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Goldman president named new head of stock exchange { December 18 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/12/18/business/18CND-SEC.htmlhttp://www.nytimes.com/2003/12/18/business/18CND-SEC.html
December 18, 2003
Goldman President Named New Head of Stock Exchange
By PATRICK McGEEHANand LANDON THOMAS Jr.
The New York Stock Exchange announced today that John A. Thain, the president of Goldman Sachs, will be the new chief executive of the exchange starting on Jan. 15..
Mr. Thain, who joins the Big Board at a time of sweeping change, said at a news conference this morning that he was proud be a part of the organization and "looked forward to our partnership."
"I am excited by the future," he added.
The Securities and Exchange Commission unanimously approved a new governing structure for the exchange on Wednesday, clearing the way for the exchange to select new leadership.
Mr. Thain, who has been the No. 2 executive at Goldman, one of the biggest investment banks on Wall Street, succeeds John S. Reed, who has served as interim chairman and chief executive since Richard A. Grasso resigned in September amid a scandal over the size of his pay package.
The exchange has decided to split the chairman's and chief executive's roles as part of the Big Board's overhaul of its practices, and Mr. Reed will become non-executive chairman, at least for a while..
The decision by the exchange to split the jobs was announced on Wednesday by William H. Donaldson, the S.E.C. chairman, who had urged the division to keep too much power from being concentrated in the hands of one person. His comments came moments before the commission acted on the overhaul proposal, which had been put forward by Mr. Reed.
Mr. Reed declined through a spokesman to discuss the S.E.C.'s decision or the search for new leadership of the exchange. He has scheduled a news conference for this morning to discuss changes at the exchange.
Rumors of the impending appointment of Mr. Thain began spreading around Wall Street yesterday, but officials of Goldman Sachs and the exchange declined to comment on them.
The selection of Mr. Thain — widely known as a technocrat — is seen as an unexpected but shrewd move for Mr. Reed. At Goldman, Mr. Thain was involved in many of the firm's investments in electronic-trading platforms, a number of which are now competing with the Big Board.
Mr. Thain would be ideally placed to blunt the frequent criticisms made of the exchange that its trading system, relying as it does on a network of specialist traders, has become outmoded in the face of rapid technological changes.
In November, Mr. Thain made some pointed public comments about the Big Board, saying in a speech that some trades should be handled electronically and not by Big Board specialists. He added that the views were his alone and not those of Goldman Sachs.
He joins the exchange as it revamps its practices. The new charter of the exchange creates a smaller board with directors who have no other business ties to the exchange or to companies listed on the Big Board. The structure also adds greater separation between the trading and regulatory functions of the exchange, though some critics have called for a complete division of the two.
Mr. Donaldson, who had opposed a suggestion that the commission rewrite the exchange's charter to require that the jobs of chairman and chief executive be divided, said on Wednesday that he had asked Mr. Reed to fill the jobs with separate people because of the recent experience under Mr. Grasso, the former chairman and chief executive. He stepped down this year because of controversy about his $139.5 million compensation package.
"The N.Y.S.E. proposal includes the flexibility to permit the positions of chairman and C.E.O. to be held by the same person, or by two different people," Mr. Donaldson said before the commission approved the overhaul of the exchange.
"Given the unfortunate experience of the recent past, however, I believe it is highly preferable — and I have expressed this opinion to the exchange — that the positions of chairman and C.E.O. be held by two different people, at least in the near term."
Harvey J. Goldschmid, the commissioner who had lobbied hard to separate the two jobs, said he was deeply satisfied by Mr. Donaldson's decision.
"This will distribute power in an institution that has suffered greatly from having power concentrated too much in one person's hands," he said.
As chairman, Mr. Reed will continue to preside over committees that oversee areas like regulation, compensation and nominations for the board. It is expected that Mr. Thain, as chief executive, in turn, will be responsible for issues related to the stock exchange's operations.
Mr. Reed and Mr. Thain, who are fellow graduates of M.I.T. and serve on the board there, could be seen as a compelling ticket in that their similar but separate strengths — both are known as cool and professorial with a deep affinity for exploring how technology and finance intersect — make for a powerful whole when combined.
Many issues that could have a long-term effect on the stock exchange's future remain unresolved, from the continuing investigation into trading abuses by its specialist firms to changes in market structure being considered by the S.E.C. that could cut into the Big Board's dominance as the nation's top exchange.
With Mr. Reed as chairman, given his strong ties with regulators and the membership, and Mr. Thain as chief executive, the stock exchange will be in a stronger position to advance its cause and respond to critics from the institutional investor community that the Big Board's auction-based system is flawed.
Mr. Reed, for one, has been diligent in courting the support of two of the exchange's most important constituencies: the S.E.C. and the exchange's members. He has met often with Mr. Donaldson and has taken great care to keep him apprised of the exchange's efforts to reorganize its board. Executives close to the exchange's board said on Wednesday that they expected Mr. Reed to stay on permanently as a director.
In the wake of the controversy over Mr. Grasso's pay, it is likely that Mr. Thain will take a big pay cut to join the exchange. In 2002 he received $8.7 million in cash and stock, plus options valued at another $2.4 million.
During the last three years at Goldman, Mr. Thain has received salary and bonuses totaling more than $30 million. He owned about 3.2 million shares of Goldman, which went public in 1999, according to the firm's latest proxy statement. At current prices, those shares would be worth more than $300 million.
It was not clear Wednesday night who might succeed Mr. Thain, 48, who has been president or co-president of Goldman for about five years. Joining the Big Board will give Mr. Thain the chance to be a chief executive now and to turn around an institution in trouble.
Goldman's chief executive, Henry M. Paulson Jr., 57, is not expected to leave his job anytime soon. John L. Thornton, who was co-president of Goldman with Mr. Thain until earlier this year, resigned and said he would teach at a university in China.
The move cements the position of Lloyd C. Blankfein, the powerful head of Goldman's highly profitable bond and commodity business, as the successor to Mr. Paulson.
Mr. Thain, a former chief financial officer who has also headed the firm's technology operations since 1994, does not have a profit center that reports to him and has instead involved himself in a broader range of strategic and technological issues at Goldman.
That Mr. Thain never ran a profit center at Goldman was too big an obstacle for him to overcome, especially in the face of Mr. Blankfein's relentless rise, analysts said.
Copyright 2003 The New York Times Company
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