Ousted NYSE head Richard Grasso ordered to repay millions in improper pay; directors chastised by judge for being asleep in the boardroom
Indeed, many members of the (NYSE) board testified that they did not know about the SERP and if they did, they did not know what the balance was.
This court also finds this affirmative defense of neglect to be shocking. That a fiduciary of any institution, profit or not-for-profit, could honestly admit that he was unaware of a liability of over $100 million, or even over $36 million, is a clear violation of the duty of care. The fact that it was a liability to an insider (chairman and CEO) is even more shocking and a clear violation of the duty of loyalty.
–New York State Supreme Court Justice Charles Ramos in a decision ordering former NYSE CEO Richard Grasso to return millions of dollars in contested compensation.
Finally, the “slumber defense”, so often employed by directors who claim they really didn’t know what was happening, is beginning to offend the courts as much as it ought to offend shareholders.
Ironically, I covered this very point in a letter to the NYSE board a year before the Grasso scandal erupted.
The spectacle of Enron’s board pleading ignorance to the advancing dangers that brought down the company is a scene that has been played out repeatedly in the great corporate disasters of the past century.
I then went on to deal with the subject that would eventually lead to Grasso’s undoing, and the board’s embarrassment –oversized pay awarded in a climate of boardroom permissiveness and complacency.
Excessive CEO pay has been an indicator of the manifest deficit in ethics and values that has overshadowed too much of the business world. In the 1970s, the average CEO made about 43 times what the average worker made. In 2001, that gap had widened to 500 times. This phenomenon, representing the largest transfer of wealth from owners to a small class of hired professionals in history, interestingly coincides with the greatest decline in respect for business and its leaders, the largest loss of shareholder wealth and the longest parade of disgraced CEOs since the Great Depression. It symbolizes more than a dysfunctional system of compensation. It stands as an emblem of the failure of directors to live up to their ethical and legal responsibilities and tarnishes the moral authority of capitalism.
The judge has given directors and CEOs across America and elsewhere plenty to think about.