New York Stock Exchange Chairman and CEO Dick Grasso is preaching corporate governance reform these days. And that, of all things, has opened him up to criticism.
Last month Grasso proposed, to much acclaim, strict new “corporate accountability” policies for NYSE-listed companies. The centerpiece of his proposal -- designed to repair investors’ battered confidence in the financial markets -- is a requirement that listed companies have a majority of independent directors on their boards. It also redefines “independent” as having “no material relationship with the listed company.”
Problem: Grasso himself is one of three independent directors of NYSE-listed Computer Associates, the Islandia, New York, software company that the Securities and Exchange Commission is investigating for questionable accounting practices. And he has encouraged Cathy Kinney and Bob Britz, his cochief operating officers, to sit on the boards of NYSE-traded companies. Britz is a director of Connecticut toolmaker Stanley Works, one of the companies whose reincorporations in Bermuda for tax-avoidance purposes have triggered an uproar (Institutional Investor, February 2002). Kinney serves on the board of insurer MetLife, which went public on the NYSE in 2000. Grasso joined the board of Home Depot earlier this year.
The NYSE has no material connection to these companies only if you view the exchange -- owned and controlled by giant brokerage firms -- as a public utility. But given that listings fees account for 34 percent of the Big Board’s revenues and are its biggest moneymaker, the relationships between senior NYSE executives and listed companies strike some observers as material indeed.
Still, Grasso thinks the directorships pay dividends. “I believe that there is value in having myself and my seniormost executives sit on the boards of not many but one or two of our listed companies,” he said when announcing the new policy. He argues that many of his predecessors had similar relationships; that NYSE officials are recused from board-level discussions regarding the exchange; and that board service helps the NYSE better serve its listed customers.
But that doesn’t satisfy critics who complain that the conflict of interest is glaring and wonder why Grasso won’t just admit a mistake and move on. “I don’t personally think that if you regulate something, you should be a part of it,” says Hardwick Simmons, chairman and CEO of the Nasdaq Stock Market, which prohibits its executives from serving on the boards of listed companies.
Grasso has until August 1 to change his mind: That’s when the NYSE board is to vote on the governance plan. The plan is certainly an intelligent step in the right direction, but it might make more sense to be a tad more consistent.
