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The rise and fall of the ‘King of the Club’

/ Source: TODAY

Love a good rags-to-riches story? Even Horatio Alger would have been hard-pressed to write one as powerful as Richard Grasso's, whose ordinary upbringing didn't stop him from rising to become the most influential CEO in the history of the New York Stock Exchange. Here's an excerpt from “King of the Club” by Charles Gasparino.

“Mr. Mayor, any positions open at Giuliani Partners?” Richard Grasso asked when he picked up the phone.

The chairman of the New York Stock Exchange had just received word from his secretary, SooJee Lee, that Rudolph Giuliani, the former mayor of New York, a Grasso friend and sometime rival, was on the telephone.

It was early in the morning on September 17, 2003. Dick Grasso arrived at work at around 7:00 A.M., early enough to read the morning newspapers and grab some breakfast. It should have been a day filled with celebrations. Exactly two years earlier Grasso and Giuliani had stood on a podium as heroes; the two had reopened the stock exchange less than a week after the 9/11 terrorist attacks occurred.

Fast-forward two years to September 2003, and Grasso was a different man. He was still hard at work; just a few days earlier, the exchange had celebrated the one hundredth anniversary of Harley-Davidson, which had its shares listed to trade on the “Big Board.”

He had done it in true Grasso fashion with a huge celebration on the floor of the exchange, company officials in leather Harley jackets ringing the opening bell, and one of Grasso’s signature publicity stunts, featuring Grasso himself riding a chopper down Broad Street in front of the exchange building with the wife of Harley’s CEO seated on the back. “New York Stock Exchange chairmen come and go,” he later told one of his aides with a smile on his face, “but hundred-year anniversaries come only once every one hundred years.” Grasso, however, wasn’t smiling today.

In fact, he remained stoic even as he glanced at the one photo in his office that captured the moment of his greatest triumph: in the picture, he and Giuliani smiled and clapped as they declared the markets open for business following the attacks. Giuliani was now a private security consultant, making a mint off his 9/11 stardom; things were going so well for Giuliani, in fact, that he was considering a run for president.

Giuliani had offered Grasso a chance to work at his firm, but the offer had been made before Grasso’s career had imploded in scandal. He was still a friend, however, one of the few Grasso had these days, and Giuliani asked his friend how he was doing. Grasso said he was doing as well as could be expected under the circumstances.

“I’m the only hero of 9/11 who isn’t benefiting from being a hero,” Grasso muttered to himself as he sat in his office studying the visible evidence of his success: the photos with celebrities, politicians, and world leaders; the shelves stacked with souvenirs from the various companies he had convinced to have their shares listed on the exchange.

What perplexed Grasso the most was how swift his downfall had been. Grasso’s office was filled with mementos of his unparalleled reign —  the “NYSE Corporate Museum,” as he used to call it when he gave tours to everyone from politicians to CEOs of the world’s largest companies. In reality it was the Grasso Museum: every square inch was packed with something intended to validate his position as King of the Club. But a series of missteps over the months leading up to the September 17 anniversary had accomplished what no competitor or terrorist had been able to achieve: Dick Grasso’s defeat.

That his demise would come in part as the result of his own actions only made the event more tragic. In the summer of 2003, America was still reeling from corporate scandals involving executives run amok: Enron, WorldCom, and Tyco International, to name just a few. But the litany of stories detailing malfeasance, incompetence, and greed was capped by an extraordinary disclosure: that Grasso wanted to cash in a retirement package worth close to $140 million, including something the press had identified as an unseemly “bonus” of $5 million for working overtime during 9/11.

Grasso wasn’t stealing the money, of course — in fact, he had been paid the same “special bonus” the previous year — but the revelations had turned him from hero to poster boy for the overpaid chief executive. The same board of directors that had approved his taking the money, 9/11 bonus and all, just a few weeks earlier now wanted him out.

The first staffer to encounter Grasso that morning was his longtime PR man and marketing chief, Robert Zito. All seemed familiar when Zito arrived. The “Hot and Krispy” neon light, a gift from the Krispy Kreme donut company, burned brightly in the chairman’s office, as it had since Grasso won that listing two years earlier. But as Zito entered the normally sweltering office — Grasso blasted the heat even during the summer months — he immediately noticed a chill in the air. “It feels like a morgue in here,” Zito thought. And Grasso looked like death.

With dark rings under his eyes, he waited a few moments before giving Zito the bad news. Grasso was in mourning. The Club’s ruling commission, its board of directors, was getting ready to hand Grasso the ultimate indignity: it was planning to strip him of the only job he had ever really wanted, and one of the few he had ever had. The problem was bigger than just “that snake” Hank Paulson, the Goldman Sachs CEO who had been calling for his ouster in recent weeks, or longtime critic Michael LaBranche, who ran a powerful “specialist” firm and had rallied opposition to Grasso among the traders who bought and sold stocks on the floor of the exchange, or even that a supporter, Larry Fink, the head of BlackRock, had just crossed to the dark side.

Someone the chairman had believed was an untouchable ally was now having second thoughts about his chairmanship: the man he called simply “the lawyer.” The Wall Street superlawyer Martin “Marty” Lipton had been a key adviser to Grasso almost from the moment the pay controversy became front-page news. His advice was simple: there is nothing improper about taking the money as long as the board approved the move, which it did. With Lipton’s support, Grasso believed he was unbeatable.

But Zito worried that Lipton was conflicted; the lawyer had been dealing too much and for far too long with Grasso’s enemies on Wall Street for Grasso to fully trust him. Grasso had ignored Zito’s warnings; now he wished he hadn’t.

“I guess you were right about the lawyer,” Grasso said darkly, according to Zito’s recollection. Zito was perplexed for a moment but soon discovered what Grasso was talking about because Lipton had an appointment to meet with Grasso within minutes. Lipton entered the office and dispensed with pleasantries. As he sat across from Grasso, he announced that after he had spoken to Paulson and several exchange board members, it was his opinion that Grasso should think about resigning. In other words, the board now wanted him out. With a hint of defiance, Grasso summoned his pride and responded, “I’ll do what the board wants me to do.”

Within a few moments, a plan was set for an emergency board meeting, to be held on a conference call later that afternoon. All Grasso could think was “How did it come to this?” Later that afternoon Grasso would, of course, make it official and resign as chairman and chief executive officer of the New York Stock Exchange, ending a thirty-five-year career at the institution known among its members simply as “the Club.”

If you read the press clippings on Grasso’s rise and fall, it’s hard to come away feeling good about the man. He’s been called imperious, greedy, and spiteful. One story in The New York Times compared him to a “ward boss” for his autocratic rule of the exchange. Another likened him to the legendary bandit Jesse James for the manner in which he took his massive pay package. Like all stereotypes, these contain some element of truth. Grasso was a tough, autocratic boss. He certainly hid his massive retirement package from the public and even from many of the technical owners of the exchange, the 1,366 “seat holders” who held the exclusive right to buy and sell stocks on the exchange’s trading floor.

Fearing a public backlash, Grasso did all he could to take the money out before he could be denied by a more fearful board. Grasso’s obsession with his enemies at times bordered on paranoia; those who didn’t pledge complete loyalty to him and his rule were ostracized. Those who openly opposed him often suffered a far worse fate. But to dwell on these shortcomings is to miss the bigger story: the rise and fall of one of the most remarkable men Wall Street and corporate America has ever seen. Over the past few years, I’ve had the opportunity to interview dozens of top executives, including the CEOs of the biggest Wall Street firms.

To a man, they all love to boast about their rags-to-riches stories. But few of them ever really lived their Horatio Alger tales. Most of these men (and more recently, a few women) started off comfortably middle class, attended top colleges, and then worked their way up the corporate power structure. Grasso, on the other hand, truly started from the bottom before rising to the pinnacle of not just his company but Wall Street itself. He grew up poor, had almost no college education, and would have happily been earning a middle-class living as a city cop, if only he could have passed the eye exam. When he didn’t, he took an entry-level job on the stock exchange and thus began one of Wall Street’s most improbable careers.

He even succeeded in turning what was once considered a quasi- governmental job into one that was paid on a par with the loftiest corporate titans. Which brings us to a larger matter: the New York Stock Exchange — the institution Grasso dominated for so long. It is one of the most important symbols of our country’s financial and social success; it plays a critical role in the market economy that makes the American dream possible.

But few people really understand how the institution works on the inside, particularly from the standpoint of the people who make it work, men like Dick Grasso and those who later banished him from the financial business, possibly forever. Excerpted from “King of the Club: Richard Grasso and the Survival of the New York Stock Exchange” by Charles Gasparino © 2007 Charles Gasparino. All rights reserved. Excerpted with permission of HarperCollins. No portion of this may be reproduced or distributed without permission of the publisher.