Why did Dick Grasso’s pay become an enormous issue in Washington and on Wall Street? His pay and deferred compensation plan were on a par with packages of many other Fortune 500 chief executives. But that of course was the problem. Just as CEO salaries were going from 75 times the earnings of the lowest level employee to more than 500 times that figure, corporate performance was faltering. The stock market bubble left impoverished and disillusioned investors, massive overcapacity and a sluggish economy. Grasso became a convenient symbol and whipping boy for all that seemed wrong in the recent history of U.S. capitalism. Nonetheless his departure leaves a more important question: Who makes up the boards that hire, support and oversee these men?

Grasso’s pay package is a revealing story not so much because of its size as because of the way it was determined. He and the New York Stock Exchange board may have negotiated a salary, but the board was hardly a disinterested defender of a larger public good. Exchange members whose behavior Grasso was to regulate also had a large role in determining Grasso’s salary. Not surprisingly, the regulated had little interest in arguing the fine points of compensation packages with their daily overseer. As Robert Kuttner points out, the members of the stock exchange were stockbrokers, who had a vested interest in a leadership that would preserve antiquated methods of trade even in a digital age. The floor of the exchange, where specialists may be seen screaming at each other, provides spectacular theater and profits for their members but poorly serve most ordinary investors.

The cozy relationship between Grasso and the Exchange board is replicated across much of the American business community and even in many nonprofits. I became much more aware of the significance of boards during my years at College of the Atlantic (1986-1993). It became clear to me that board members often had other motives for their participation besides a commitment to the ideals of the organization and those whom it served. I was always amazed at the number of members of the college’s board who were chosen merely for the money or influence they could bring to the table. Many appeared to have very little knowledge of the college’s programs or founding ideals. But when students sought broader influence on or input into board decisions, their initiatives were consistently resisted. An early ’90s effort to gain student input into regular evaluations of the president was greeted by some of the board with comments to the effect that this would be like giving students a voice in the hiring and retention of their teachers. Little did many board members recognize that for good or ill College of the Atlantic had long given students an extraordinary role in just such decisions.

Even in the presumably more pristine world of academics and nonprofits, boards often act as private clubs whose members are chosen because of their compatibility with management and their access to key sources of political power or their substantial financial contributions. However understandable the composition of boards may be in tactical terms, boards as currently constituted and chosen cannot be counted on to serve the long-term interests of the employees or clients of the institution. Corporate governance today is the unacknowledged 1,000-pound gorilla in the living room.

Recent rules curbing conflicts of interest for auditors and requiring CEOs to sign off on annual reports are little more than cosmetic. Corporate power is legally vested in the hands of boards. Nonetheless, most boards do not include mandatory representatives of the corporation’s employees or customers. Absent board membership, these constituencies are deprived not only of power but also even of access to basic information. In many of our largest corporations today, outside directors, those not chosen by management, are often a minority. Many so-called outside directors are often themselves current or former chief executive officers and their biases clearly lie in sustaining the prerogatives of management and key insiders. With such arrangements, even most of the ordinary stockholder’s of the corporation are poorly served.

The U.S. business press regularly characterizes capitalism in Taiwan, Japan, and South Korea with the derisive label “crony capitalism.” It takes one to know one. The U.S. economy is clearly marked by its own version of crony capitalism. The cronyism is an incestuous relationship between managements and a few key trustees and privileged stockholders. Capitalism may have triumphed worldwide, but the immediate question for most citizens and workers is: what form of capitalism has triumphed. Moving beyond crony capitalism to more democratic and entrepreneurial variations will require more than the ceremonial decapitation of Dick Grasso.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@acadia.net.