairman of the New York Stock Exchange, Dick Grasso, will be lucky to survive in his job, not because anyone thinks he is doing a bad job but because his retirement package threatens the institution's image.

    No one is suggesting Grasso has broken any rules, but he was a bit greedy, maybe, when you consider he was happy to collect a $US5 million (about $7.5 million) bonus for his post-September 11 leadership.

    Firefighters and policemen in the city missed out on their portion of the payout. In all, his $US30.5 million 2001 pay cheque nearly matched the NYSE's profit for the year of $US31.8 million.

    The NYSE pay flap is also being used by the reform lobby to push for more openness and demutualisation along Australian Stock Exchange lines.

    ASX brass Maurice Newman and Dick Humphry may be sitting back congratulating themselves on leading the world into listed stock exchanges and their own governance blueprint. This would be wrong, because Grasso's experience should serve as a reminder of the leadership expected and the ever-present tightrope the ASX walks between its roles as frontline regulator, listed company and Australian stockmarket spruiker.

    Humphry's pay last year was a suitably conservative $1.4 million including bonuses. When he retires next year he will be able to pay the rent for a year or two longer.

    But Grasso's seemingly imminent downfall shows the ASX that as much as it likes to see itself as a diverse technology company, investors expect it to show market leadership and run a fair stockmarket with unquestioned integrity.

    The NYSE is an insiders' club and - as the financial services sector represents some 21 per cent of New York City's revenues and some 15 per cent of New York state's - it is a powerful one.

    The same people on the NYSE board who approved Grasso's $US139.5 million deferred pay package also sit with him on the board of Home Depot, the Leon Panetta Institute and countless other charities.

    Its board is made up of the top Wall Street and Fortune 500 chief executives. Not so long ago the same board walked into a storm of protest over plans to put Citigroup chief Sandy Weill on its advisory board. It eventually abandoned the move. Citigroup at the time was agreeing to pay over a huge fine for admitted breaches of analyst independence rules.

    In an era in which the rest of the world's stockmarkets are run electronically, Grasso has managed to uphold the old auction system in which independent traders personally match trades even as increased electronic trading is forcing more smaller independents to close.

    Some argue his payout when his existing contract expires in 2007 is being made more for his role in protecting the club and is evidence of the market at work, valuing the club's monopoly profits.

    Grasso is a New York legend, the 57-year-old son of a Brooklyn service station operator who worked his way up from the post room to the top of the world's most influential stock exchanges.

    His retirement pay is a reflection of the 36 years he spent on the corner of Wall and Broad streets, the last eight as chairman and chief executive.

    But when details emerged in The Wall Street Journal about a $US1.4 million holiday bonus he gave up along with earlier birthday bonuses totalling some $US12.1 million as part of $US48 million he relinquished, it didn't look good.

    At a time when corporate America and Wall Street in particular is trying desperately to restore its image, a payout to the NYSE boss that would take the average American some 5200 years working a 40-hour week to earn doesn't look good.

    The furore that is gathering pace with a series of big institutions demanding his resignation highlights the sensitivities that still remain in the US, and almost by definition in Australia, on corporate excesses.

    Should the NYSE bow to investor demands, then the question is whether it would choose an internal candidate like Bob Britz or Catherine Kinney or take a walk on the wild side and choose an external candidate.

    While on the topic, US-based GovernanceMetrics International has released a study looking at the total returns by the top 10 per cent and bottom 10 per cent of the 1607 companies it rates around the world based on their governance standards.

    No surprise that those in the top 10per cent, though slightly lagging index averages over 12 months, outperformed the bottom 10 per cent by some 7.1 per cent and over five years beat the respective indices by 2.3per cent and the bottom 10 per cent by 9.9 per cent.

    The results are more pronounced over 10 years and over all time periods, when judged on board composition and independence issues.

    Which suggests someone may look at the concept of an index fund based on companies that score good governance ratings.

    Yesterday's Booz Allen-Business Council study on chief executive turnover in Australia is on one level disturbing indeed.

    The fact that the average boss stays in the job for just 4.4 years, almost half the 8.6 years globally, and tends to be younger when he or she gets there, tells you Australia is a small market, suffering from overexposed chiefs and short-termism.

    The experts say a new boss needs to be in the chair for at least five years to make his or her mark or change the culture.

    Though the survey's numbers can't be disputed, a look at the top companies would show you that in most cases chief executive turnover and short tenure was well and truly justified.

    AMP, Lend Lease and Mayne were hardly global success stories, BHP Billiton's quick pass on Brian Gilbertson was, whether justified or not, easily explained and Normandy and Goodman were taken over - and so the list continues. The study raises an important issue but without analysis of just how companies perform after dumping their bosses quickly.

    Brambles is dual-listed, which provides a good global test on how rumours drive stock prices now the General Electric talk is back in vogue.

    According to Bloomberg, the local stock is down 0.83 per cent over the last week. The UK stock, which didn't go ex-dividend until last night, has risen 3.9 per cent over the period.

    Based on a 20-day moving average as at close of business in Australia yesterday, the spread between the two was 13per cent, with Australia selling at a premium compared with 14 per cent at the end of last week.

    Separately, yesterday's column erred in attributing ownership of Epic Energy to NSW State Super managed by Deutsche. It should have read 11.1per cent, which is worth $110million plus, not the $11.1million cited yesterday.
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