NYSE's Reed Says Exchange Needs Overhaul
Sep. 29, 2003
WASHINGTON (AP) _ John S. Reed, the banker temporarily leading the New York Stock Exchange, signaled on his first day in the job Monday that he wasn't rushing to remove Wall Street chieftains from the NYSE board or scrap its own reform plan outright.
Reed, who was meeting with Securities and Exchange Commission chairman William Donaldson, insisted that the way the exchange manages itself should be overhauled before the makeup of its board is changed.
He denied a news report that he was expected to seek the removal of Wall Street chief executives from the board to mitigate potential conflicts of interest.
Any changes in board membership ``should follow from the governance changes'' in how the NYSE conducts itself, Reed said before his meeting with Donaldson, who has been pushing for reforms by the exchange.
``I have given no thought to the composition of the board,'' Reed said.
While he recently suggested that the 27-seat board be pared down to about a dozen members, Reed said Monday he rejects ``this idea that we should simply throw out everyone on the board who's from the financial community.''
Reed, the former co-CEO of Citigroup, was drafted by the NYSE board as interim leader after chairman Dick Grasso resigned Sept. 17 amid a public furor over his $187.5 million pay package.
The board's composition and its vulnerability to conflicts of interest have been frequently cited by critics of the NYSE, and some observers believe it is inevitable that several directors will step down. The board includes six chief executives from major Wall Street firms, including Merrill Lynch, J.P. Morgan Chase and Goldman Sachs.
It was Goldman Sachs chief executive officer Henry Paulson who recently floated the idea of removing those executives from the board and putting them on an advisory panel. The news report quoted an unnamed colleague of Reed as saying he was inclined to support that idea.
Managers of big state pension funds, investor advocates and politicians have been calling for reform in recent weeks. In a letter to Reed on Friday, the AFL-CIO labor organization called for the removal of director Kenneth Langone from all of the board's committees, including one proposing governance reforms. Langone, a founder of Home Depot Inc. and a longtime friend of Grasso, has been criticized for his role in approving the former CEO's mammoth compensation package.
Rather than focusing on individual directors, ``at this point what we want to see first is a full, independent investigation by the SEC,'' said Brad Pacheco, a spokesman for the California Public Employees' Retirement System _ the nation's largest public pension fund.
Sean Harrigan, the fund's board chairman, also has advocated reducing the number of seats on the NYSE board, changing its composition and making it more accountable.
Reed, appearing with Donaldson at the SEC chief's office, said he wanted to move with ``all deliberate speed ... sooner rather than later'' on the process of NYSE reform, and that proposals would be vetted by the SEC. Although a report by the NYSE on reform doesn't go far enough, Reed said, it would be ``foolish'' to automatically discard it without careful study. The report has not yet been made public.
H. Carl McCall, who resigned as lead NYSE director last Thursday, was presiding over a meeting Monday in which directors would hear public testimony and consider ways to reform the exchange. McCall has said he planned to present the recommendations to Reed.
Following McCall's unexpected resignation, news came Sunday that Daimler-Chrysler chairman and CEO Juergen Schrempp also is leaving the board in the aftermath of the outcry over Grasso's compensation.
Reed said he would be listening to Donaldson, who has closely monitored developments at the NYSE and raised sharp questions about Grasso's compensation but has not advocated specific changes.
Donaldson called their meeting ``the beginning of a process in terms of the SEC being whatever help it can be'' to Reed. At the end of the day, he added, the stock exchange must come up with its own proposals for reform.
Among the key issues is whether the NYSE's self-regulatory and enforcement function should be split off from its exchange business. About half of the board's seats are assigned to executives of large investment banks, floor trading firms and brokerage houses _ the very businesses the NYSE is charged with regulating.