Steve Vanechanos

NYSE Positioned to Lead Fundamental Corporate Governance Reform Effort

I appreciate your comments and don't disagree with your assessment regarding board search and selection process.

I'm just of the mindset - for now anyway - that coziness between the board and management is such a fundamental dysfunctional dynamic, that most major board failures flow from the poisoned river of a self serving board acting as if it works for the Chairman/CEO and not for the shareholders. In effect, I'm advocating the position that the systemic problem is confusion in the board room over who its masters really are and who it is supposed to be serving.

I'm optimistic - that measures that put distance between the board and management and enhance its independence - while simultaneously elevating the view in the board room that its primary constituents are the shareholders, have the potential to cure many ills.

I envision a sea change in the board room - including a change to the search and selection process, as you mentioned - if the board is led by a truly independent chair, who is professionally committed to building and leading an independent, shareholder serving, functioning board. Case in point, there is little doubt in my mind that executive compensation is broken at its core. Yet you don't see me advocating reforms to executive comp. That's because I see it as an ill that flows from the larger problem of true board independence. At this point, my goal is to drive the issue of board independence, then wait and see what effect it has on the litany of failures emanating from the boardroom before mucking around in what I would consider micro management of the board - ala Sarbanes Oxley.


On May 22 01:32 PM Patricia Lenkov wrote:

> All of the "common sense" reforms suggested in this article are helpful
> and can improve corporate governance. However, to get to the origin
> of the problem we need to take this a step further and examine how
> new board directors are surfaced, evaluated and ultimately nominated.
> The so called "failure of corporate governance" cannot be looked
> at from inside the boardroom, in most cases this is too late. We
> must try to make corrections and improvements in the director search
> process as the appropriate starting point.

NYSE Positioned to Lead Fundamental Corporate Governance Reform Effort

I know what role Fannie, Freddie, AIG, Country Wide, Washington Mutual, Merrill Lynch, Bear Stearns, Lehman, etc. played in causing the train wreck. It's unclear to me what role you believe the NYSE played in it?

Maybe you can shed some light on that?

On the contrary, I would rather argue the other side of the issue. The meltdown occurred not because of the exchanges, but because the masters of the universe decided they didn't need exchanges and they marginalized them.

Start with Fannie & Freddie. By virtue of Congress - they were exempted from NYSE listing requirements. Thus when they were unable to file accurate financial statements for nearly three years, they remained listed, even though timely filing is an absolute requirement and any other listed company would have been delisted.
They also issued nearly $2 trillion in non exchange listed mortgage backed securities.

Then look at the private actors and what undermined them. AIG with credit default swaps, Merrill and the other top five investment banks with mortgage backed securities - all over the counter securities, not listed on any exchange. By not listing on an exchange, the creators of these securities were able to avoid SEC disclosure obligations and exchange listing requirements. It should surprise nobody then, that the end result was a pile of securities that lack transparency (due to inadequate disclosure) and price discovery & liquidity (no exchange listing). What are now commonly referred to as toxic assets. Assets that are opaque, illiquid and nearly impossible to value.

A compelling case could be made, if all these securities had been required to list on an exchange, these toxic assets wouldn't exist and the whole disaster could have been substantially avoided.

On May 18 09:16 AM jjf wrote:

>
> There is little doubt that the NY Stock Exchange is positioned to
> lead fundamental corporate governance reform effort; the subsantive
> question is should they? And given their conflict of interests, how
> would they propose to do it in a manner that could be and could
> be seen to be independent, fair and and meaningful? In the absence
> of clear checks and balances, is asking the NYSE, which has a pivotal
> role to play in maintaining public confidence and trust in the stock
> market, being akin to asking malfeasers to draft laws that should
> apply to them? To suggest that the NYSE was unaware of the challenges
> that faced its members and the investing public, is that not being
> naive? The real question was and is what to do about the challenges
> and based upon a review of the peformance of the NYSE, notwithstanding
> a laudable history, it appears to have failed the investing public.
> And not surprisingly so, as the NYSE needs to be responsive to its
> members, the listed corporations and only to the extent that it has
> no choice, or its in its interests to do so, to the investing public.
> When I did my doctoral thesis on corporate governance at McGill University,
> my empirical research recognized that (i) granting stock options
> caused irrational (from a business perspective) acitivites to take
> place and (ii) that executive compensation was (and still is) out
> of control. Surely, this should not have been a surprise to the NYSE.
> Yet this problem has still not been effectively addressed. Perhaps
> the aproach that the NYSE should consider taking is (i) to fund an
> independent body, whose independence can be clearly and transparently
> demonstrated to the investing public; (ii) to have the recomendations
> of this body, which should be presented within an agreed to timetable,
> publicly debated and (iii) to have he results of the debate incorporated
> into the law (i.e. the minimum legally imposed requirements of corporate
> governance). Otherwise, one can rest assured that the stop gap solutions
> founded in spin and lacking in substance will merely ensure that
> the problems faced by investors ( the savings and loans scandals
> of the 80's an the Enron's on the 2000's) will come back to haunt
> us again in the not too distant future.
> I look forward to seeing something more substantive done by the NYSE
> (which has a personal interest in helping to resotore investor confidence)
> rather than hearing more rhetoric and suggestions that problems be
> submitted to the supposed malfeasers and then asking them to solve
> them. Ask yourself what you would do if it was your money at stake?
> And then recognize that for most of us, directly or indirectly, it
> is.
>