People : Longtime Investment Industry Leader Donaldson Named NYSE Chief
William H. Donaldson, an investment company principal who at various times was an academic, undersecretary of state and co-founder of the Wall Street firm Donaldson, Lufkin & Jenrette, was selected Thursday to be the new chairman and chief executive of the New York Stock Exchange.
Donaldson, 59, currently chief executive of the venture capital firm Donaldson Enterprises, is to assume the Big Board job on Jan. 1. He succeeds James J. Phelan Jr., 59, chairman since 1984. Phelan announced in February that he planned to retire.
Donaldson will join the 198-year-old exchange in troubled times. The securities industry in general is doing poorly. And the traditional pre-eminence of the Big Board as the nation’s most important stock exchange is under challenge because of new technology and the emergence of round-the-clock, off-floor trading.
In a press conference immediately after NYSE’s board of directors confirmed the appointment, Donaldson was upbeat but also acknowledged the challenges that he and the stock exchange will face. Noting that he first came to Wall Street 35 years ago and that he served on the NYSE board in 1972-73, he called his new job “a tremendous homecoming.”
Donaldson’s unusual blend of Wall Street, government and academic experience apparently persuaded a special Big Board search committee that he has the stature to be an international representative of the stock exchange at a time when it faces global competition. “I don’t think we could get a finer selection than Bill Donaldson,” Phelan said.
Richard A. Grasso, currently the NYSE’s president and chief operating officer, was passed over for the top job but will be promoted Jan. 1 to the post of executive vice chairman.
Donaldson’s appointment was hailed by officials at some NYSE member firms and by senior officials at other exchanges.
Frank G. Zarb, chairman and chief executive of Smith Barney, Harris Upham & Co., said in a telephone interview that “Donaldson is the right guy to lead us at a time when so much is happening to us.” He said the stock exchange and New York are in danger of losing their status as the world financial capital. “If things aren’t handled correctly, New York could lose it to the Japanese or the Europeans,” he said.
Leo Melamed, chairman of the Chicago Mercantile Exchange, said in a statement that “Mr. Donaldson has a wealth of experience and was an excellent choice for this difficult period.”
At a time when computer technology has evolved to the point where, for example, government securities trading and over-the-counter stock trading are handled almost entirely by computer, the New York Stock Exchange floor trading system has come under increasing criticism as outmoded.
The exchange greatly upgraded its technology during Phelan’s reign and now smoothly handles far larger trading volume than it did a decade ago. But human “specialists,” brokers on the floor who make a market for individual stocks and match buyers with sellers, still predominate.
Some say the market could operate more smoothly, and around the clock, if specialists were replaced by computers. “One could make a strong case that, by the end of this decade, the exchange may not be in existence as we know it today,” said Perrin Long, a securities industry analyst with Lipper Analytical Securities. “There is a considerable group of people, including myself, who wonder whether we really need the exchange as it stands today, with the specialist system.”
In response to plans by rival exchanges, such as the one operated by the National Assn. of Securities Dealers for computerized after-hours trading, the Big Board recently said it would begin limited after-hours trading on computers some time next year.
In part because of the decline of the securities industry after the October, 1987, stock market crash, and in part because of the increasing competition faced by the Big Board from off-market trading, the price of a seat on the exchange has declined precipitously. The most recent sale, Aug. 3, was for $330,000, a spokeswoman said. The record, in September, 1987, was $1.15 million.
Donaldson said he will make continued technological innovation and strict regulation top priorities, “to increase public confidence in the marketplace.”
Donaldson is a graduate of Yale University and the Harvard Business School. He and two others founded the investment banking firm Donaldson, Lufkin & Jenrette in 1959 with an investment of $100,000. While he was at DLJ, it became the first NYSE member to sell shares of its own stock to the public. DLJ currently is owned by the Equitable Life Assurance Society.
Donaldson left DLJ in 1973 to become a U.S. undersecretary of state, and in 1975 he served as special counsel and adviser to then-Vice President Nelson A. Rockefeller. Later that year, Donaldson became the first dean of the Yale School of Organization and Management. He founded Donaldson Enterprises in 1980.
