Langone Being Haunted by Grasso Links

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Whether Richard Grasso (search) supporter Kenneth Langone (search) soon caves into pressure to quit the board of the New York Stock Exchange (search) or not, one thing is for certain: he won't be able to put the affair to rest easily.

Langone was seen as a key architect of the $188 million compensation package that led to Grasso's ouster as chairman and chief executive of the exchange. Now, he is being painted as the poster child for how directors shouldn't behave in the post-Enron era.

He has become a lightning rod for those outraged by companies who pay their CEOs massive packages, particularly when the rewards are not related to performance, and his business links outside Wall Street are being threatened.

This became clear on Friday when the AFL-CIO (search), the largest U.S. labor organization, demanded Langone's removal from the boards of the five public companies on which he serves, saying his history of approving excessive executive compensation called into question his fitness to be a director.

They include three very prominent companies: conglomerate General Electric Co. (GE), fast food restaurant group Yum Brands Inc. (YUM), which owns the KFC, Pizza Hut and Taco Bell chains, and home improvements retailer Home Depot Inc. (HD). The others are textile group Unifi Inc. (UFI), and identification data services company ChoicePoint Inc. (CPS).

Langone, 68, has continued to defend Grasso's payout and has defied calls from some floor traders and investors to step down from the exchange board. William Patterson (search), director of the AFL-CIO's Office of Investment, said this means "he has risen to the top" of the labor group's target list.

Unless Langone changes his position, he is likely to face a campaign to get shareholders to vote against his re-election to some of those boards, particularly GE and Home Depot, Patterson said.

In May, he faced opposition at Home Depot's annual meeting because as co-founder he was seen as too involved in the company's business to be considered its independent lead director. Add the exchange issues to those concerns, especially given Grasso's presence on the Home Depot board, and next year's meeting may turn into a showdown.

The AFL-CIO, whose affiliate unions sponsor $400 billion in pension plan assets, has talked about Langone with officials from some major state pension funds.

Representatives of pension funds and corporate governance experts said the AFL-CIO may strike a chord with such investors.

"A number of our members already voted against him on the Home Depot board last year. I can only imagine those numbers going up," said Sarah Teslik, executive director of the Council of Institutional Investors.

The AFL-CIO issued figures showing CEOs of the five companies on whose boards Langone sits got more compensation in 2002 than the average among their peers.

"His board memberships do concern us because he is not a force for moderation," said Paul Hodgson, a compensation researcher at The Corporate Library.

He said the 2002 pay deal for Robert Nardelli, the CEO of Home Depot, was "one of the worst ever" because it bore almost no relationship to the company's performance. Nardelli received an estimated $34.5 million, even as Home Depot's share price slumped.

Langone, who with a net worth of $820 million is No. 314 on Forbes' list of the 400 richest people in America, declined to comment through a spokeswoman other than to reaffirm he has no intention of resigning from the exchange.

His case is hardly helped by a complaint by Wall Street regulator NASD that his boutique investment banking firm Invemed Associates LLC improperly shared customers' profits on hot initial public offerings during the late 1990s stock market bubble. Langone, who has denied the allegations, is Invemed's chairman, chief executive and president.

The assault on Langone's presence on boards echoes of the attempts in the past two years by some investors and the AFL-CIO to remove Frank Savage, a former director of the collapsed energy trader Enron Corp. from the board of the defense contractor Lockheed Martin Corp. (LMT). The campaign has failed at two annual meetings, but the struggle has become a major issue for the company.

There are also likely to be questions over whether Langone should have ever been on so many boards, especially given he has the three Invemed positions as well as board and trustee commitments at a number of other institutions and charities.

Corporate governance experts say that executives who are not retired probably shouldn't be on more than two boards because they won't be able to devote the time needed to be a top-class director. Hodgson's verdict is that Langone is probably "hopelessly over-committed."