In the wake of the Enron blowup, regulators, accountants and CEOs are taking pains to avoid actions that stir up even a whiff of impropriety. Eagle Scouts are in, cozy deals out. Like it or not, the investing public is demanding a new transparency.

So it seemed a little odd Tuesday when Home Depot ( HD) said that New York Stock Exchange Chairman Dick Grasso would join its board of directors.

Home Depot's stock, after all, happens to trade on the New York Stock Exchange; it was 13th on the Big Board last year in terms of dollar volume. Some observers have long felt that Grasso's membership on the board of NYSE-listed Computer Associates ( CA) was a mistake; they thought sitting on a member company's board could interfere with Grasso's duties to regulate its actions.

The Home Depot announcement, along with the well-chronicled Enron scandal, brings the issue back to the fore. Wall Street's intolerance for possible pitfalls in the areas of regulation, conflict of interest and disclosure are now well established, observers say.

"A lot of investors feel if you're the head of a stock exchange, you should not and cannot serve on the board of a company whose stock trades on that exchange," says Patrick McGurn, director of corporate programs for Institutional Shareholder Services. "I've never understood why they allow it at the Stock Exchange."

The Big Board itself doesn't see any problem here. If a conflict of interest ever arose, says a spokesman, "We have in place procedures to wall him off. This dates back to him being on the board of Computer Associates."

The head of the exchange serving on company boards is something that was happening long before Grasso's tenure, says the spokesman, and moreover, it is a good thing because it "gives Exchange management the perpsective of our listed companies."

Catherine Kinney, who became the NYSE's co-president this year, was named a director of MetLife ( MET) in December. In contrast, National Association of Securities Dealers honcho Robert Glauber doesn't serve on the boards of any Nasdaq-listed companies.

For its part, Home Depot says it will ask Grasso to refrain from participating in board decisions where there might be conflicts.

That said, the problem, says McGurn, is that the Big Board has been given authority by Congress to police its own members and trading floor. The walls put up to distance Grasso from any decision regarding Computer Associates, and now Home Depot, are ultimately walls that Grasso is in charge of.

Nobody's saying the fox is in charge of the henhouse. But as Enron taught us, when organizations are given the authority to regulate themselves, things really can go awry. The concern raised by Grasso's membership on NYSE-listed companies, McGurn says, surely outweighs any benefit the exchange gets from the relationships.

"Frankly," he says, "it breeds distrust that a lot of investors already have over the stock exchange as a self-regulatory organization."