The Hindu Business Line : Shakeup in NYSE

THE New York Stock Exchange (NYSE) was in a turmoil recently over yet one of those follies which are becoming a predictable feature of the US business culture. This time it was the ready and even abject acquiescence of the Board of Directors, nicknamed the Big Board, in the unprecedented proposal for a hefty handout of $139.5 million to the Chairman, Mr Richard A.Grasso, as deferred pay and retirement benefits.

There was an immediate outcry from investors, the media and the public. This was because the NYSE was supposed to be the custodian of their interests and, indeed, its charter solemnly proclaims that the investing public is its "ultimate constituency". For the NYSE Board which plays a vital role as a pre-eminent regulator of the marketplace with the responsibility of overseeing brokers and establishing listing standards for public companies to be so cavalier in maintaining some minimum semblance of proportion and ethics was a bit much.

Mr Grasso initially put on a brave face, reacting in a fashion reminiscent of Robert Clive when he was accused of cleaning up Siraj-ud-Daula's treasury for his own personal benefit: That he was surprised at his own modesty in taking so little! With the nationwide abuse and protests reaching a crescendo, Mr Grasso found himself cornered and was forced to quit. The curious part of the story is that the directors are now frantically absolving themselves of all blame by claiming that they were not actually aware of the financial implications of their munificence to Mr Grasso.

As per a write-up on the episode in the New York Times, such instances of ostrich-like behaviour are common throughout the business world. It quotes Mr Stephen Davis, president of Davis Global Advisors, an international corporate governance consulting firm, as saying that this is "garden variety corporate governance in America ... For all the hue and cry about poor governance at the exchange, these kinds of sleepy boards are commonplace all across the nation." The problem at the NYSE got aggravated by the pall of secrecy surrounding its decision-making procedures and a built-in conflict of interest. Again to borrow from the Times' commentary, on the one hand, it is a private entity created to advance the commercial interests of its members, including investment houses and trading firms. On the other hand, it is also a quasi-public organisation charged with protecting investors against abuses by those very constituents.

What about India? Are the norms governing the CEO's emoluments in private companies any more transparent and the Boards any less sleepy? The Infosys mentor, Mr Narayana Murthy, wants fairness, transparency and accountability to be the criteria for CEO's compensation, a part of which, he feels, should also be linked to concrete results of his performance and the state of the company's finances. Is anyone listening?

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