Governance Issues at the New York Stock Exchange
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Case Details:
Case Code : BECG035
Case Length : 20 Pages
Period : 2003 - 2004
Pub. Date : 2004
Teaching Note :Not Available Organization : NYSE
Industry : -
Countries : USA
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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"The New York Stock Exchange is long overdue for a very serious and thorough examination and overhaul of its governance. The very fact that they nominate their own board without any input from anyone else should not be tolerated."
- Nell Minow, Editor, Corporate-Governance Research Firm - The Corporate Library in August 2003.1
"Today, we take an important step towards a governance architecture with standards of independence and disclosure that are comparable to or stronger than those we require of our listed companies."
- John Reed, Interim Chairman & CEO - New York Stock Exchange (NYSE) commenting on the proposed NYSE reforms, in November 2003.2
Payback Time at NYSE
On September 18, 2003, Richard Grasso (Grasso), Chairman and CEO of NYSE resigned amidst widespread criticism of his pay package and governance practices at NYSE. Earlier in August 2003, NYSE announced that Grasso had been given a lumpsum amount of $140 million from NYSE (covering two decades of deferred compensation, and retirement benefits).
It also announced that Grasso's contract had been extended upto 2007 with an annual pay of $1.4 million, and an additional $1million annual bonus. William Donaldson (Donaldson), Chief of the Securities and Exchange Commission (SEC),3 commented that Grasso's compensation details raised serious doubts about governance standards at the NYSE.
Donaldson sent a letter to the compensation committee head - Carl McCall (McCall) asking for more details about how Grasso's compensation package had been decided. The misgovernance at NYSE came to light in August 2003 when the Council of Institutional Investors (CII)4 published a report which highlighted the shortcomings in NYSE's governance practices.
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The Grasso episode provided more ammunition to the critics of NYSE, who were demanding greater transparency in its working.
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In September 2003, former Citigroup Co-CEO, John Reed (Reed) was appointed the new interim chairman and CEO of NYSE. Soon after taking over the charge, Reed announced that his first priority would be to reform the working of the exchange.
On November 5, 2003, Reed announced proposed reforms in the governance practices of NYSE. The media, general public and industry sources welcomed the reforms saying that they were the step in the right direction.
However, some were of opinion that more drastic changes should be brought in to ensure transparency in the operations of NYSE. |
Governance Issues at the New York Stock Exchange
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