Grasso's pay---Su (fast)
Grasso's pay
Interview: Harvard Business School---Hall, Brian---Professor / Academic
>> a meeting tomorrow by the board of the new york stock exchange could raise the level of pressure on former chairman richard grasso to give back part of his $140 million pay package. the board will consider the findings of a probe into how and why the previous board approved grasso’s pay. it seems like a lot of boards and numbers. su keenan is here to sort it out.
>> people close to the matter say former chairman richard grasso could be on the receiving end of at least two lawsuits, one of them from the board of the new york stock exchange which meets tomorrow. the chief executive of the country’s third biggest pension fund says he expects the board will take “clear and aggressive action to seek restitution.” in other words, they want grasso to pay the money back. a person close to the matter says new york attorney general eliot spitzer may use his authority to regulate not-for-profit organizations such as the new york stock exchange to file a separate suit against grasso, forcing him to pay back part of his compensation. last september, you may recall grasso resigned from the exchange where he had spent his entire career after investors called the pay package excessive. they questioned whether the heads of wall street firms he helps regulate also fixed his pay. up to $190 million had been approved. a person familiar with the situation says interim exchange chairman john reed met with spitzer for an hour on monday to discuss an internal report by a former federal prosecutor on grasso’s board-approved pay package. reed told the “wall street journal” the report shows grasso was “inappropriately paid $150 million.” iowa state treasurer michael fitzgerald said both the board and spitzer should “take grasso to the mat on this one.” attorney robert heim, former enforcement official with the securities and exchange commission, now in private practice, says grasso may want to avoid facing a potential legal nightmare.
>> this really ratchets up the pressure on dick grasso significantly. he’ll be facing potential litigation from the exchange and eliot spitzer so he may have an incentive to settle, cut his losses and give part of the pay back voluntarily.
>> grasso’s lawyer did not return calls for comment and while spokespeople for spitzer and the new york stock exchange declined to comment, reed told the “new york times” that the exchange is reviewing its strategy and may sue grasso and the previous board that approved his pay. another key development, people close to the matter saying that the exchange will probably name richard ketchum as chief regulatory action. we’ll follow the story tomorrow.
>> interesting and with lots of ramifications. thank you, su. moving on here, we’re joined by harvard business school professor brian hall, specializing in corporate governance issues. he joins us from boston. what do you think, brian? should eliot spitzer take richard grasso to the mat? is he likely to do so?
>> i don’t really understand the legal issues here so i’m not sure what the legal case is for doing it. certainly there was wrongdoing in the sense that this was atrocious corporate governance that led to the payout. but it’s less clear to me what the legal case is.
>> so you don’t really have an opinion on whether or not you think mr. spirt would go ahead with a suit?
>> it’s not clear to me that he’ll do this. i actually think the mistake was made when they agreed to this contract and that’s the case in a lot of circumstances with publicly-traded companies. the mistake is actually made when the contract is written. but after the fact, when somebody is paying out what is in a contract, it’s hard at that point to say that it’s not legitimate to make good on your obligations.
>> that’s right. as they say, a contract is a contract, after all. what about the implications? let’s play “what if.” what if eliot spitzer does try to recover some of this contractually agreed-to pay package? what ramifications would this have, in your opinion, in order board rooms around the country?
>> i actually think this is going to be a big deal even if eliot spitzer decides not to because this is really a wake-up call to boards in publicly-traded companies. in two ways―one, is they now understand that they are going to be held accountable for what is in the contract. there are a loof board members that―a lot of board members that don’t have a good understanding of actually what is―what they’ve contractually stated they will pay the c.e.o. for example, in the event that they’re released. the biggest one in my opinion is a lot of the golden parachutes out there in c.e.o. contracts. the c.e.o. leaves and then the board is required to pay the c.e.o. millions of dollars following very bad performance. lots of board members don’t even know they’re in these contracts and i think a lot of board members today will be looking much more carefully to see what they’ve agreed to pay executives if they’re fired.
>> thank you. that’s brian hall, professor from the harvard business school. we’ll look at the chinese carmakers and the profitability and legal issues they may be facing.
