Pincers Closing on NYSE Board

Nobody wants to lead it. Many want it broken up.
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Updated from 2:09 p.m. EDT

The

New York Stock Exchange

board has a lot on its plate in the wake of Richard Grasso's resignation, including fending off growing cries that it's part of the problem.

Topping directors' list is the need to find someone -- anyone -- to take the helm of the 211-year-old institution on an interim or permanent basis. A number of current board members and high-profile executives, including Silicon Valley attorney Larry Sonsini, TIAA-CREF Chairman Herbert Allison Jr., and former New York Federal Reserve President William McDonough, have rebuffed calls that they come to the rescue of the world's best-known stock exchange.

H. Carl McCall, the head of the board's compensation committee and the former New York state comptroller, is temporarily leading the NYSE, but he's made it clear he has no desire to do it for an extended period.

The NYSE board met Friday afternoon, but people close to the matter say it is no closer to finding either an interim leader or a permanent one than it was after Grasso's resignation on Wednesday night.

At the Friday meeting, the board did set up a nine-member search committee, headed by BlackRock Chief Executive Laurence Fink, to find an interim chairman. Some of the other members on the committee include former Secretary of State Madeleine Albright, former Time Warner chief Gerald Levin and Credit Suisse First Boston Chief Executive John Mack.

It's also not clear how many of the board's 27 directors will be around when Grasso's successor is finally named.

Pressure is mounting for some or all of the board's 27 directors to resign after signing off on the former chairman's massive $139.5 million paycheck. Henry Paulson,

Goldman Sachs'

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chairman and chief executive, has suggested that many of the board's members should step down once an interim leader is named and the search for a permanent successor begins, sources say.

Paulson also is the author of an even more controversial proposal that would bar any officer at a securities firm from serving on the NYSE board. Paulson sits on NYSE board's compensation committee and was a critic of Grasso's pay package. The 27-member NYSE board currently has 12 seats reserved for securities industry representatives.

There has speculation, meanwhile, that some board members could even announce they are stepping down soon.

Viacom

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President Mel Karmazin told Reuters on Friday that he would step down from the NYSE board if asked by the other directors. Karmazin, attending the Royal Television Society conference in Cambridge, England, is one of seven NYSE directors who voted Wednesday against asking Grasso to resign, and has been a vocal supporter of the former chairman's pay package.

Another director many would like to see resign is Kenneth Langone, a Grasso confidant who headed the board's compensation committee in 1999, when the pay package was first negotiated. Langone, a co-founder of

Home Depot

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and president of Invemed Associates who also voted against the resignation, declined to comment.

Beyond the issue of who must stay or go, the board is coming up against an Oct. 2 deadline to submit a plan to the

Securities and Exchange Commission

for overhauling the NYSE's corporate governance structure. Some of the structural changes being weighed considering as part of those reforms includes splitting up the chairman and chief executive post into two jobs and expanding the board to include representatives from small securities firms and more people from outside Wall Street.

Reform advocates are calling on the NYSE board to include, for the first time, a representative for smaller investors. J. Pat Sadler, president of The Public Investors Arbitration Bar Association, sent a letter to the NYSE board calling on it to add "investor representatives and advocates" to its ranks.

Also on the board's plate is a renewed plan for an initial public offering, something that would enable the exchange to raise enough money to spin off its regulatory division as a separate and self-sufficient organization. The Grasso pay debacle has led to a debate about whether it makes sense for the NYSE's top executive to get paid by the brokerage firms he's responsible for regulating.

At a minimum, the NYSE board is coming under pressure to take steps to separate its enforcement division from its basic trading operation. One option would be for the NYSE to follow the lead of the

Nasdaq Stock Market

and its regulator, the NASD. A few years ago, the NASD, which owns a majority stake in the Nasdaq, erected a barrier between the two organizations. Both Nasdaq and the NASD have separate leaders and boards.

Eventually, the Nasdaq, which is publicly traded on the OTC Bulletin Board, also would like to sell shares in an IPO. The proceeds from the stock offering would be used to buy itself out from the NASD and sever all ties to its regulator.