Duncan Niederaeur of the NYSE
The dynamic CEO of NYSE Euronext spoke about new regulations taking shape globally to avoid a repeat of the financial crisis…
JC: On May 6th, how did your day start, and how did it end?
DN: I got back from a three-day trip to the West Coast very late the night of May 5th, and May 6th was a pretty normal day until about 2:30. I was in a meeting and my assistant slipped me a note very calmly that read: “The market’s down just over 1,000. The first circuit breakers are about to be hit.” I calmly got up and walked over to my desk, and in the short time it took me to get from my chair to behind my desk, the market was now down 600. It was obvious something had happened. Jim Cramer, a friend of mine, had reported on the news that it must have been a technology problem at the NYSE, because the most noticeable evidence was in NYSE stocks. Let’s just say that I did not expect, even at 2:30, to end the day by appearing on CNBC with Maria [Bartiromo] and explaining what I thought had happened, and that we hadn’t had any technology issues.
Is it a one-off, or is it something we can prevent?
I wish I could tell all of you that someone meant to sell 10 million and sold 10 billion and it was the so-called “fat finger” trade. It wasn’t. It exposed a weakness in market structure in the United States that is really a direct result of the fragmented markets that we’ve lived with for a while. That’s not a pitch from us to have our monopoly status reinstated. Competition is here to stay. But we believe that having speed bumps in the market in times of aberrant volatility is right. It’s been a part of our market. No one is going to convince me to take it out because I think it’s the right thing for issuers and investors.
Tell us about the impact of more government regulation and involvement in business, and what’s going to be our relationship to risk taking going forward?
The challenge is if you go back a couple of years, the issues were limited to the financial services industry. Do they need to be governed slightly differently, or do they need a risk committee? I would go to Washington and ask, why am I supposed to go around to the other 99.5 percent of the companies that did absolutely nothing wrong, and say to them, “even though you did nothing wrong, Washington has decided you need to govern your companies in a different way”? It’s completely inappropriate. We could come up with all the anecdotes that we want, but if the government wants to get more involved, that’s fine. I’m all for some of the reforms, such as a central clearing of over-the-counter derivatives and other opaque instruments. If we want to federalize the boardroom, however, I’m not for that. None of us should be. I think we have to fight that pretty hard.
Can you give us some insight, either in your days as a banker or as the CEO of the NYSE Euronext, what should CEOs be doing and thinking about in regard to their own compensation?
Look, I was a rookie CEO when I got this job. My view on this was pretty simple. I felt that the executive team’s compensation was not aligned properly with the shareholder. So first, we put metrics around the bonus. We made more of the bonus long-term stock and we set up a long-term incentive plan that the earliest you get the stock is three years out. Our view was that if most of the executive team’s compensation is in long-dated stock that got us closer to the target. Secondly, we disclosed in our proxy our compensation philosophy, how it works, and how we derive the bonus pool—way more information than we’ve ever given before.
Speaking of getting closer to home, can you tell us about your board?
We had to go from not being nearly independent enough to where we made sure no one would ever question us about that again. So we went to the other end of the spectrum, where everybody had to be totally independent. I’ll just give you a list of the people who were disqualified for potential conflict: anyone who works in the industry and any sitting executive of a publicly listed company—NYSE or Nasdaq. That rules out an awful lot of qualified people. Is our board terrific? Yes. But I’m not even allowed to talk to 10,000 really qualified people about being on the board until I can try to get that rule changed. The other mistake we made—and look, hindsight’s 20/20—is that we moved no people off the board when we merged with Euronext in 2007, and both boards were a CEO plus 10. When I got this job, I inherited a 22-person board. Just think about trying to manage a public company with a 22-person board. Now the board is down to 16. We’ve had some good turnover. Our business has gotten a lot more complicated. And if you get too independent, the danger is that you don’t have people who are really close enough to what you’re trying to accomplish. You want people who can challenge, challenge, challenge.
Is this a tough period to be a CEO? Does the anti-business sentiment get to you?
I think I have one of the best jobs in the world, so I wake up every morning at five o’clock, and I can’t wait to get to work. I grew up having my dad teach me, that’s the American dream, and now some people want to say, “Well, it’s not the American dream anymore.” My view is no one’s going to take that away from me and no one should take it away from anyone in this room. A lot of us are self-made. We should be proud of that. Look back in history, folks. Revlon and Hewlett-Packard started in the depression. Companies like Microsoft and Intel started in a recession. That’s where the job creations come from at every recovery in this country, and yet, you haven’t seen one piece of legislation that encourages that. You haven’t seen the banks really step up and lend money to these institutions. I think that’s the bigger issue than is it a tough time to be a CEO. I mean, I think I’m one of the luckiest people that I know.