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NYSE unveils reform blueprint
By Vincent Boland in New York
Published: November 7 2003 18:03 / Last Updated: November 7 2003 18:03

The New York Stock Exchange yesterday unveiled wide-ranging reforms of its corporate governance in a bid to restore its reputation following the furore over the pay of Richard Grasso, its former chairman.

The proposals by John Reed, Mr Grasso's interim successor, would involve separating regulation and day-to-day operations but keeping its structure intact.

Critics said the reforms, which include a board of eight directors independent of Wall Street, did not go far enough to address structural and ownership weaknesses that led to the recent corporate governance failures.

Sean Harrigan, president of Calpers, the Californian pension fund, said the "woefully inadequate" reforms would do little to restore investor confidence.

Mr Reed named the eight directors to replace the 27-member board that gave a lavish pay package to Mr Grasso, who had appointed most of them. Mr Reed said the eight nominees were "a distinguished group" independent of the securities industry.

"This is a significant change as far as we are concerned. For the first time in its history the NYSE will have a truly independent board of directors," Mr Reed said.

The new board will have responsibility for compensation and the controversial issue of market regulation. This is the focus of scrutiny because of investigations into allegations of improper activity by the "specialist" firms that manage stock trading on the NYSE floor.

It will also appoint an executive board - comprising members, brokers and investors - to oversee day-to-day operations.

Corporate governance experts were cautious about the dual structure because it is rare at US companies. Espen Eckbo, at the Tuck School of Business at Dartmouth College, said: "The independent board will have to stamp its authority from the outset. If it doesn't, the executive board will run the show and the NYSE will be back to where it was."

The eight nominees are Madeleine Albright, former secretary of state; Herbert Allison, chairman of the TIAA-Cref pension fund; Euan Baird, chairman of Rolls-Royce; Marshall Carter, former chairman of State Street Bank; Shirley Ann Jackson, president of Rensselaer Polytechnic Institute; James McDonald, president of Rockefeller & Co; Robert Shapiro, former chairman of Monsanto; and Sir Dennis Weatherstone, former chairman of JP Morgan. The 1,366 members of the NYSE will vote on the nominations on November 18.

The Securities and Exchange Commission, chief US financial regulator, also adopted a wait-and-see stance. It said the reforms were a "critical first step towards revamping the governance and regulatory structure at the NYSE" but added that "additional reforms" might be considered as part of its review of the US securities markets.

Mr Reed defended his proposals: "I believe this structure is quite good and robust." Asked if long-term structural changes were required, he said: "I wasn't brought in here to address [those] questions." xref Independent regulator needed, Page 13 Lex, Page 14 New board, Page 18