SPRING 2005 - CIVIL WAR

Under the five year tenure of its CEO, Philip J. Purcell, Morgan Stanley's stock had the worst performance within its peer group of major securities firms.

This website was established by Daniel B. Strickler, Jr. – a shareholder and former Managing Director – to focus on Morgan Stanley’s governance.  Strickler’s views recommending Purcell be replaced were expressed in a letter to the Board of Directors, dated April 5, 2005.  His views on choosing a new chief executive were covered in a second letter to the Board, dated June 21, 2005.

Purcell’s announcement, on June 13, that he would retire as soon as a new CEO was chosen was thrilling news for Morgan Stanley’s battered investors, of whom so many had risen up in active opposition to his leadership.  The response was clear.  At the open of trading following Purcell’s announcement, Morgan Stanley’s shares traded at 51.76, up 1.88 from the previous close. 

After a shakey start, Morgan Stanley's Board of Directors moved quickly and authoritatively to put a new CEO in place.  On June 30, it was announced John Mack was returning to the Firm, where he had spent a 29-year career, and had been elected Chairman and CEO.  This was an outstanding choice.  Mack has a charisma and personal energy badly needed by the firm.  He has personal integrity, a proven management record, has dealt at the top and is recognized as an industry leader. 

Purcell's late March, ill-considered management shake-up resulted in the loss of some exceptional talent: with Vikram Pandit and Joe Perella leading the list, closely followed by John Havens, Terry Meguid and Steve Newhouse, as well as many others.  If Mack had been successful in getting these talented people to return to Morgan Stanley, he would have taken the final step in restoring the Firm's valued franchise.         

Strickler believes the Firm’s performance issues can be solved now that the right leadership is in place.  He believes in an integratred securities business with a bigger footprint. Better management will improve the profitability and competitive standing of the Firm's lagging retail brokerage and asset management operations.  He does not favor structural solutions involving the split-up of the business, as some have suggested.  It is not a value enhancing idea.  The retail brokerage business would become a weakened orphan, with the daunting and costly task of developing a competitive research and trading capability.  Presumably, it would have to operate under a new name, other than Morgan Stanley.  Nor does he favor the spin-off of the Discover card operation at this time.  It is a substantial cash generator supporting other elements of the business.  It contributes to the Firm's capital base, and it is well managed.  Down the road, if Morgan Stanley pursues a merger, the Discover business would be a valuable asset, enhancing the Firm’s bargaining position.        

 

 


New Leadership  ►  Improved Prospects