ANALYSIS: NYSE should put its stock in quick and clean disclosure

The crisis that brought down the chairman and CEO of the New York Stock Exchange over the last few weeks was something of a unique phenomenon. For starters, Dick Grasso was never accused of breaking the law, and certainly no one would ever put him in the same league as WorldCom's Bernie Ebbers, Enron's Jeff Skilling, or HealthSouth's Richard Scrushy. And even beyond avoiding the legal fray, by most accounts Grasso was an excellent manager.

The crisis that brought down the chairman and CEO of the New York Stock Exchange over the last few weeks was something of a unique phenomenon. For starters, Dick Grasso was never accused of breaking the law, and certainly no one would ever put him in the same league as WorldCom's Bernie Ebbers, Enron's Jeff Skilling, or HealthSouth's Richard Scrushy. And even beyond avoiding the legal fray, by most accounts Grasso was an excellent manager.

Indeed, in the weeks before his resignation, much of the business press was singing his praises as a corporate chieftain. For example, Fortune magazine wrote that, "compared with the competition, he's done a good job, maintaining the NYSE's market share of trading volume at over 80%" during a competitive time for stock exchanges. In addition, BusinessWeek published a cover-story profile that included the line, "Even his sharpest critics agree that Grasso has almost single-handedly built up the exchange's public image, which along with an intense detail-oriented approach, has helped maintain the NYSE's superb market share numbers." Yet just days after both of those sentences were published, Grasso became the equivalent of corporate-reputation kryptonite. How did this happen? The secret's in the disclosure Obviously the above overview excludes one salient fact: Dick Grasso's $140 million compensation package. Brought to light almost four weeks ago, the package became yet another milestone in the CEO-compensation saga, which was hardly a saga until the roaring bull market of the late 1990s turned into the punishing bear market of the early 21st century. Whereas gargantuan paydays like Grasso's certainly didn't begin this year - indeed, CEO compensation has been on a meteoric trajectory for about two decades now - suddenly such packages are coming under intense scrutiny. Nowadays, depending on how the disclosure of the package is handled, it can make or break an executive. For instance, the Grasso ordeal comes after American Airlines' CEO was forced out in April over sudden revelations of a large pay package that was secured as the troubled company was spiraling toward bankruptcy. Some suggest that the PR-savvy exchange should have been better prepared for the fallout regarding Grasso's pay structure, which was primarily the result of his choice to defer most of his compensation into an NYSE retirement account in recent years. "There had to be someone in the organization who knew this exploding suitcase was sitting in the closet," says Alan Towers, founder of corporate reputation consultancy the TowersGroup. "I don't know how people at the NYSE could not see this coming a long time ago. For an organization that was so focused on PR and was so effective in so many ways at PR - the idea that this wasn't understood to be a lethal public relations issue is astounding to me." In an article in The Wall Street Journal on May 8, where it was first revealed that Grasso had deferred much of his compensation and had amassed a retirement package that was reported to be between $80 million and $100 million, NYSE board member and former Merrill Lynch CEO David Komansky acknowledged that the Grasso package "seems startling," even as he attempted to defend it. Yet it was the slow nature of the disclosure of Grasso's compensation that made the process seem so secretive and mysterious. Instead of a quick and clean explanation, the news was anything but a steady and consistent flow of information. All this appeared to allow a media frenzy around the revelation to build to a sort of "gotcha" crescendo - once the $140 million figure was finally released. The slow disclosure process made it seem like the NYSE was hesitant about revealing something untoward. "The news really dribbled out over a period of several weeks and months, and that's the worst way to control a message," says Hollis Rafkin-Sax, global managing director at Edelman. "It's something that left them with little options. When the decision was made to disclose the package, it should have been done in one fell swoop. It had reached such a pinnacle of outrage that there was little that would have quelled the concerns." A victim of circumstance? In the end, Grasso was likely a victim of the sudden paradigm shift. His pay package was still resting on the "go-go" psyche of the late 1990s, while it didn't have the media glare shone on it until public trust in corporate America had reached a multi-decade nadir. "This opened the curtains and sunlight came into an oak-paneled room that hadn't seen it for hundreds of years," says Towers. Nevertheless, Towers believes the reaction to the package during the roaring bull market five years ago would have been very different. "Everyone was making so much money that they didn't care," he explains. "We've only seen governance pick up steam as more and more people who lost money in the market became angrier and angrier about it. There was less concern about CEO pay when people forgot that stocks also go down." Nevertheless, it remains to be seen whether the Grasso saga will trigger a rethinking of the gargantuan CEO pay package, or whether it is just one more step toward that moment. The peculiarities of the NYSE chairmanship make it unlikely that Grasso's ouster will represent a watershed event in the arena of corporate responsibility, as many critics seem to take issue with the compensation package because of Grasso's dual role as a CEO and one of the financial markets' chief regulators. Indeed, a Dow Jones Newswire headline from September 10 analyzing Grasso's contract demonstrates the media's interest in this angle: "Papers Show Grasso Paid Like Wall St. Peers, Not Regulator." A new beginning While the Grasso affair has passed into scandal history, the reputation reclamation of the NYSE is just beginning. The appointment of well-known and well-respected John Reed - former Citigroup CEO - as the NYSE's interim CEO seems to be getting early plaudits as a strong first step in the stabilization process. Reed's symbolic decision to take a $1 salary while in the post is also seen as a shrewd PR move that highlights in the minds of many a new beginning for the exchange. "I think it's refreshing to have someone do that," says Edelman's Rafkin-Sax. "[New York City Mayor Michael] Bloomberg and [Deputy Mayor] Dan Doctoroff have done the same things, and it suggests a willingness for service." According to another corporate reputation expert, NYSE can look forward to about four years before its reputation is fully restored. "Our recent research shows that it takes about a four-year period for a company to fully restore its reputation," says Dr. Leslie Gaines-Ross, chief knowledge and research officer at Burson-Marsteller. "And it's true that oftentimes a new CEO doesn't see the full results of his work until he's been on the job for a few years." Yet some analysts point out that regardless of the long road ahead for the NYSE, the unique situation surrounding Grasso is a quiet boon to the PR world because in the end it was bad PR that proved to be his downfall. "I think this is the best thing to happen to public relations in as long as I can remember," says Towers, "because this was death by PR - and previously the only way that people at this level could be ousted would be if they were caught breaking the law. And there's no smart CEO today who doesn't think that PR is more important than they did before this."

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