Kate O’Sullivan is staff writer at CFO.
Change at the Exchange
The string of scandals that beset the New York Stock Exchange this past fall revealed deep flaws in its governance practices. In his November letter to NYSE members, John Reed, the former CEO of Citigroup who was brought in to replace ousted Exchange chairman Dick Grasso, wrote frankly, “We have all been embarrassed by a set of problems that has hurt the Exchange and revealed the clear need to change our structure and processes at the top.”
Reed’s proposal for “fast-track” changes calls for a new, annually reelected, independent board of directors to replace the current group, which is staffed in part by securities-industry insiders. The list of candidates includes two current directors—former Secretary of State Madeleine Albright and TIAA-CREF chairman Herbert Allison Jr.—as well as a former head of J.P. Morgan and the president of Rensselaer Polytechnic Institute. In addition, the proposal outlines the creation of a 20-person board of executives that will comprise representatives from broker-dealers, institutional investors, and listed companies, to serve in an advisory role. (In an amendment to the proposal, the current board voted to add a representative of individual investors to the board of executives as well.) Reed, who has made it clear that he plans a short tenure in his role as interim chairman, also mapped out a schedule for board meetings and a succession plan for directors and the new chairman and CEO. Whether the chair and CEO will be the same person is still under discussion.
Overall, the changes have been well received, winning the support of nearly 98 percent of Exchange members. But critics, including large institutional investors such as the California Public Employees’ Retirement System, say the proposal falls short. Calpers is calling for greater investor representation on the Exchange’s board of directors as well as changes in the NYSE’s self-regulatory group. “This proposal will not significantly restore investor confidence,” said Sean Harrigan, president of the Calpers Board of Administration, in a written statement.
At press time, the NYSE was waiting for a final word on the new structure from the Securities and Exchange Commission.