September 21, 2003

Corporate Control

Vince Boland writes:

FT.com Home US: Amid all the weeping and gnashing of teeth on Wall Street this week as Richard Grasso was forced out at the New York Stock Exchange, one aspect of the drama didn't get the attention it deserved. This was that the trigger for his departure was pulled by institutional investors.

There was much sniggering among Mr Grasso's supporters that those investors were the California public employees' and teachers' pension funds (Calpers and Calstrs). And who was Philip Angelides - treasurer of California, hardly a paragon of fiscal rectitude - to criticise any institution over what it did with its money? The sniggering has stopped now. Calpers, Calstrs and the New York State Pension Fund, which joined the criticism, are the three largest public pension funds in the US, and, with a combined portfolio of $340bn, are among the NYSE's largest customers...

Posted by DeLong at September 21, 2003 12:52 PM | TrackBack

Comments

"... one aspect of the drama didn't get the attention it deserved. This was that the trigger for his departure was pulled by institutional investors. "

Another aspect that hasn't gotten much attention outside the financial community is that the person who brought Grasso's pay package to the attention of those institutional investors and told them they should do something about it -- placing their finger on the trigger, so to speak -- was SEC chief William Donaldson, who happened to have formerly held Grasso's job without getting paid nearly as much for it.

I do hope that if I am ever offered one heck of a lot of money for doing an honest job in the business world such as exercising executive authority, or consulting, or speaking or whatever, I will have the strength of character to say "No, no, really I don't deserve it" and decline.

Of course if I ever get paid eight digits for hittting .198 like my team's first baseman, or through a law suit contingency fee that I'll use to fund runs for the senate and presidency, I will surely keep every penny without apology.


Posted by: Jim Glass on September 21, 2003 02:00 PM

____

Now what we need is for mutual fund investors to start paying attention to John Bogel and demanding the boards act in share holders interests. A laughable idea as well. But, now mutual fund investors have the attention of the New York Attorney General. The industry has long acted as though all that matters are returns to investment companies and managers, rather than returns to share holders. Investor returns fall shamefully short of indexes because of high and rising management costs, trading fees, portfolio turnover, sales charges, and preferred trading privileges.

Where have the NYSE and SEC been? Time to pay attention to share holders, not merely to pretend to pay attention.

Posted by: anne on September 21, 2003 02:09 PM

____

Remember, had the NYSE CEO pay package been public knowledge it would still have been significant but reasonable given the profits made by the exchange. The NYSE market position makes openness essential.

Posted by: jd on September 21, 2003 02:27 PM

____

Actually, it wasn't Bill Donaldson but as yet unnamed floor brokers who leaked the details of Grasso's pay package. The little guys on the floor feel like Grasso's ignored their input and interests while catering to Goldman Sachs, Merrill Lynch, et al. So they got even (or more than even) by hitting Grasso where it really hurts - in his wallet.

Also, this isn't correct . . . . "Remember, had the NYSE CEO pay package been public knowledge it would still have been significant but reasonable given the profits made by the exchange. The NYSE market position makes openness essential."

The reason that the NYSE CEO pay package is unconscionable is that the NYSE is a highly protected monopoly with regulatory duties and considerable informal federal backing. Just what is it exactly that Grasso did that's so much more valuable than Greenspan, for example?

Now the next interesting shoe to fall is likely to hit Carl McCall on the head. As (former) NY State Comptroller, McCall had duties and responsibilities not unlike those of the folks at Calpers, etc. I don't know McCall personally or professionally, but I know a lot of people who've dealt with him professionally who thought he was a very empty suit. McCall HAS TO GO, next.

Now that John S. Reed has been named interim CEO, it'll be interesting to see what, if anything, happens to McCall . . . . . . . may also be interesting to see what, if anything, happens to Sandy Weill (snicker).

Posted by: Anarchus on September 21, 2003 04:14 PM

____

I can't agree that NYSE is a monopoly. It competes with other exchanges for equity listings and trades. Furthermore, new listings nearly doubled under the marketting effort put forth by Dick Grasso. My problem is that the pay package was just too high. Grossly (and net too!) miscalculated. The Directors are the ones who approved this immodest pay package. They deserve summary dismissal. Are there no bounds? Is the sky the limit? Is there no such thing as "unjust enrichment"?

PS: The Directors awarded him a $5mil bonus because the market was up and running a few days after 9/11. Aren't the computers in New Jersey?

Posted by: Don Majors on September 21, 2003 08:06 PM

____

The NYSE is far from a perfect monopoly, but then what monopoly is, perfect?

What exchange(s) does the NYSE compete with? The Philadelphia exchange? No. Just NASDAQ and the AMEX, which is owned by NASDAQ, now. Ok, so that's more like a duopoly . . . .

Most notable of the NYSE monopoly powers is this one: Rule 500 (the California Hotel rule), which makes it very difficult for NYSE member companies to every leave the NYSE.

Good review of the issue here:

http://www.siliconvalley.com/mld/siliconvalley/5858383.htm

Posted by: Anarchus on September 22, 2003 06:49 AM

____

The NYSE, like Microsoft, is pretty much a monopoly. At least in MS case, the gov't has the option of buying something else (don't really know why they don't standarize on Linux; and fund an open-source Office Suite performance competition ... but that's different.)

I would guess most folk, a priori, would accept that Grasso might reasonably ask for a performance fee of some 10% of the increase in value of a NYSE seat.

So, if there are some 1000 NYSE seats (I don't know these numbers, they're hypos), and their value has increased from $300 000 to $2 300 000, the 10% of $2 bil. is $200 mill. Seems fair-ish; but also likely that there was some market mis-pricing.

Posted by: Tom Grey on September 23, 2003 12:47 AM

____

Without friends no one would choose to live, though he had all other goods.

Posted by: Fabian Marie on December 9, 2003 11:50 AM

____

We are never truly sure of our beliefs.

Posted by: Blackman Mark on December 10, 2003 08:55 AM

____

I have been a stranger in a strange land.

Posted by: Carr Eve on December 10, 2003 08:55 AM

____

What else can i say after all this ?!

Posted by: Leo Kristen on December 20, 2003 12:59 PM

____

There are as many translators as there are humans.

Posted by: Manwaring Jeff on January 8, 2004 09:39 PM

____

Post a comment
















__