Nothing Personal

22 December 2003


NYSE Reforms Undermined by Thain Appointment as CEO

The New York Stock Exchange is trying to put its house in order. For a private company with serious public responsibilities, this is not easy. It might be less difficult if someone would explain to the rich and foolish that changing institutional structures doesn't matter much if the same faces are making the decisions that matter. The appointment of John Thain, who is president of Goldman Sachs, as the NYSE's new CEO undermines the steps the exchange has made in changing the way it operates.

That is not to say that Mr. Thain is a bad fellow. If anything, he has made Goldman Sachs one of the cleaner operations on Wall Street, he's a voice for the use of technology (which usually makes corruption harder to conceal), and it is quite probably that he is loved by small children and puppies. But he is, nonetheless, the head honcho at one of the most inside of the inside firms.

That doesn't square with departing interim boss John Reed's attempts to reform the exchange. Mr. Thain has said he would like Mr. Reed to stay on the board of directors after the transfer of power, which smell of "jobs for the boys." In addition, the splitting of the CEO and Chairman positions is undermined by Mr. Thain's appointment because of the connections he possesses -- he already has too much unofficial power in his hands. There is a genuine risk that the chairman is going to be a figurehead or that he and Mr. Thain will butt heads constantly and slow improvements at the NYSE.

The position of CEO and the job of Chairman should have gone to qualified outsiders. One thinks of individuals like Paul Volcker, James Baker (who's obviously busy working on Iraq's debt problem with Europe), and/or Warren Buffet. Men of that caliber certainly could do the job, and they command the respect of Wall Street. Moreover, they don't have the baggage, the symbiotic ties to the exchange that would undermine the perception of their actions.

Mr. Thain's appointment is undoubtedly a sound one in that he is qualified to be the CEO of the NYSE. It is undoubtedly an imprudent one in that he is an insider of the first order. Often, reforms are about perceptions more than real changes. In this case, the perception is likely to be counter-productive.

Home