Grasso Resigns as NYSE Chair
After Weeks of Controversy

By SUSANNE CRAIG and KATE KELLY
Staff Reporters of THE WALL STREET JOURNAL

Dick Grasso resigned as chairman of the New York Stock Exchange Wednesday, offering to quit after the board held an emergency meeting to discuss the embattled chief's fate shortly after the close of trading.

Mr. Grasso, under fire for what many on Wall Street called an excessive pay package that saw him walk away with $139.5 million a few weeks ago, tendered his resignation at the meeting, and the board accepted, sources say.

The New York Stock Exchange directors called the emergency board meeting Wednesday to discuss the Mr. Grasso's future. A person close to the NYSE board told the Associated Press that the directors planned to ask Mr. Grasso to resign. The emergency meeting began at 4:15 p.m. Wednesday, directors confirmed.

Tuesday night Mr. Grasso had called for a special meeting next week, but calls for his resignation continued Wednesday.

A spokesman said earlier Wednesday that Mr. Grasso called the meeting set for next week to "review the preliminary report and recommendations prepared by the special committee on governance of the NYSE and to discuss current issues."

Also on Wednesday, Securities and Exchange Commission Chairman William Donaldson said a $140 million pay package for Mr. Grasso is raising "serious concerns" for regulators but declined to say whether Mr. Grasso should resign.

At a hearing Wednesday before the House Financial Services Committee, Mr. Donaldson said he and others on the SEC were "upset" by reports about Mr. Grasso's lucrative pay, and will pose more questions to the NYSE board about how it was set.

"We will be taking a hard look at the governance structure," Mr. Donaldson told reporters after the hearing. He said Mr. Grasso's salary will be "a small but important piece" of the SEC's review.

Mr. Donaldson declined to comment on calls for Mr. Grasso's resignation, saying he didn't think the SEC chairman should discuss that "at this point."

However, two Democratic presidential hopefuls weighed in on the controversy, both urging Mr. Grasso to step down.

North Carolina Sen. John Edwards, who entered the race on Tuesday, said Mr. Grasso's resignation should be part of reforms at the NYSE.

"Dick Grasso's pay package is extraordinarily excessive, but the amount is just a symptom of the real problem. The real problem is that the Board of the New York Stock Exchange has operated like a clubhouse, with no accountability to anybody except itself. Instead of setting an example for corporate America, the board has become a symbol of what's wrong at too many corporations," the senator said.

"Dick Grasso should step down because there can no longer be real reform at the stock exchange until he does. But Dick Grasso's resignation has to be just the beginning of reform, not the end," he said.

Connecticut Sen. Joseph Lieberman said Mr. Grasso should quit to restore market confidence. "Instead of setting an example of ethical leadership for the market he oversees, Mr. Grasso's behavior has shaken the faith of investors and the foundation of the stock exchange. For the sake of confidence in the market, it is time for Mr. Grasso to resign."

The emergency meeting came as the heads of four of America's largest public pension funds -- two in California, one in New York and one in North Carolina, representing combined assets of $401 billion -- asked Mr. Grasso to step down. They asserted that his $139.5 million deferred-pay package is too much, particularly amid efforts by U.S. companies to shore up governance standards as the nation's stock markets recover from an unprecedented period of corporate fraud.

Several board members, primarily the heads of big Wall Street firms, have privately been discussing over the past several days what to do about the controversy. Pressuring Mr. Grasso to resign was among the options being floated.

Some New York Stock Exchange directors, under pressure from regulators, are preparing to propose several changes to how the exchange's board operates -- including barring the chairman from having input into the nomination of new directors.

They will also propose that the board cut the number of Wall Street directors and increase outside participation, people familiar with the situation say.

The preliminary proposals were to be discussed by the New York Stock Exchange's Special Committee on Governance at a meeting set for Sept. 29 and most likely presented to the full board three days later. Wednesday's meeting left unanswered whether that timetable would change.

The pay package, prompted membership-seat holders on the exchange and Monday the state treasurers in California and North Carolina, and the New York state comptroller to join the call for Mr. Grasso's resignation.

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

The tentative blueprint comes as the very securities-industry directors whose presence stands to be reduced on the exchange board have already begun considering the possibility of asking Mr. Grasso to resign as a way to quell the firestorm they fear is damaging the reputation of the Big Board. They have been waiting to see whether pressure will continue to mount from the floor, the Securities and Exchange Commission and the public.

Mr. Grasso has said he has no intention of resigning. But the governance proposals under consideration could nevertheless curtail the influence of the NYSE chairman.

The board's review of its governance structure predates the pay flap. Six months ago SEC Chairman William Donaldson asked the Big Board to examine its own corporate governance, a process that the NYSE had set in motion. The proposals are intended, in part, to help the exchange emulate the policies of its own listed companies.

But the proposal to alter the board's composition seems aimed at criticism -- including a conclusion in a report last month by the Council of Institutional Investors, a powerful pension-fund group -- that the prominence of broker dealers on the NYSE board could have a chilling effect on Big Board regulators' independence. The board has seats for 27 members, including three Big Board officials, 12 securities-industry representatives and 12 public representatives. (There is one vacancy.) [William Donaldson]

The proposal to limit the influence of the senior management, including the chairman, in the nominating process is also intended to make the board more independent.

In a late-March letter to the NYSE and the Nasdaq Stock Market, owned by the National Association of Securities Dealers, Mr. Donaldson asked the markets to re-examine their own corporate-governance practices with an eye toward following the same standards they set for their listed companies. At that time, the Big Board established its Special Committee, a group co-chaired by former NYSE board member Leon Panetta and H. Carl McCall, a current director and private-equity executive.

The committee, which also includes former U.S. Secretary of State Madeleine Albright, Invemed Associates LLC Chairman Kenneth Langone, Goldman Sachs Group Inc. Chairman and CEO Henry Paulson Jr., and other current NYSE directors, has met numerous times this year, taking testimony from floor members, retired seat-holders, and other individuals and institutions as to how the NYSE's governance practices should be changed. [H.Carl Mccall]

In June, at the committee's recommendation, the full NYSE board adopted 10 initial reforms. Those included establishing a compensation committee free of securities-industry directors, publishing compensation information of top executives in the Big Board's spring annual report, and barring NYSE executives from serving on listed-company boards, among other things. Potentially more significant proposals are expected to be floated in the coming report.

The exchange's efforts don't seem to have satisfied Mr. Donaldson. In a letter dated Sept. 2 and sent to Mr. McCall, the SEC Chairman wrote that Mr. Grasso's compensation "raises serious questions regarding the effectiveness of the NYSE's current governance structure."

Earlier this year, the NYSE was embarrassed when its attempt to nominate Citigroup Inc. Chairman Sanford Weill to its board as a public director was foiled by an outcry from regulators, who said that adding Mr. Weill to the exchange board, so soon after his company paid $400 million to settle allegations that it had offered investors disingenuous stock advice, was preposterous. Mr. Weill withdrew his name, but the move didn't quiet the exchange's corporate-governance critics.

Mr. Grasso has tried to distance himself from the nominating process, saying the notion of appointing Mr. Weill was one presented to him by the committee, not the other way around. But at a nominating-committee meeting earlier this year, Mr. Grasso weighed in, saying one potential candidate the group was discussing had been approached before and wasn't interested, according to one person who was there.

Mr. Grasso has said previously that it isn't unusual for him to have input into discussions of the nominating committee.

Write to Susanne Craig at susanne.craig@wsj.com¹⁹ and Kate Kelly at kate.kelly@wsj.com²⁰

Grasso Resigns as NYSE ChairAfter Weeks of Controversy

Grasso Resigns as NYSE Chair
After Weeks of Controversy