The demand by Alan Hevesi, and other state treasurers and pension fund representatives for automatic representation on the board of the New York Stock Exchange is the latest lunge by the corporate governance priesthood to exploit the fiasco over Richard Grasso’s pay. They present a picture of a stock market whose problems stem from its having lost touch with its main customers, the big institutional investors. Mr. Grasso’s absurd remuneration, they say, was the result of an excessively se cretive system of governance under which the NYSE ran itself for its own interests alone.

But the scheme being advanced by Mr. Hevesi et al would only further separate the governance of the exchange from its owners, exactly the wrong remedy on the NYSE. The exchange, after all, is a privately-owned not-for-profit corporation. Its owners are its 1,366 members, the specialists, brokers, and traders who work and own seats at the exchange. They pay hefty fees — which rose sharply under Mr. Grasso — to the exchange to maintain the market infrastructure and support its regulatory functions. When the NYSE board gave Mr. Grasso nearly $200 million, it was most certainly not acting in the members’ interests.

As the exchange has evolved in recent generations, its 27-member board has been populated by the heads of investment banks, executives of companies quoted on the NYSE, lawyers, and other outsiders. It all started back in 1938, when an earlier generation’s version of Mr. Hevesi — Carle C. Conway of the Continental Can Company — led a committee to study the organization and structure of the New York Stock Exchange. Before 1938, the exchange was ruled by eight governing members, with members of the general public serving only on an advisory committee. “We believe the public viewpoint may more effectively be expressed only when nonmember representatives are actually full members of the Governing Board with the title of Governor,” the Conway commission said.

The Conway commission’s recommendations were for the most part adopted. The aims were no doubt worthy and desirable, but the strategy clearly failed. Sixty years and various reforms later, Mr. Grasso was able to fill this board with his friends who seem to have been happy to do whatever he asked. Only a small minority of the board directly represents the NYSE’s owner-members. It is almost as if, in their eagerness to please customers and regulators, they had forgotten or ignored their own interests. Among its governors is Madeleine Albright. She was last seen clinking glasses with Kim Jong Il in Pyongyang. Now all of a sudden she’s running the capitalist stock exchange? Another “public” director is H. Carl McCall, Mr. Hevesi’s predecessor as the New York State comptroller. Mr. McCall headed the exchange’s compensation committee that okayed Mr. Grasso’s $139.5 million payout.

It is hardly surprising that when the board came to set Mr. Grasso’s pay, the directors were happy to give him enough money to buy a small country. For most of them, after all, the money wasn’t theirs. It is also not surprising that the exchange mem bers, who had been kept in the dark about the pay package, were outraged when they found out, and quickly withdrew their sup port for Mr. Grasso. They had given up control of their company, believing it was in their best interest, only to discover that the outsiders who were supposed to be running things had not only wasted their money but brought their market into disrepute.

The best thing to happen now would be precisely the opposite of what Mr. Hevesi proposes. It would be to return the NYSE to its owners by giving them unfettered sway on the board. This is the structure any other privately owned company would expect to have. The members could then be left to decide what other reforms need to be made. They may, of course, choose to be clubby and secretive. They may decide to let crooked traders get away with it, or that it’s okay to overcharge investors. But it’s unlikely. For the owners know better than anyone that their livelihoods depend on running a market that customers will prefer to other trading venues. If the NYSE’s members fail to provide such a market, their customers will rapidly start going elsewhere, like the customers of a bad supermarket.

An NYSE controlled by owner-members would therefore have little choice but to respond to the current crisis with reforms that will satisfy those customers as well as the Securities and Exchange Commission. But they also have to consider their own interests. They have to ensure that they can run profitably and efficiently in order to maintain the quality of their market.

Allowing the exchange to be run by outsiders does not achieve all these ends. Muddying the relationship between ownership and control that exists in any other business may end up doing the opposite of what the corporate governance crowd says it wants. It could create a less efficient, less responsive stock market from which the owners feel disenfranchised and therefore less careful about how they treat their customers. It could, in short, end in the kind of scandal sometime down the road that would make the Grasso affair look like small potatoes.