Why did Dick Grasso become an enormous issue both in Washington and on Wall Street? His pay and deferred compensation plan as chairman of the New York Stock Exchange were on a par with packages of many other Fortune 500 chief executives. But that of course was the problem. Just as CEO salaries were going from 75 times the earnings of the lowest level employee to more than 500 times that figure, corporate performance was faltering. The stock market bubble left impoverished and disillusioned investors, massive overcapacity, and a sluggish economy. Grasso became a convenient symbol and whipping boy for all that seemed wrong in the recent history of US capitalism. Nonetheless his departure leaves a more important question: who are the boards that hire, support, and oversee these men?
Grasso's pay package is a revealing story not so much because of its size as because of the way it was determined. Grasso and the New York Stock Exchange board may have negotiated a salary, but the board was hardly a disinterested defender of a larger public good. Exchange members whose behavior Grasso was to regulate also had a large role in determining Grasso's salary. Not surprisingly, the regulated had little interest in arguing the fine points of compensation packages with their daily overseer. As Robert Kuttner points out, the members of the stock exchange were stockbrokers, who had a vested interest in a leadership that would preserve antiquated methods of trade even in a digital age. The floor of the exchange, where specialists may be seen screaming at each other, provides spectacular theater and profits for their members but poorly serves most ordinary investors.
The cozy relationship between Grasso and the Exchange board is replicated across much of the American business community and even in many nonprofits. I became much more aware of the significance of boards during my years at College of the Atlantic (1986-1993) Located in Bar Harbor, Maine and founded about three decades ago, the college sought to provide an interdisciplinary education and prided itself on the large role that it assigned students in all aspects of academic and administrative planning. Nonetheless, it became clear to me that board members even at this alternative institution often had other motives for their participation besides a commitment to the ideals of the organization and those whom it served. I was always amazed at the number of members of the college's board who were chosen merely for the money or influence they could bring to the table. Many appeared to have very little knowledge of the college's programs or founding ideals. When students sought broader influence on or input into decisions of the board -- where ultimate power resided -- their initiatives were consistently resisted.
An early '90s effort to gain student input into regular evaluations of the president was greeted by some of the board with comments to the effect that "that would be like giving students a voice in the hiring and retention of their teachers." Little did many board members seem to recognize that for good or ill College of the Atlantic had long made students full voting members of committees that hired faculty and ruled on their retention.
Even in the presumably more pristine world of academics and nonprofits, boards often act as private clubs whose members are chosen because of their compatibility with management and their access to key sources of political power or their substantial financial contributions.(Readers interested in the ways that the charitable or nonprofit sector often reflects, reinforces, and legitimizes patterns of private economic power should consult Dave Wagner's classic, What's Love Got To Do With It?, published by the New Press.)
However understandable the composition of boards may be in tactical terms, as currently constituted and chosen they cannot be counted on to serve the long-term interests of the employees or clients of the institution. Corporate governance today is the unacknowledged 1,000-pound gorilla in the living room. Recent rules curbing conflicts of interest for auditors and requiring CEOs to sign off on annual reports are little more than cosmetic. Corporate power is legally vested in the hands of boards. Nonetheless, most boards do not include mandatory representatives of the corporation's employees or customers. Absent board membership, these constituencies are deprived not only of power but also even of access to basic information. In many of our largest corporations today, outside directors, those not chosen by management, are often a minority. Many so-called outside directors are often themselves current or former chief executive officers and their biases clearly lie in sustaining the prerogatives of management and key insiders. With such arrangements, even most of the ordinary stockholders of the corporation are poorly served.
The US business press regularly characterizes capitalism in Taiwan, Japan, and South Korea with the derisive label "crony capitalism." Yet it takes one to know one. The US economy is clearly marked by its own version of crony capitalism. The cronyism is an incestuous relationship between managements and a few key trustees and privileged stockholders. Capitalism may have triumphed worldwide, but the immediate question for most citizens and workers is: what form of capitalism has triumphed. Moving beyond crony capitalism to more democratic and entrepreneurial variations will require more than the ceremonial decapitation of Dick Grasso.
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email firstname.lastname@example.org.