Scandal facts: In September, 2003, it was disclosed that the compensation of Grasso (CEO & Chairman of NYSE) was approx. $190 mn. There was a hue and cry from various stakeholders about the excessive compensation offered to Grasso. As a result, Grasso had to step down from the CEO & chairman position.
After Grasso’s departure, diverse stakeholders (media, activist investors) were pressurizing Langoneto step down as well, since he was alleged as the ‘mastermind’ behind Grasso’s high pay package.
Reasons in favor of Langone’s departure:
• Failure to adhere to duty of care: He didn’t do his due diligence before awarding the compensation package o The spike in the compensation of Grasso happened after Langone became chair of the compensation committee o The members of the compensation committee were not duly briefed about the agenda of the meeting until few hours before the meeting o Some members of the committee were not present during the decision o External legal and compensation experts were not consulted
• Failure to adhere to duty of loyalty: Langone’s friendship with Grasso prompted him to assign disproportionate compensation to Grasso. He did not respect his fiduciary duty to his shareholders o Grasso had handpicked members of the compensation committee to ensure he gets a stellar pay (Langone had a history with Grasso) o Langone did not consider the interests of the shareholders ( who were widely dispersed) and awarded a disproportionate compensation to Grasso
As a consequence of these accusations, Langone was not reelected to the NYSE board. Nevertheless, Langone should have stepped down voluntarily as soon as these controversies surfaced showing high ethical standards, as this would have resulted in a fair and neutral analysis of his actions during his tenure at NYSE. (Take a position)This would have also send a signal to the market about his