[Shields:] Welcome back. Dick Grasso was forced out as president of the New York Stock Exchange, amid criticism of his newly revealed $140 million compensation package. The stock exchange interim chief promised change.
[Carl Mccall, Interim Chairman, Nyse:] From today on, the New York Stock Exchange will operate differently. The board of the New York Stock Exchange is fully committed to moving forward with a corporate governance plan that will commit us to transparency, that will commit us to being a model for all other corporations in this country.
[Shields:] Joining us now is Allan Chernoff, the senior correspondent for CNN and CNNfn. Thanks for coming in, Allan.
[Allan Chernoff, Cnn Correspondent:] Good to see you, Mark.
[Shields:] Allan, is Dick Grasso the only casualty, or is there somebody's stock about to fall at the Exchange?
[Chernoff:] Mark, there is no question that we're going to see more heads rolling. Dick Grasso may have taken the money, but there were 25 other people on the board of directors who gave him all of that money, that $140 million in deferred pay and retirement package. So we're certainly going to see members of the board moving out. In fact, there is a committee within the board, a governance committee, that is going to come out with recommendations very shortly, calling for reduction in the number of people from the Wall Street community who actually sit on the board. There are 27 slots on the board right now; 12 of them are comprised of securities firms, and you are certainly going to see a reduction over there.
[Shields:] Bob Novak.
[Novak:] Allan, I think the consensus was that Mr. Grasso was doing a very good job at the stock exchange. I had never heard any criticism of him. Is there any feeling up there among the people connected with the stock exchange that he was treated shabbily, that he took something that was offered to him and then when they got a little criticism from the media, they said you have to go?
[Chernoff:] Dick Grasso was unique at the stock exchange. The only person ever to rise from the bottom all the way to the very top, 36 years there. For a long time, people said nobody knows the ins and outs of the stock markets like Dick Grasso. But in terms of the pay, it was simply shocking, because that money was publicized, all of a sudden it was kept very quiet and then all of a sudden it came out, and this happened at a time when members of the stock exchange had to pay more for improvements in technology, and they've also been seeing their profit margins squeezed because of changes at the exchange. So it really hit a sore spot when all of a sudden, people saw how much Dick Grasso was getting. People had no idea.
[Shields:] Margaret Carlson.
[Carlson:] Allan, isn't it partly the public's outraged that it's corporate back-scratching, that it was, you know, people on the board that were friends of him, they were interlocking, sitting on the boards, and there was no greater cheerleader for Grasso that that first week than Carl McCall. And now Carl McCall is running he's the head of the governance committee. Why isn't his head going to roll?
[Chernoff:] Yes, I mean, people are looking at this and saying, what is going on here? The board picked this fellow, not only is he head of the governance committee, he's actually head of the compensation committee, so it's totally shocking that they would point to Carl McCall as the guy to on the interim basis be the lead director. I mean, it's almost laughable. People are really smirking about this, and it says something about maybe how there has been a total disconnect from reality in the board of directors. And I don't know what the threshold is, whether you have to earn $5 million a year or $10 million a year, but trust me, there are plenty of people on that board who have earned that type of money, and frankly they didn't think Grasso was being overpaid. Mel Karmazin said just the other day, he thought Dick Grasso was worth it. I mean, Grasso certainly did do a great job, but not many people think it was worth maybe $140 million.
[Shields:] Kate O'Beirne.
[O'beirne:] Allan, William Donaldson was of course Grasso's predecessor and is now SEC chairman. Was he that well compensated in that same job, and what role is he playing in this controversy?
[Chernoff:] Great point. In fact, he had earned about $1.5 million per year, so a fraction of what Grasso had earned, although we should point out that Mr. Donaldson is a very wealthy man himself, having been the founder of Donaldson, Lufkin, Jenrette. So it's a very interesting interplay. There has been lots of tension, because Grasso had been hoped to be named chairman when Donaldson got the job. But the two worked it out, and Grasso really was the hands-on person, while Donaldson was sort of overseeing things as the chairman. Now, we understand that Mr. Donaldson has instructed the board of directors that he does not want to see any of the people sitting on the board to take over as the new chairman.
[Hunt:] Allan, you mentioned earlier that they might reduce the number of securities representatives on the board, and I think we all agree that the culprit really here, the worst culprit here is the board. The head of Goldman Sachs apparently has suggested barring executives of any industry regulated by the exchange. It would appear to be a conflict of interest. Why not do that? Why not get rid of all those securities executives on the board?
[Chernoff:] I think there is a chance that will actually happen. Henry Paulson, the head of Goldman Sachs, apparently has made that recommendation. It's certainly one thing that's being considered at the stock exchange. I think what we're about to see is a dramatic change in the way the stock exchange operates. Fro years and years, it has been an incredibly opaque organization, an old boys club, no question about it. It has worked fairly well, but it really there has not been much sunshine through the windows of 11 Wall Street.
[Shields:] Allan Chernoff, thank you for providing some sunshine to us on this subject. THE GANG will be back with "The Outrages of the Week."