Despite a personal sales pitch Thursday from John S. Reed, the California Public Employees' Retirement System will mount a campaign to scuttle his proposed reforms of the New York Stock Exchange.
CalPERS, the nation's largest public pension fund, with assets of $145 billion and 1.4 million retiree members, called on federal regulators to reject the plan put forward by Reed, the NYSE's interim chairman. In a news conference, CalPERS board President Sean Harrigan said Reed's proposal wouldn't provide independent regulation of the NYSE or give investors enough of a voice.
The CalPERS complaints echoed those of other public-finance groups reacting to the governance reforms that Reed outlined Wednesday. Harrigan said he would try to enlist such groups to push for a more comprehensive overhaul of the exchange.
Harrigan and CalPERS Chief Executive Fred R. Buenrostro Jr. had a "frank and open discussion" with Reed at the NYSE on Thursday but left "agreeing to disagree," Harrigan said.
Reed's plan will be put to a vote of the Big Board's 1,366 member-owners Nov. 18 and then submitted to the Securities and Exchange Commission for approval. The agency has not officially endorsed the plan, although Reed is known to have kept in contact with SEC Chairman William H. Donaldson.
Reed proposed replacing the NYSE's 27-member board of directors with a new board of six to 12 members, none of whom would have business or regulatory ties to the exchange. The board would oversee the NYSE's regulatory unit, but that unit would stay within the exchange rather than be split off into a separate legal entity, as some critics have urged.
The board would choose a chairman and CEO and approve pay and benefits for them and other top NYSE managers. All pay and important actions would be disclosed in an annual proxy statement, Reed said.
Under his proposal, the board also would appoint a so-called board of executives composed of NYSE trading professionals, owners of exchange seats, investor groups and executives of brokerage firms and companies whose stocks trade on the Big Board. This panel would advise the board of directors on day-to-day trading operations.
Reed asked for the resignations of all but two of the current directors. He nominated those two -- former Secretary of State Madeleine K. Albright and pension fund executive Herbert M. Allison Jr. -- along with six others to serve on the new board. The other nominees include four retired corporate chief executives, a money manager and a university president.
Reed has begun an eight-city "road show" to pitch his plan to the exchange membership. He also lobbied SEC commissioners in Washington on Wednesday.
Harrigan sent letters to Donaldson and the other four SEC commissioners Thursday that detailed his objections and urged them to reject Reed's plan.
A key weakness of the plan, Harrigan said, is that the board of directors must be approved by the NYSE seat holders, who are subject to exchange regulation.
"You can't have the regulators accountable in elections to the regulatees," Harrigan said.
Sen. Joe Lieberman (D-Conn.) made the same point in a statement Thursday.
"Experience has shown that the NYSE does not and cannot effectively regulate itself from within," said Lieberman, ranking minority member of the Senate Governmental Affairs Committee and a presidential candidate. "The regulatory arm should be separate."
New York state Comptroller Alan G. Hevesi said in a statement that the National Coalition for Corporate Reform -- a group he founded this year with state government officials, pension fund executives and union representatives -- asked the SEC to revise Reed's plan to better separate the regulatory function from management and to explicitly provide for investor representation on the main board.
It's not clear at this point whether other pension funds will form a united front with CalPERS against Reed's plan.
Harrigan acknowledged that even a fund of CalPERS' size accounted for only a tiny fraction of the NYSE's trading volume and thus must join with other investors if it hoped to have much clout with the Big Board. Harrigan, however, said CalPERS would consider steering investment transactions away from the NYSE as a last resort.
"It's certainly not the direction we want to go, but it's something we may have to consider," he said.