Abstract: Networks of Scandal: The Problem of Image Contamination at the New York Stock Exchange

Janice Traflet

Abstract

When Dick Grasso's exorbitant compensation package recently came to light, the governance of the NYSE quickly became the subject of intense scrutiny. The pay scandal damaged public trust in the Exchange management, and, by extension, the financial community as a whole. Admittedly, certain scandal-stained member firms and listed companies (like Enron and Tyco) already had lost the confidence of many investors. Now, however, the Grasso episode suggested that scandal was pervasive and perhaps institutionalized. The NYSE executive board\'s mismanagement thus tainted the public's image of the larger Exchange community. The problem of image contamination, not new to the Exchange, works in both directions. The reputation of the NYSE, like any association, is only as strong as its members, and the reverse also holds true. My paper explores how the network between the NYSE executive branch and member firms malfunctioned during three scandal-laden periods (the 1930s, the 1970s, and today). Not surprisingly, each of these periods witnessed a major restructuring of the Exchange's executive board operations. By using the concept of "networks" to analyze the relationship between the NYSE executive board and the broader financial community, I hope to enrich popular understanding of the Exchange's meaning and functions.