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Citigroup chief takes nyse board { September 22 2003 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A44739-2003Sep21.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A44739-2003Sep21.html
Former Chief Of Citigroup To Oversee NYSE Board
By Ben White
Washington Post Staff Writer
Monday, September 22, 2003; Page A01
NEW YORK, Sept. 21 -- The New York Stock Exchange board of directors today selected former Citigroup Inc. co-chief executive John S. Reed as interim chairman and chief executive.
Reed, 64, takes over from Dick Grasso, who resigned last Wednesday after revelations of his large pay package generated fierce criticism from investors and corporate governance advocates. It was a safe choice by the board. Reed is well-known on Wall Street and is not likely to push for radical changes.
Reed helped build the biggest bank in the United States after his Citicorp merged with Sanford I. Weill's Travelers insurance company, forming Citigroup. Reed ultimately lost out to Weill in a boardroom power struggle for control of Citigroup and disappeared into retirement in 2002. Since then, he has served on several corporate and philanthropic boards and has spent time on the beach reading.
Reed, a Massachusetts Institute of Technology-trained engineer, will officially begin work at the exchange Sept. 30 after returning from vacation off the coast of France. On a telephone conference call today, Reed said he agreed to come out of his three-year retirement to assist the exchange during a time of great uncertainty.
"The institution is simply too important," he said. "I just felt if I could help on an interim basis I would be honored to do so. There are simply times in life when people ask you to do things and the right answer is to say yes."
Laurence D. Fink, chairman and chief executive of the investment firm BlackRock Inc. and chair of the NYSE committee responsible for finding an interim replacement for Grasso, said Reed was the board's first choice for the job.
"We thought the ideal candidate would posses extensive management experience, a strong corporate governance background, be familiar with New York Stock Exchange constituencies, have a good understanding of global capital markets and be a statesman for the NYSE. Mr. Reed fills those roles," he said.
Reed, who is to be paid a salary of $1, said he hoped to serve from six months to a year. His main goals will be to find a long-chairman and to develop a new set of corporate governance guidelines to address long-standing criticisms brought to the fore by the criticism over Grasso's pay.
"We all know as a board that we want to get a governance plan in place that is practical and can be made effective for the NYSE," he said, "one that is satisfactory to many, many constituencies."
Reed said he would resign his one remaining board membership, at Altria Group Inc., to eliminate any potential conflict of interest. Altria, parent company of cigarette maker Philip Morris International, is listed on the NYSE.
Reed declined to specify changes he plans to put in place at the exchange. He did say that in his experience smaller boards are more effective than large ones. The NYSE board now has 26 members and one vacancy. Reed said it was too early to say how the board structure might change.
Some shareholder advocates say the influence of exchange member firms on the board should be greatly reduced. Grasso's compensation, which included a lump sum payment this month of $139.5 million covering most of the past eight years, was largely approved by executives from securities firms that the NYSE is supposed to oversee as a federally authorized self-regulatory organization.
In addition to overseeing brokerage firms, the NYSE enforces governance standards on its nearly 2,800 listed companies. Critics say the exchange has failed to live up to the standards it demands of listed companies and has set a bad example for corporate governance. Reed acknowledged governance failings at the exchange today and said the institution had to improve.
"Frankly, we have to be the best of the best," he said. "We are an example not only for other exchanges but for all listed companies. We have a very special obligation and there is a lot of work going on."
Board members have been discussing a range of different options and plan to approve a set of recommendations early next month to send to the Securities and Exchange Commission. One option under discussion includes forbidding executives from regulated firms from serving on the NYSE board. Reed seemed to distance himself from that proposal today, saying it is often helpful to have a few "insiders" on a board.
Another suggestion being pushed by governance experts is for the exchange to spin off its regulatory function into a separate entity, as the Nasdaq stock market did in 1996 under pressure from the SEC. Some are also urging the NYSE to split the roles of chairman and chief executive officer.
In a statement today, SEC Chairman William Donaldson said: "I have known John Reed for many years and am pleased that the New York Stock Exchange board has taken prompt action in reaching out to him. I am gratified that he is willing to take on this critical post."
Donaldson added: "He is independent, experienced and has impeccable credentials all of which will be crucial as he works with the NYSE board to ensure the highest standards of governance. The SEC, in its oversight role, will continue to work to help affect an improved governance structure at the New York Stock Exchange."
Reed was at Citicorp for more than 35 years, helping to build it into a global powerhouse by trimming staff and selling money-losing assets. Known as a technology specialist, he turned Citicorp's back office operations into a model for the banking industry. In 1987, Reed decided to set aside $3 billion to cover expected losses from loans to developing countries. Other banking giants such as J.P. Morgan & Co. followed suit.
Reed became chief executive of Citicorp in 1984. He and Weill served as uneasy equals until 2000, when Weill won the boardroom battle and took the top slot alone.
John C. Coffee, professor at the Columbia University law school and an expert on financial markets praised Reed as a temporary solution. "As an interim choice he's got all the qualifications. But the critical question is whether the exchange is going to separate the roles of chief executive and chairman or take other steps that fundamentally change the governance structure."
For the long term, Coffee said the exchange needs a leader who has both served in the financial services industry and the public sector.
He suggested former SEC chairman Arthur Levitt as one example of a "Walter Cronkite-style" figure who could restore integrity to the exchange.
Henry T.C. Hu, professor at the University of Texas at Austin law school, noted that Citigroup, which was at the heart of New York attorney general Eliot Spitzer's investigation into conflicts of interest in Wall Street stock research, might not be the ideal place from which to draw an interim NYSE chair.
But he said that because Reed has been retired for three years he should have no interest in protecting the securities industry's influence on the NYSE board. "Even though he's identified with Citi he's got no axe to grind. At this point he's playing for history so he has every incentive to do the right thing," Hu said. "Plus at three decades at Citi he saw all kinds of financial crises. ... And basically he's been successful at everything he's done. You want to be with a jockey who wins."
© 2003 The Washington Post Company
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