Lord Black and Duke Dick: directors are not, nor should they think of themselves as, ducal appointees.

• Author: Kaback, Hoffer
• Position: QUIDDITIES - Conrad Black, Richard A. Grasso

IN MEDIEVAL ENGLAND, a county palatine was a shire where a peer of the realm possessed virtually sovereign rights in the administration of justice. It was he, not the king, who appointed judges and sheriffs.

"[P]owers of this sort created many valuable opportunities for the more ambitious and unscrupulous members of the aristocracy. By appointing members of their own affinities as undersheriffs and deputy justices, they could exert a powerful, and not altogether beneficial, influence...." (W.M. Ormrod, The Reign of Edward III).

Consider recent events concerning two major business personages. The first is Conrad Black--who, as Lord Black, is a peer--of the Hollinger newspaper empire. The second is Dick Grasso, high-profile former NYSE chairman and CEO.

In a detailed opinion issued in March, Delaware Vice Chancellor Leo Strine body-slammed Black. The judge concluded that:

1. Hollinger's board largely comprised outside directors whom Lord Black had "hand-selected and with whom he had a personal relationship."

2. To further his own interests, Black repeatedly misled his fellow directors, thereby violating his duty of loyalty. A director has an "unremitting obligation" to deal candidly with his colleagues; deceptive behavior toward directors is a "fraud upon the board."

There is no judicial opinion regarding Dick Grasso's huge compensation packages because a case has only just been brought (after much press coverage). Suit was filed at the end of May not by the SEC but by ubiquitous New York State Attorney General Eliot Spitzer.

AG Spitzer alleges that information about important components of Grasso's compensation and benefits was withheld from the NYSE board. More broadly, and as a result of the "incomplete, inaccurate and misleading information" that Spitzer says was furnished to the board, he claims that the entire process through which it approved Grasso's compensation was infected.

Not overlooked is the argument that Grasso's dual role as (a) a regulator and (b) an NYSE employee seeking approval of his pay created conflicts of interest. Heads of big Wall Street firms--regulated by the Exchange--served as members of the comp committee passing on Grasso's packages.

Additionally, Spitzer's suit names as a defendant Ken Langone, chairman of the NYSE's comp committee and Grasso's long-time friend.

Contending that much of Grasso's compensation and benefits were invalidly granted, Spitzer wants them rescinded. Grasso and Langone vow to fight...