MENLO PARK, Calif. (CNN/Money) - Dick Grasso, former grand pooh-bah of the New York Stock Exchange, has proved once again the Immutable Law of Grand Pooh-bah Sacrifices.

When the outrage gods are angry, a sacrifice must be made. Grasso had to go. And so he did.

But it's worth asking two questions. What did Grasso do that was so bad? And what should the NYSE do now?

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For starters, Grasso did next to nothing wrong, at least in terms of running the Big Board. Some carp that he's been too slow to adopt new technology, but in fact he's been a major force in modernizing the NYSE.

He definitely presided over a corporate governance system that led to the appearance of conflicts of interest (more on that below). But nobody has suggested that Grasso did anything wrong. Other than, of course, allowing himself to be paid obscene amounts of money, about $140 million over several years.

And if that were a crime...

To figure out what's in store for the Big Board post-Grasso, understand first what an unusual animal it is. On the one hand, the exchange is a company, owned by fewer than 1,500 "members" who hold seats on the exchange.

Companies can pay their CEOs whatever they damn well please, of course. Where the public gets involved is that the NYSE also regulates the companies that list their shares there.

Over the years, the members of the NYSE have had every reason to be generally proud of that oversight. There have been bad eggs, of course. Enron was a NYSE-listed company. But the NYSE has been basically free of scandal.

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Having said that, the Grasso-led exchange has been tone deaf. For years, it has had "public" members of its board who don't really represent the investing public, and that issue came to a head in March when Grasso tried to nominate Citigroup's Sandy Weill to the board.

Having the regulated oversee the regulators is a recipe for conflicts of interest. That there haven't been any tremendous conflicts, as far as we know, is a fact worth pondering. But the better idea, obviously, is to get rid of the conflicts.

So what should the NYSE do?

First, it could set up a separate board apparatus to oversee its regulatory arm. That board should be comprised of respected government, academic or retired business types without significant current skin in the game. And they should be well paid so that the NYSE's oversight function is important to them.

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Second, the Big Board certainly should consider going public. While public companies aren't the paragons of virtue, they are more transparent than private ones. And the world's most important stock exchange should be as open as possible. What business does it have being secretive anyway?

Third, the NYSE should pay its next CEO some reasonable, non-robber-baron salary. More, say, than SEC Chairman William Donaldson's $142,500 a year, a pathetically low amount considering the job, and less than Grasso's accumulated $140 million.

Other than that, the New York Stock Exchange probably should just ignore its critics and move on.

Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.

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