At 9:30 a.m. EDT on the morning of Sept. 17, 2001, Richard Grasso, the chairman of the
New York Stock Exchange
, declared the world's largest financial market open after a devastating terrorist attack put it out of commission for four days.
While many doubted that the market could be reopened so soon, Grasso insisted on making it happen to send a message to the public and to "the criminals who so heinously attacked this country" that life and commerce would go on.
New York Mayor Rudolph Giuliani called it "a monumental, heroic task." Grasso was unanimously hailed as a great leader.
Great leadership during war and great leadership during peace, however, are two different things. And if anything illustrates the psychic distance the financial community has traveled since those ghastly days, it is Grasso's astonishing reincarnation as the most controversial man on Wall Street.
In the immediate aftermath of Sept. 11, Grasso played a huge role -- along with all the technicians who restored the NYSE's systems -- in shoring up confidence in the capital markets. But since then, his judgment has come under question.
"It seems that he has trouble holding a mirror up to his own actions as well as the exchange has proposed holding a mirror up to the actions of other corporate CEOs," said Thomas Hazen, professor of securities law at the University of North Carolina.
Grasso has made more than one misstep since the 9/11 heroics. The biggest flap involves the huge amount of money he was recently paid: Earlier this month, the exchange said Grasso would get $139.5 million, reflecting distribution of several deferred savings accounts. The size of the check raised cries of protest from Wall Street to Washington, drawing the scrutiny of the
Securities and Exchange Commission
Critics contend that because the NYSE is the top private-sector regulator of the financial markets, Grasso should earn less -- perhaps far less -- than CEOs at other private companies. SEC Chairman William Donaldson earns just $142,500 a year.
"You have incentive awards layered on top of performance awards layered on top of appreciation awards and on top of special cash payments," said Paul Kedrosky, adjunct professor at the University of California and contributor to
While Grasso said he has no control over his compensation and that such things are decided by the board, he was able to recommend members to the compensation committee until June of this year. Hazen also points out that Grasso didn't turn the money down, even as the exchange and its members suffered during the downturn. (Grasso did, however, refuse additional future payments worth $48 million.)
There were other mistakes. In early 2003, Grasso tried to install
Chief Executive Sandy Weill as a "public representative" on the exchange's board at the same time Citigroup was being investigated by New York Attorney General Eliot Spitzer. Citigroup was eventually forced to pay $400 million to settle conflict of interest charges. Vocal opposition from Spitzer prompted Weill to withdraw his nomination.
"Everyone is trying to look moral and upright and I think he misjudged that pretty badly
with respect to Sandy Weill, particularly since he was under SEC investigation," said Alan Bromberg, securities law professor at Southern Methodist University.
Now some experts are questioning the role of other NYSE board members, including Philip Purcell of
, William Harrison of
and James Cayne of
, whose firms paid hefty fines for misleading investors with tainted research.
Another board member, Kenneth Langone, and his company,
, are being investigated by the NASD for allegedly receiving millions of dollars in inflated commissions after allocating shares of hot IPOs to preferred customers.
Questions have also swirled over Grasso's handling of a probe into possible trading abuses of NYSE specialist firms. The NYSE typically doesn't comment on a regulatory matter in progress, but exchange sources leaked the story to
The Wall Street Journal
, which described the trading violations as "front running." Front running is a serious no-no in which the trader uses inside information about an order to buy or sell ahead of that order.
Angered by the report, Big Board officials began to do some damage control. They claimed the story was "erroneous" and said the NYSE was in fact investigating whether specialists on the floor had violated their "negative obligation," or the requirement to stand back and allow public orders to be executed "without undue dealer intervention." The
implied the NYSE was using semantics to hide the truth and others have said Grasso was trying to sugarcoat the abuses under investigation.
In June, the NYSE said it would make 10 changes to its corporate governance structure, including the public disclosure of officials' pay. The exchange also said its officers would be prohibited from serving on the boards of exchange-traded companies, meaning Grasso would eventually have to step down from
board. This had always been seen as a clear conflict of interest.
Still, it's doubtful that such changes would have been made had the SEC not sent a letter to the NYSE and other self-regulatory organizations in March asking them to review their governance practices thoroughly. "
Grasso obviously is not holding himself to a higher standard," said Hazen. "At this time, when we're so concerned with corporate governance, this gives embarrassing publicity to the exchange."
Will Grasso contain the current scandal and ultimately be remembered more fondly as a 9/11 hero?
On the eve of the attacks' second anniversary, the compensation scandal is taking precedence. Even on the New York Stock Exchange's own Web site, Grasso's response to concerns raised by the SEC's Donaldson was displayed more prominently than an announcement of Big Board plans to commemorate the 9/11 victims with moments of silence at 8:46, 9:03, 9:59 and 10:29 a.m. on Thursday.
Last year, on the first anniversary, Grasso was a prominent player in the memorials, making highly emotional statements and granting lengthy interviews with
The Wall Street Journal
and others. This year, he appears to be keeping a low profile when it comes to 9/11, with no announced public appearances for Grasso. (Big Board representatives couldn't be reached to confirm his schedule for Thursday.)
His lower profile could reflect the controversy that now surrounds him. But this year's commemorations in general have been more private and subdued, and a less-visible Grasso on Sept. 11, 2003, may merely suggest the passing of time.