Radical Change Looking More Likely at NYSE

A sweeping overhaul of the New York Stock Exchange's board is what corporate governance experts want, and if new interim chairman John Reed has anything to do with it, that's exactly what they'll get.

According to The Wall Street Journal Friday, Reed is ignoring a special board committee's report on the exchange's governance practices. He has bigger plans. The news comes a day after Carl McCall, the co-chairman of the board's special committee on corporate governance, resigned.

Reed is apparently pushing for a much smaller board of roughly 12 members, which will set compensation and vote on corporate governance issues and audits. At present, these issues are determined by special committees within the board, which comprises 27 members, according to the Journal.

"It's generally accepted that boards that are that large are unwieldy and less effective," said Carol Bowie, director of governance research at Investor Responsibility Research Center. "So a board size closer to 12 is considered to be preferable."

Bowie said that large boards often take longer to reach a consensus, and as they become less effective, the center of power shifts to the CEO. This "appears to be what happened at the exchange," she said. "That would be a very welcome reform."

Corporate governance experts say it should always be the job of the entire board to approve compensation and other important issues. Special committees are there to review the information and present it to the full board. The board should not simply be a rubber stamp for these decisions either, pundits say.

Several NYSE board members said they were surprised at former NYSE Chairman Richard Grasso's outsized pay package. His compensation did not have to be approved by the full board, according to the Journal.