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Will NYSE's Culture Follow Grasso Out the Door?

His well-crafted image shattered, the chairman's departure could force long-needed change at Wall and Broad.

Updated from 2:26 p.m. EDT

Richard Grasso's resignation finally puts to rest his well-cultivated image of a Queens dropout made good. It's too soon to say, however, if it will dislodge the clubhouse mentality that has prevailed at the

New York Stock Exchange

for more than two centuries.

When Grasso's $139.5 million pay package was revealed, it did more than compromise his ability as a regulator. The disclosure shredded his image as an ordinary working stiff who dropped out of college and climbed the ladder of success at the NYSE. In the end, Grasso looked a lot like the same fat-cat executives who signed his paycheck.

The highly polished image of Grasso as a regular guy looking out for investors -- an image fostered by his numerous appearances on CNBC and elsewhere -- was just that: an image. He performed heroically in the aftermath of Sept. 11, 2001 -- then picked up a $5 million check for his time. His resume will mention all the companies he attracted to the exchange and all the IPOs it captured -- but a more lasting legacy may well be his fight to preserve the NYSE's archaic system of processing trades through a cartel of specialists.

Ultimately, Grasso's resignation will mean nothing unless the NYSE looks inward and cleans house, starting with the very board that signed off on his big payday.

Nancy Smith, the former head of the

Securities and Exchange Commission's

investor protection program, said the debate over Grasso's pay package shouldn't end with his resignation but must focus attention on the NYSE's board and its spending priorities.

"Questions need to be asked about why millions are being spent on salaries and bonuses and whether they should have increased investor protection,'' said Smith, who now does consulting work. "

Carl McCall, the director temporarily in charge of the board, said during a press conference Thursday that the board intends to present its plan for overhauling the NYSE's corporate governance structure on Oct. 2. McCall hinted that one possibility is for the NYSE to split the job of chairman and chief executive officer. Both posts had been held by Grasso.

For the most part, the NYSE board, which consists of three NYSE officials, 12 securities industry representative and 12 public directors, has the look and feel of a ritzy country club. The board's ranks include the top executives at

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There's not an academic in the group, let alone anyone who could remotely be called an investor advocate. The directors are almost all white males, something that reflects the overall lack of diversity among the NYSE's 1,366 members and the traders and brokers who muscle their way around the exchange's trading floor.

"The board has absolutely zero sensitivity to the investing public," said Jonathan Kord Lagemann, a New York securities lawyer and former general counsel for a small brokerage firm. "It would be nice to see some academics. Or frankly somebody who is a small investor or someone who represents them."

Right now, the NYSE, under pressure from the SEC to overhaul its corporate governance practices is considering some proposals for revamping its board. But most of the proposals being floated involve expanding the board to include more representatives of the exchange's rank-and-file membership. That's a good idea, but it will do little to make the board more representative of the investing public.

Without a more representative board, it's hard to see the NYSE selecting a new chairman who really breaks the mold and will point the exchange in a new direction -- even if that means replacing its trading floor with computers. Some of the names that have been floated --former

Federal Reserve

Chairman Paul Volcker, former New York Fed President William McDonough and former SEC Chairman Arthur Levitt -- are all fine picks with sterling reputations. But they're also safe picks and would not ruffle the NYSE's country club status quo.

"The real question is who is going to be driving this. Is this going to be made by the clubby members of the board," said Kenneth Froewiss, a professor at New York University's Stern School of Business. "This has the potential to be a very major change."

The NYSE's slogan is "The world puts its stock in us." But if the NYSE isn't careful and doesn't reform itself, it may find that in a world filled with fast-paced electronic trading platforms, the statement may no longer be true.