A key part of Dick Grasso’s defense against Eliot Spitzer’s lawsuit is the claim that the directors of the NYSE understood what they were doing when they approved Grasso’s compensation. We always figured this was a pretty strong line of defense—the folks on the NYSE board were hardly financial innocents and it seems pretty likely they didn’t just accidentally hand Grasso $190 million.
Reading about this exchange at a recent hearing, however, has got us rethinking this.
New York Supreme Court Justice Charles Ramos in a hearing yesterday asked Grasso's lawyer to name members of the NYSE's compensation committee who said they were aware of how the exchange determined Grasso's pay and benefits. New York Attorney General Eliot Spitzer is seeking more than half of Grasso's $190 million in compensation, claiming it wasn't properly disclosed to directors.
"We impose a duty upon CEO's to be transparent," Ramos said during the two-and-half-hour hearing in Manhattan. "Shouldn't Mr. Grasso have said, 'Let's show them the range of consequences that flowed from this compensation'? Richard Grasso has to have had an idea of what was going on. Wasn't any effort made to inform the board?"
Grasso's lawyer Gerson Zweifach said NYSE directors have testified under oath that they knew how the total pay package was calculated when it was approved.
"Lots of directors testified they understood the formula and they knew what they were doing," said Zweifach.
See what we mean? Understanding the formula is different from actually doing the math and understanding exactly how big Grasso’s pay day was going to be. If directors understood the formula but didn’t quite get around to figuring out how much of the then non-profit company’s money they were dishing out to the chief exectutive, that could be a problem. The question is: whose problem? Did Grasso have a duty to tell them? Did they owe a fidicuciary duty to actually be more thorough in figuring these things out?
And, on an almost completely unrelated note: do you think Grasso is hoping Spitzer gets elected Governor? After all, if Spitzer is gone from the Attorney General’s office, it might become easier for Grasso to convince the new AG to drop the case or settle on the cheap. Then again, Grasso could be so bitter at Spitzer that he doesn’t want to see the guy rise to higher office.
Grasso Judge Focuses on NYSE Board [New York Post]