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