King of the Club
Richard Grasso and the Survival of the New York Stock Exchange
By Charles Gasparino
Collins; 383pp; $27.95
Fond of elevating its heroes, Wall Street delights equally in dismantling them, limb by tortured limb. Consider the careers of once-mighty, now fallen Citigroup (C) founder Sandy Weill or junk bond pioneer Mike Milken. First hailed for their genius in introducing novel thinking and new markets to the world of banking and securities
trading, they were ultimately seen as greedy and power-hungry—men in need of replacement. Former allies distanced themselves, claiming that they had seen the downfall coming.
Such is the story arc of the mostly celebrated career of Dick Grasso, former chairman and CEO of the New York Stock Exchange (NYX). The "little guy in the dark suit," as he was known among floor traders, might have accepted a job at Mayflower movers. Then came a lucky break: an $81-a-week NYSE clerk position requiring no more than a high school diploma and "the ability to follow orders." In 2003, some 35 years later, the boy from Queens who morphed successfully into "part businessman, part politician, and part circus maestro" became a full-time pariah because of a $180 million pay package that seemed emblematic of an age of CEO pay excess.
CNBC correspondent Charles Gasparino's King of the Club is the first book to chronicle Grasso's astonishing rise and fall. In May, 2004, as a reporter for Newsweek, the author landed the first major interview with a dethroned Grasso, who laid out how he had done nothing wrong (the board had approved his pay) and should get the money due him. This book further elaborates Grasso's argument that a working-class hero was brought down by an Establishment of elite Ivy Leaguers (read Goldman Sachs (GS)) that usurped control of the exchange for its own benefit. The hero bit is vastly overdone. But Gasparino's detailed account of Wall Street insider machinations, and the tick-tock of boardroom negotiations during the worst crisis in NYSE history, makes for riveting reading. It's also the most complete rendering of Grasso's final days.
At the center of the controversy, of course, is whether Grasso fully deserved his pay or got a salary "beyond all comprehension" thanks to a board packed with yes men. A largely sympathetic Gasparino gives Grasso plenty of benefit of the doubt but concludes that in vocally defending himself, Grasso's concern was always "protecting his turf and his power." Meanwhile, Grasso is appealing a 2006 court ruling that he must return some $100 million in pay.
Gasparino begins his story on September 11, 2001, a choice that threatens to lead into a pit of clichés about that day's heroics. Grasso played a key role in reopening the exchange on Sept. 17, but he also spearheaded the post-9/11 slogan "Let Freedom Ring," implying that doing business with the NYSE was patriotic. Such opportunism revealed Grasso's skill as spinmeister par excellence. In this role, he would thrive and profit. He set up the NYSE's first Silicon Valley outpost, allowed TV reporters such as Maria Bartiromo (now a CNBC anchor and BusinessWeek columnist) on the floor, and turned the bell-ringing ceremony into a publicity stunt that featured supermodels and politicians. By drumming up more order flow than the floor had ever seen, Grasso made everyone else rich, too.
Grasso's tenacity defied time and technology. The NYSE was an anachronism in the 21st century, yet single-handedly he preserved the "open outcry" auction system where specialists act as middlemen in trading. Then came a bear market and a Securities & Exchange Commission probe into illegal trading, followed by fresh charges that a self-regulated NYSE didn't work. Large investors such as Fidelity cried foul. Grasso's fat paycheck and an ill-timed nomination of Weill to the board, even as the Citigroup CEO was embroiled in Enron and WorldCom scandals, tarnished his hero status for good.
As often happens, many former supporters turned against Grasso—namely New York Attorney General Eliot Spitzer, interim NYSE CEO John Reed, and Goldman Sachs CEO Henry Paulson, an NYSE board member. Ultimately, a Goldman alum took the NYSE helm. By then, Grasso, the exchange's most effective advocate ever, had run out of anything good to say about the place.