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Grasso Conflicts Raise Some Concern

By Mark Harrington and Susan Harrigan

June 7, 2002

New York Stock Exchange chairman Richard Grasso can crow all he wants about good governance at member companies under new NYSE guidelines; his critics still point to his position on the boards of two companies, including Computer Associates International Inc., as inherent conflicts of interest that compromise his good intentions.

At a news conference to announce the new NYSE governance initiatives yesterday, Grasso was grilled on his position on CA and Home Depot's boards of directors, positions he defended as necessary to provide NYSE executives with helpful "insight" at member companies. Critics don't buy it.

"He can come up with any phony-baloney explanation he wants," said Patrick McGurn, vice president of Institutional Shareholder Services, a respected adviser on governance issues. "No official of any self-regulating organization should sit on the governing board of any company they have oversight of."

McGurn paraphrased corporate governance expert Nell Minow, editor of the Corporate Library, in comparing Grasso's dual roles to that of "pitcher and umpire."

David Needham, a former NYSE chairman and former Securities and Exchange Commission commissioner, said the potential for conflicts was one reason he never sat on boards while chairman.

Minow, in a Bloomberg News interview last year, made the further distinction that if Grasso does sit on a board, "It should be one that is exemplary in its corporate governance. Computer Associates is not that."

CA, however, has improved its governance record since last year. It has beefed up its independent director ranks, watered down its poison pill against hostile takeovers and was among the first companies to implement the NYSE rules - indeed, before they were even announced. McGurn said CA director and governance expert Jay Lorsch told him Grasso provided the board with guidance on the new rules in advance of the announcement.

Investigations are another matter. CA is under federal investigation by the SEC and U.S. Attorney's Office over its accounting practices. McGurn said the prospect of the NYSE ever becoming involved in a probe of CA - which has not been broached - would clearly place Grasso in a compromised position. "NYSE investigators could be left saying, 'Gosh, we can't go after this company. I'd be doing something against my boss."

Despite mounting criticism of his board posts, Grasso does not appear to be giving an inch of ground to his critics. In his news conference yesterday, he said he and other executives on boards "detach" themselves from conflicting issues like investigations.

"We are totally immunized from discussion of the stock exchange, its policies and listing standards," he said, reiterating, "I believe there is an insight gained that wouldn't be gained if we didn't have the ability to walk in these shoes."

McGurn suggested that the pay directors receive is also an incentive, and he advised the NYSE to pay its executives more to reduce the temptation of board pay. Grasso and other CA board members were paid shares worth $45,000 last year.

Copyright 2002, Newsday, Inc.


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