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Updated from 7:36 p.m. EDT

Richard Grasso, the

New York Stock Exchange

chairman whose $140 million pay package outraged Wall Street, ran out of friends Wednesday night and was forced to resign from a post he held for eight years.

Grasso stepped down during an emergency session of the NYSE board, at which an increasingly vocal group of angry directors decided the exchange couldn't withstand further controversy over Grasso's outsize payday.

According to Carl McCall, the head of the board's compensation committee, Grasso -- who called the meeting -- offered to resign if the directors felt it was in the exchange's best interest. They did.

"Throughout my career and on behalf of all exchange constituents, I have worked with great partners to build and enhance the value and brand of the NYSE," Grasso said in a statement. "I look forward to supporting the board and the Exchange in bringing about a smooth transition to a successor. I believe this course is in the best interests of both the Exchange and myself."

The move caps an extremely difficult month for both the Big Board and Grasso, a career employee of the nation's premier stock exchange whose tireless work in the aftermath of the Sept. 11 terrorist attacks elevated him to hero status.

Recent revelations that he received a $5 million bonus for that performance -- along with word that he nearly collected another $48 million on top of the deferred compensation he did pocket -- helped cement his fate. Whether Grasso must give any of the money back isn't known.

Big Boys

Grasso's ouster was said to be supported by some of the same Wall Street leaders whose pay package his most resembled:

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

Chief Executive Henry Paulson,

J.P. Morgan Chase

(JPM) - Get JPMorgan Chase & Co. Report

Chief Executive William Harrison,

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Credit Suisse First Boston

Chief Executive John Mack and

Morgan Stanley


Chief Executive Philip Purcell.

The issue of who might succeed Grasso remained unclear, although board member Larry Sonsini of the law firm Wilson Sonsini Goodrich & Rosati has been asked to take the post on an interim basis while a permanent head is sought. A spokeswoman for Sonsini has not made a decision about whether to take the job.

Grasso had hoped to mollify his critics at an NYSE board meeting he called for next week to discuss the controversy over his massive pay package and review the exchange's governance policies.

But the steady hum of controversy turned to a roar this week after some of the nation's public pension funds called for him to resign, forcing Wednesday's meeting. Although critics never accused Grasso or the board of any legal wrongdoing, they found the appearance of impropriety discredited the exchange, particularly at a time when the nation is so focused on corporate ethics.

California State Treasurer Paul Angelides, who issued a critical call for Grasso's resignation Tuesday, urged the NYSE and the Securities and Exchange Commission to thoroughly investigate the decision-making behind Grasso's controversial pay package. Grasso's departure was a necessary first step for that examination, Angelides said.

"Clearly this is not something that just happened by the act of one person. I think the responsibility has to be fairly placed, assessed, then dealt with," Angelides said.

The latest to speak out over its governance policies was William Donaldson, the

Securities and Exchange Commission

chairman, who said in Washington on Wednesday that the compensation system raises "serious concerns." Donaldson preceded Grasso as NYSE chairman.

The 27-member NYSE board now faces an immediate succession issue, since there is no obvious internal candidate to replace him. In fact, most critics think the board almost certainly will to look outside the institution for a new leader to help restore its reputation after this incident.

The board itself could also be in turmoil because it's likely a number of directors could be forced out, including Ken Langone, who led the compensation committee at the time Grasso's big pay package was negotiated.

Indeed, the SEC believes Grasso's departure does not put an end to governance issues at the exchange.

"The SEC will continue its review of governance standards and will workclosely with the new leadership at the exchange to put an appropriatestructure in place that will ensure the credibility and integrity of thegovernance of the exchange," the agency said in a statement.

Already people are beginning to speculate about some possible successors. The names include former

Federal Reserve

Chairman Paul Volcker and former New York Fed President William McDonough. Another possibility is former Securities and Exchange Commission Chairman Arthur Levitt. A darkhouse candidate might be former Secretary of State and current NYSE board member Madeline Albright. Sources say she is well liked by other board members and would help the institution by making it the first U.S. stock exchange to be led by a woman.

On the Floor

Frustration with Grasso was greatest among the rank-and-file floor brokers who technically own the NYSE through their membership. In a letter to Donaldson, exchange member James Rutledge said Grasso should step down and called the board's performance "indefensible."

"The repeated closing of their eyes to mounting criticism and expressions of concerns reflects poorly on everyone associated with 11 Wall Street," he wrote, referring to the NYSE's address in Manhattan.

Michael LaBranche, who runs the



specialist firm at the NYSE, said Grasso's resignation is "in the interests of the New York Stock Exchange."

"The New York Stock Exchange needs for Mr. Grasso to leave in order for it to move forward and restore investor confidence," he said. LaBranche was fined $150,000 and censured by the NYSE last month for failing to turn over employee emails in an investigation of its trading practices. The company is appealing.

In the News

Sonsini's firm, Wilson Sonsini, represented many Silicon Valley companies during the Internet's heyday. The big San francisio based firm created a stir in the legal community by taking equity positions in some of their corporate client in lieu of fees. The firm did this with many tech start-ups.

In 2001, Sonsini was appointed to the board of the New York Stock Exchange. He was a member of the NYSE's Corporate Accountability and Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.

Sonsini has also served on a number of advisory boards and committees, including the SEC's Advisory Committee on Capital Formation and Regulatory Processes; the ABA Committee on Federal Regulation of Securities; the Legal Advisory Committee to the Board of Governors, New York Stock Exchange; and the Legal Advisory Board of the NASD.

In 2000, Wilson Sonsini held stock in 33 of the 53 companies it represented through initial public offerings, according to ABA Journal, a legal publication.