Outgoing Chairman Jack Sandner wants to put the Chicago Mercantile Exchange board of directors on a diet and exercise regime.
In an interview last week, Sandner advocated shrinking the Merc board drastically, from its present complement of 36-plus to just a dozen.
On top of that, the Merc needs to consolidate its committee structure, Sandner said.
One idea: Create a separate “sub-board” for each of the exchange’s four market sectors–agriculture, equities, interest rates and currencies–and let those panels supervise related committees. “It creates a more egalitarian system,” he said.
As an alternative, the Merc could assign each director a specialty, a la President Clinton’s Cabinet.
In addition, Sandner said, staff executives should have more authority to make decisions, and be more accountable for the results.
Sandner’s ideas come just ahead of the Merc election. Members vote Jan. 15 on a dozen contested board seats, and elected directors are expected to pick a new chairman and other officers at a meeting Jan. 21.
Sandner is ineligible to continue as chairman because of term limits, but he has another year remaining on his stint as director. He said he will propose a corporate governance review in the weeks after the ballot.
“Governance must be revisited,” Sandner declared. “It ought to be more of a corporate-type model.”
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Along those lines, Sandner said, the exchange once again should consider converting to for-profit status. “Let people be measured by the bottom line,” he said.
That idea didn’t wash several years ago, partly because the change would entail a big tax bill.
But in light of the advantages for-profit status can afford, Sandner said, “You might have to bite that bullet.”
Outside influence: So who will succeed Sandner?
Recent director endorsements by two Merc political factions could have an influence.
Early front-runner Scott Gordon, now vice chairman, picked up an endorsement in the director race from the National Alliance of Futures and Options Brokers, Traders & FCMs (futures commission merchants), but not from the rival Equity Owners Association.
Another potential successor to Sandner, Merc Treasurer Thomas Kloet, was one of the few candidates to win a director endorsement from both groups. Bruce Johnson and Martin Gepsman also got the nod from both.
Labor costs: The price of a chairman is going up at the nation’s futures exchanges.
The New York Mercantile Exchange started it by awarding Chairman Daniel Rappaport an $850,000 year-end bonus on top of his $100,000 annual salary.
As reported last week, the Chicago Board of Trade has recommended jacking up the salary of Chairman Patrick Arbor to $400,000 from $240,000. Members vote on that proposal Jan. 21.
The Chicago Merc is experiencing wage inflation of a different sort. In addition to the $350,000 salary it pays to Chairman Sandner, the Merc earlier this year awarded a $200,000 annual stipend to Chairman Emeritus Leo Melamed.
Next month, the bill could go up again: Merc directors may well create a new, paid position for Sandner.
Second thoughts: The International Swap and Derivatives Association has won a round: The Financial Accounting Standards Board announced last week it would delay the introduction of its controversial new rules on derivatives.
The association has campaigned against the rules all year, complaining that derivatives would be treated differently from all other investments, and their balance-sheet impact would be distorted.
Now, FASB has postponed the rules’ original Jan. 1, 1999, start date for at least six months. The derivatives association, smelling blood, plans to press for more changes. “They blinked,” said a spokesman.