Richard Grasso and Lessons Not Learned
Critics, their faces sporting eyebrows threatening to slide off of their faces in incredulity, have again taken aim at New York Stock Exchange Chairman Dick Grasso. “Is he the right man to protect investor interests?” they ask. “Is he worth all the money he’s paid?” Both are good and fair questions.
In a search for answers, let’s look at Grasso’s recent statements and a partial track record.
In an interview with the Washington Post and the Los Angeles Times, when repeatedly queried about the accuracy of reports that he makes $10 million a year, Grasso stated: “It has been NYSE policy for 211 years not to disclose executive salaries.”
That glib answer might reveal more about Grasso’s elitist attitudes than meets the casual eye. After all, how can a 211 year-old rule justify secrecy in a free marketplace where transparency is supposedly sacrosanct? Such an ancient bylaw — even if originally created for good reason, and that’s debatable-can hardly qualify as relevant today, can it? Two hundred years ago, women and African Americans couldn’t vote. In fact, 211 years ago, African-Americans were slaves (and women were nearly so). Does Dick Grasso mean to suggest that we must return to legislation or Constitutional precepts in effect half a century before the Civil War? It is precisely this lack of disclosure in the US marketplace and in corporate America that has helped create today’s towering crisis in investor confidence. Didn’t Enron teach Grasso anything?
At just about every turn, one could make a case that Dick Grasso simply doesn’t get it. He doesn’t understand, for example, that serving on the board of directors of a NYSE listed
Company — Home Depot (NYSE, symbol HD) — and having his own NYSE board or directors made up of those the NYSE is supposed to regulate-which it does-is, at best, counterintuitive (at least to most people) to nearly everyone except those who sit on the executive board of the NYSE. That William Summers-CEO of Ohio-based McDonald Investments and a member of that NYSE executive board-said, “It’s important for the leadership of the exchange to understand how public companies are governed and.run themselves,” as a rationalization for Grasso’s Home Depot board seat, isn’t likely to convince many that this is anything but what it is: bad public relations at a time when the exchange can afford none.
Furthermore, Grasso and his supporters seem not to grasp that having the lead director of Home Depot-Ken Langone — chair the NYSE’s compensation committee, the committee that granted him his multi-million dollar pay package, creates a further layer of grotesque conflict of interest. Would any objective observer expect Dick Grasso to favor investor interests over Mr. Langone’s and Home Depot’s? On second thought, that’s a stupid question.
New York Attorney General Eliot Spitzer, in blunt terms, recently stated: anyone not understanding that self-regulation has been an abject, utter failure must have lived on “The Dark Side of the Moon.” In an amazingly effective effort to keep everyone forever ensconced in outer space, Mr. Grasso now speaks of a lengthy process of hearings, public commentary, and deliberation in reviewing public concerns about NYSE governance and operation. He suggests that any approved changes will not be radical and might take years to produce (211 years perhaps). Could this be a clever way of saying: “We’ll make it look as if we’re doing something while we obfuscate the obfuscation?”
Grasso has raised to art form the use of gobbledygook nomenclature. Need an example? Many people-myself included, and I am a former stock trader and Wall Street executive — are still trying to understand the difference between “front-running” and “failure to observe negative obligation.” David Finnerty, the specialist in General Electric stock (NYSE, symbol GE), allegedly committed the trading infraction Grasso termed a “failure to observe negative obligation” and what Grasso denied was “front-running”. Both involve specialists’ use of superior information to enrich themselves at the expense of the naïve investor. To many, it seems a distinction without a difference. Dick Grasso has indicated, however, that the two are as different as “jay-walking” and “murder.” At the minimum, the NYSE Chairman needs to explain the distinction in a bit more detail before the fog in that analogy burns off.
Grasso might be assuming that outrage and regulatory scrutiny will subside with time, as it normally does, if he continues to give bob-and-weave lip service to the issues. If and when the light of public outrage dims, the cockroaches-so to speak — will be free to roam and feed, peacefully unfettered in and around the money machine.
When Grasso said at a recent financial services industry dinner, in response to inquiries about his salary, “Don’t believe everything you read,” and then smiled and padded away from reporters, he seemed to be enjoying an inside joke. He didn’t deny the $10 million number, and perhaps was suggesting that media reports were not accurate. That might well be the case, but for reasons people might not imagine Speculation in some quarters is that Grasso may make twice that number or upwards of $20 million a year. If that were the case-and I don’t know if it is or isn’t — then this would be quite a clever play on words-“don’t believe everything you read” — and Grasso, if nothing else, is a clever man.
So, in answering the questions posed at the outset, it seems self-evident that Mr. Grasso’s personal and professional interests hardly mirror those of the investing public’s. With respect to his pay package, whether or not it is excessive depends on whom you ask. If the current strategy of obfuscation plays out the way it’s been mapped by Dick Grasso and his Big Board family, then the NYSE may yet produce several more decades of self-serving enrichment.
In the meantime, those of us outside the cloistered walls of the NYSE shake our heads and ask: Is there no learning curve with these folks? Enron, Arthur Anderson, HealthSouth, Tyco, $1.4 billion in fines for research fraud? Perhaps if these abusers had their own set of 211 year-old rules to hide behind they wouldn’t have had to suffer. Maybe that’s the lesson Mr. Grasso and those ruling the NYSE would have us learn.