Goldman Sachs Exec Named CEO of NYSE
The New York Stock Exchange picked John A. Thain, the president of investment banking powerhouse Goldman Sachs Group Inc., as its chief executive Thursday, entrusting an industry insider with the job of rehabilitating the exchange’s fractured image.
Thain will assume the CEO post Jan. 15, taking the helm at what may be the most pivotal time in the history of the 211-year-old exchange.
Unlike Richard Grasso, who resigned after the disclosure of his $187.5-million pay package, Thain will not additionally serve as chairman of the exchange, a key position that will be filled later. John S. Reed will remain the NYSE’s interim chairman.
Thain’s selection sparked criticism. Detractors said the naming of a Wall Street insider perpetuated the NYSE’s reputation as a cliquish enclave that has little regard for the interests of average investors.
Critics pointed out that Thain’s current employer owns one of the handful of NYSE trading firms known as specialists that are under investigation by the Securities and Exchange Commission for potentially abusive trading. And unlike competitors such as Merrill Lynch & Co. or Citigroup Inc., Goldman Sachs does no business with small investors, meaning Thain has spent his career focused on big institutional investors such as insurance companies and mutual funds.
“Certainly, we’d have liked to have seen someone more independent,” said Sean Harrigan, president of the California Public Employees’ Retirement System, which sued the NYSE this week, alleging it had allowed the specialist firms to take advantage of small investors. “What this demonstrates is that they really don’t get it.”
Reed introduced Thain at a morning news conference, saying he could pull the exchange out of its tailspin.
“We have an exceptional person at a time when, quite frankly, we need an exceptional person,” Reed said.
Thain, 48, proclaimed the NYSE a “vital nerve center” and said he was “deeply honored to accept this call to service.”
He offered little sense of his vision, saying only that he supported an operational overhaul of the Big Board approved Wednesday by the SEC and expected computerized trading to increase even as specialists remained integral to the system.
Thain gave a hint of his thinking at a Merrill Lynch conference last month, saying the exchange should complete more trades electronically.
Though he was Goldman’s second-ranking executive, Thain was known for keeping a low profile. He seemed uncomfortable in the spotlight Thursday, standing rigidly at the podium and often deflecting questions to Reed.
Thain will earn $4 million a year, including bonuses and benefits, roughly the paychecks taken home by the bosses of other U.S. exchanges, Reed said. Reed stressed that Thain would have “plain-vanilla compensation” with no “strange retirement programs,” an allusion to the pension plan that helped Grasso amass his wealth.
However, Thain will be able to keep his extensive holdings of Goldman stock, valued at more than $300 million. There will be “appropriate safeguards” to ensure that his assets don’t conflict with his duties, Reed said, although he offered no specifics.
SEC Chairman William H. Donaldson released a statement praising Thain.
“John Thain brings a distinguished record of leadership and knowledge to this important new role,” Donaldson said.
Outside experts backed the appointment of Thain, saying the board had to choose someone who understood the esoteric world of stock markets.
“I want someone who knows what’s going on on Wall Street and in the market,” said Leon Panetta, a former NYSE director who was chief of staff to then-President Clinton.
Added Felix Rohatyn, a veteran Wall Street financier: “He will understand the need for the exchange to be purer than Caesar’s wife.”
The naming of Thain came a day after the SEC approved a reform package calling for independent directors and a smaller board. The NYSE has also pledged to separate the positions of CEO and chairman.
The untwining of the two jobs was considered essential because critics said the claiming of both titles by Grasso allowed him to arrogate power and brush off reform efforts.
The picking of a CEO is one of several steps the NYSE will take in coming weeks that experts say will determine the success of the reform drive.
The NYSE will name both a chairman and a chief regulatory officer, a newly created position that will oversee the exchange’s policing of the nation’s brokerage firms.
An issue at the heart of the NYSE debate is whether its regulatory unit should be cleaved from the trading floor. Critics say their joint operation creates a conflict and tempts the NYSE to not crack down on wrongdoing by trading firms.
Under the NYSE’s new structure, the chief regulator will report to the board, increasing the importance of who fills that job and the chairman’s role.
Critics say that, even though Reed has introduced reforms, they don’t think he has gone far enough. They acknowledged Thain’s expertise in such areas as technology and market structure but worry that deeper reform may not occur under his leadership.
“The jury is still out,” said Damon Silvers, AFL-CIO associate general counsel. “They haven’t done anything horrible since Grasso left, but they haven’t done anything decisive either.”
Reed said he would serve as a nonexecutive chairman temporarily but did not want the job permanently. He said he would stay on as a director if asked by Thain and the board.
Reed reiterated his desire to resume his retirement, which the former CEO of Citigroup Inc. predecessor Citibank agreed to set aside when he agreed to come to the NYSE three months ago. He is being paid $1.
He acknowledged Thursday the shadow that the various NYSE scandals have cast over the exchange.
“This whole episode is embarrassing,” he said. “I should be sitting on a beach somewhere reading a book.”
