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New NYSE Chief Meets More Than Adulation

Although widely lauded, John Reed faces some flak for supporting the exchange's role as regulator and rejecting calls to dump the board.

October 05, 2003|Thomas S. Mulligan | Times Staff Writer

NEW YORK — Since taking over a week ago as interim chairman of the New York Stock Exchange, John S. Reed has exuded the confidence and serenity of a man who knows that the worst that can befall him is to get fired from his $1 job and sent back to retirement on scenic Ile de Re, off the west coast of France.

And if that weren't enough to keep his stress level down, consider the reception that the former Citigroup Inc. executive received upon being named to the job.

Regulators, pundits and politicians hailed Reed, 64, as just the tonic the Big Board needed after the embarrassing and painful ouster of longtime Chairman Richard Grasso. In his first meeting on Wednesday with the NYSE's trading floor professionals and seat owners -- many of whom had grown suspicious and resentful of exchange management by the end of Grasso's tenure -- the overflow crowd greeted Reed with a standing ovation.

"If we were in England, what he's doing would be called knightly," one floor veteran gushed after the meeting. He noted approvingly the signal Reed sent by asking for a total salary of $1.

The warm glow hasn't enveloped everybody, however.

To Sarah Teslik, executive director of the Council of Institutional Investors, the worst problem at the NYSE -- more harmful to investors than cronyism or bloated executive pay -- is that the exchange operates both as a market and as a market regulator. Teslik considers it an unresolvable conflict for the NYSE to have "governmental authority to decide the rights and wrongs between its customers and its owners."

When Reed insisted at his first news conference that the Big Board was a good regulator and should keep that function in-house rather than farm it out to government or an independent third party, "he conceded the only thing that mattered," said Teslik, whose organization represents 130 pension funds with assets of $3 trillion.

"Of course there's going to be a love-fest," she said, "except for the people who don't have a voice and don't have a vote -- the investors."

Teslik's sentiments are shared by some of the same state treasurers and pension fund managers whose outrage at Grasso's $187.5-million pay package -- $139.5 million in retirement and deferred salary, plus $48 million in future retirement benefits and other compensation -- helped prompt his forced resignation Sept. 17.

"Having a regulatory body that is owned and controlled by the very entities it regulates creates a conflict with investor interests," said Jack Ehnes, chief executive of the $100-billion California State Teachers' Retirement System.

As the pension fund community's reaction implies, Reed's rescue mission may encounter rougher sailing than he imagined when he agreed to take the tiller -- although some observers said critics should hold their fire until Reed produces his plan.

"It's unseemly to be trying to judge the guy after one week," said Rep. Barney Frank (D-Mass.), ranking Democrat on the House Banking Committee.

Even absent controversy, Reed has set himself an ambitious timetable: He hopes to win approval from the board for a still-developing reform plan, put the plan to a required vote of the exchange's 1,366 seat holder-owners, find and install permanent NYSE leadership and be back in private life -- all by year-end.

Damon Silvers, associate general counsel for the AFL-CIO, which has become increasingly outspoken on pension and executive pay issues, said the toughest task Reed faced might be scraping away the exchange's "clubby" culture.

The 27-member board, laden with Wall Street financiers and corporate CEOs, was so out of touch with the way most people live that it didn't balk at a nine-figure payday for a man whose job, at least in part, was to regulate the market, Silvers said.

Critics Target Directors

Some NYSE critics, the AFL-CIO included, have pushed for the removal of some or all of the exchange's directors.

The biggest target is Kenneth Langone, a friend of Grasso's and co-founder of Home Depot Inc., who headed the NYSE board's compensation committee when Grasso was awarded his most generous pay packages, including a peak annual salary and bonus of more than $30 million in 2001.

Langone has said he has no intention of stepping down.

But Reed rejected the calls to dump his board, saying he needed the directors' insight into what went on under Grasso so that he could reach his own analysis of how to fix the place.

In a Thursday news conference, Reed said that having spoken with all the directors, he expected to get their unanimous approval of the governance changes he would propose. His method, he said, will be to present his plan, poll the board and then "circle back" to confer with any reluctant directors about reform items that may be deal breakers for them.

Regarding self-regulation, Reed said stripping that function from the exchange would be like removing quality control from Toyota's manufacturing operations.

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