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Shake the Big Board Harder

September 18, 2003

The clamor reached a pitch that even the most loyal board of directors could not ignore, and New York Stock Exchange directors late Wednesday pushed out Chairman Richard Grasso, his reputation sullied by a $140-million pay package that was only recently made public. But the board's action does not end the stock exchange's problems because Grasso was a symptom, not the cause.

The Grasso controversy reeks of the self-interest that makes investors question whether stocks are a fairly run game. The problem is inherent in the way the stock exchange is governed.

Grasso did a fine job as the chief cheerleader for the stock exchange, but the 36-year NYSE veteran also was its top regulator. The cop, then, drew his over-the-top compensation from the businesses on his regulatory beat. So whose interests was Grasso really protecting? Those of the 85 million investors holding shares of NYSE-traded companies and the firms whose shares trade on the exchange -- or those of the fortunate few who own the NYSE and paid Grasso so handsomely?

The privately owned exchange appeared to be playing by its own rules rather than the tough new standards for independent oversight that Congress and the Securities and Exchange Commission require for publicly traded companies. The compensation package is telling because its eye-popping numbers were not public knowledge until the SEC raised questions and demanded answers. Were broader issues that affect investors being settled in the same backroom fashion?

Others with a major interest in how the stock exchange runs, including California Treasurer Phil Angelides and overseers of California's state retirement system, CalPERS, chimed in Tuesday with similar concerns and the NYSE board acted Wednesday. The stock exchange needs to finish the overhaul, putting more outsiders on its board of directors and redefining the chairman's job to emphasize regulation over daily management of business affairs.

The global Big Board is the symbol of capitalism to many investors on Wall Street and Main Street and casts a long shadow around the world. But public markets turn on trust. The NYSE directors lacked independence from Grasso, who over time had all but handpicked the board. It failed to disclose what he was paid, much less determine whether the amount served the interests of the firms and investors who rely on the NYSE for fair trading rules. Those failures raise concerns that other decisions at the exchange were made without thought for its customers and others.

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