SAVE MORGAN STANLEY.COM
BEECHTREE CAPITAL PARTNERS, INC.41 East 57th Street New York, N.Y. 10022Tel: 212-935-6262 Fax: 212-935-6998
April 5, 2005 Corrected Version
To The Board of Directors of Morgan Stanley: As a Morgan Stanley stockholder owning 3.8 million shares, I have an important stake in the Firm, where I spent a career that extended over twenty-five years. I count myself as one of those who helped build its franchise. For some time, I have been deeply concerned about the Firm’s poor leadership under Philip Purcell. It is just not acceptable that Morgan Stanley, over the past five years, has had the worst stock performance of any major investment firm. Purcell has had eight years to get things right. It’s time for the Board to set aside its cozy relationship with Purcell, wake up and start thinking about Morgan Stanley’s shareholders. Replace Purcell now. He is a failed CEO.
I was shocked to learn early last week that Purcell’s ill advised management shuffle has resulted in the loss of two of the Firm’s most valuable and respected top executives: Vikram Pandit and John Havens. This was followed by the resignation of Steve Newhouse, who had been President of Morgan Stanley and was an effective leader of the Firm’s European activities. I was equally disappointed, but not at all surprised, to learn that Purcell is now calling for written loyalty statements from his top managers. This sound like the Joe McCarthy era. Purcell has an imperious management style that is totally unsuitable for a large investment firm involving many talented people. Rather than say “if you’ve got an idea let’s hear about it”, he shuts off discussion. People with independent thoughts learn that they express these thoughts at some personal risk. The CEO, surrounded by a small staff of loyalists, is isolated from the Firm at large. Even more damaging, when making key management selections, personal loyalty ranks much higher than competence or experience. These two failings have gotten him – and Morgan Stanley – into deep trouble. This is not the way to develop an organization of the best and the brightest. Here is Purcell’s workweek. On Monday, he flies in to New York from Chicago on his Gulfstream G-5, arriving at Morgan Stanley’s offices between 9-10 A.M. He heads straight to his office. One top executive has never – over eight years – seen Purcell on the banking floors of the Firm. He rarely participants in client or industry evening events, and it is very difficult to schedule a client meeting with him during the day. He leaves his office at 4 P.M. on Thursday and flies back to Chicago. On Friday, he works out of the Discover Card offices in Chicago. Is this how you run a major investment bank? I think not. And, how does he treat his close colleague Steve Newhouse, the President of the Firm who Purcell had chosen just eighteen months ago? Last Tuesday, March 29, Newhouse was in Spain, traveling on Firm business. Early in the morning – reportedly at 3:30 a.m. -– he gets a telephone call from Purcell summarily informing him he’s being replaced as President. Leadership and management effectiveness are not just “soft” issues at Morgan Stanley. They are the issues. It’s a service organization, where people are the critical asset. Developing a culture where the Firm attracts, motivates and retains exceptional talent isn’t just a luxury. It’s a competitive necessity. When the Morgan Stanley/Dean Witter merger took place, Purcell had two fundamental missions. First, he had to forge a new culture, blending the best of Morgan Stanley with the best of Dean Witter into a cohesive organization. It is obvious, this has not happened. Secondly, he had to implement the synergies from combining Morgan Stanley’s powerful wholesale business with Dean Witter’s retail capabilities. Once again, he has failed. There has been little progress in closing the alarming revenue productivity gap for the Firm’s retail brokers, as compared with Merrill Lynch and other competitors.
Purcell’s failures of leadership and management effectiveness have many dimensions: Internal EnvironmentCertainly, within the investment banking arm of the Firm, which generates most of its profits, he is regarded as a weak leader who does not command the respect of the Firm’s managers and professionals. External Environment – Government and Public PolicyPurcell has proven himself inept in dealing with governmental and regulatory agencies. The written rebuke he received from the Chairman of the SEC displayed an arrogance that has been further amplified in the handling of important litigation. Most recently, in a case involving Perelman vs. Sunbeam, the judge has sharply criticized Morgan Stanley for its obstructionist tactics. Purcell’s handling of these matters suggests an ethical grounding less than desirable. External Environment - ClientsPurcell rarely interacts with the Firm’s client base. In sharp contrast, Henry Paulson, the CEO of Goldman Sachs, schedules hundreds of client meetings every year. In the hotly contested arena competing for major assignments, Morgan Stanley has lost countless deals because it could not produce its CEO as the closer. Competing for Talent Attracting the most capable professional talent is absolute critical to the life-blood of any major investment firm, all of whom devote tremendous resources to this continuing effort. Purcell’s poor image as a leader, as well as his minimal involvement with recruiting, makes this task all the more challenging for Morgan Stanley.
ExecutionThe Firm’s important retail brokerage and asset management businesses are poor performers. They have been, and continue to be, woefully under managed. The blame rests squarely with Purcell and the poor management decisions he has made. I caution the Directors against relying on random contacts within Morgan Stanley for the purpose of assessing morale. Particularly in the climate Purcell has created, straying from his party line can put a manager’s job at risk.
Putting the stockholders interests first, you can reach only one conclusion: Purcell must go. And remember, those of us who feel so strongly about this failure of leadership are not going away.
What do you say about a CEO who has delivered the worst stock market results in the securities industry? What do you say about a CEO who does not enjoy the respect and confidence of his employees? What do you say about a CEO who spends more time on the greens at Augusta than on the trading floors of his own firm? And, what do you say about a Board of Directors that refuses to recognize and deal with these issues?
Should it prove helpful, I would be glad to talk with any of you about this subject, including the insight I have gained about many of the Firm’s top managers.
Sincerely,
Daniel B. Strickler, Jr.
Attachment
CC: State Street Corporation Barclays Bank Fidelity Management & Research JP Morgan Chase The Vanguard Group Amvescap Deutsche Bank Northern Trust UBS Global Asset Axa College Retirement Equities Fund MORGAN STANLEYDismal Stock PerformanceFive Year Perspective
I was shocked to learn early last week that Purcell’s ill advised management shuffle has resulted in the loss of two of the Firm’s most valuable and respected top executives: Vikram Pandit and John Havens. This was followed by the resignation of Steve Newhouse, who had been President of Morgan Stanley and was an effective leader of the Firm’s European activities. I was equally disappointed, but not at all surprised, to learn that Purcell is now calling for written loyalty statements from his top managers. This sound like the Joe McCarthy era. Purcell has an imperious management style that is totally unsuitable for a large investment firm involving many talented people. Rather than say “if you’ve got an idea let’s hear about it”, he shuts off discussion. People with independent thoughts learn that they express these thoughts at some personal risk. The CEO, surrounded by a small staff of loyalists, is isolated from the Firm at large. Even more damaging, when making key management selections, personal loyalty ranks much higher than competence or experience. These two failings have gotten him – and Morgan Stanley – into deep trouble. This is not the way to develop an organization of the best and the brightest. Here is Purcell’s workweek. On Monday, he flies in to New York from Chicago on his Gulfstream G-5, arriving at Morgan Stanley’s offices between 9-10 A.M. He heads straight to his office. One top executive has never – over eight years – seen Purcell on the banking floors of the Firm. He rarely participants in client or industry evening events, and it is very difficult to schedule a client meeting with him during the day. He leaves his office at 4 P.M. on Thursday and flies back to Chicago. On Friday, he works out of the Discover Card offices in Chicago. Is this how you run a major investment bank? I think not. And, how does he treat his close colleague Steve Newhouse, the President of the Firm who Purcell had chosen just eighteen months ago? Last Tuesday, March 29, Newhouse was in Spain, traveling on Firm business. Early in the morning – reportedly at 3:30 a.m. -– he gets a telephone call from Purcell summarily informing him he’s being replaced as President. Leadership and management effectiveness are not just “soft” issues at Morgan Stanley. They are the issues. It’s a service organization, where people are the critical asset. Developing a culture where the Firm attracts, motivates and retains exceptional talent isn’t just a luxury. It’s a competitive necessity. When the Morgan Stanley/Dean Witter merger took place, Purcell had two fundamental missions. First, he had to forge a new culture, blending the best of Morgan Stanley with the best of Dean Witter into a cohesive organization. It is obvious, this has not happened. Secondly, he had to implement the synergies from combining Morgan Stanley’s powerful wholesale business with Dean Witter’s retail capabilities. Once again, he has failed. There has been little progress in closing the alarming revenue productivity gap for the Firm’s retail brokers, as compared with Merrill Lynch and other competitors.
Purcell’s failures of leadership and management effectiveness have many dimensions: Internal EnvironmentCertainly, within the investment banking arm of the Firm, which generates most of its profits, he is regarded as a weak leader who does not command the respect of the Firm’s managers and professionals. External Environment – Government and Public PolicyPurcell has proven himself inept in dealing with governmental and regulatory agencies. The written rebuke he received from the Chairman of the SEC displayed an arrogance that has been further amplified in the handling of important litigation. Most recently, in a case involving Perelman vs. Sunbeam, the judge has sharply criticized Morgan Stanley for its obstructionist tactics. Purcell’s handling of these matters suggests an ethical grounding less than desirable. External Environment - ClientsPurcell rarely interacts with the Firm’s client base. In sharp contrast, Henry Paulson, the CEO of Goldman Sachs, schedules hundreds of client meetings every year. In the hotly contested arena competing for major assignments, Morgan Stanley has lost countless deals because it could not produce its CEO as the closer. Competing for Talent Attracting the most capable professional talent is absolute critical to the life-blood of any major investment firm, all of whom devote tremendous resources to this continuing effort. Purcell’s poor image as a leader, as well as his minimal involvement with recruiting, makes this task all the more challenging for Morgan Stanley.
ExecutionThe Firm’s important retail brokerage and asset management businesses are poor performers. They have been, and continue to be, woefully under managed. The blame rests squarely with Purcell and the poor management decisions he has made. I caution the Directors against relying on random contacts within Morgan Stanley for the purpose of assessing morale. Particularly in the climate Purcell has created, straying from his party line can put a manager’s job at risk.
Putting the stockholders interests first, you can reach only one conclusion: Purcell must go. And remember, those of us who feel so strongly about this failure of leadership are not going away.
What do you say about a CEO who has delivered the worst stock market results in the securities industry? What do you say about a CEO who does not enjoy the respect and confidence of his employees? What do you say about a CEO who spends more time on the greens at Augusta than on the trading floors of his own firm? And, what do you say about a Board of Directors that refuses to recognize and deal with these issues?
Should it prove helpful, I would be glad to talk with any of you about this subject, including the insight I have gained about many of the Firm’s top managers.
Sincerely,
Daniel B. Strickler, Jr.
Attachment
CC: State Street Corporation Barclays Bank Fidelity Management & Research JP Morgan Chase The Vanguard Group Amvescap Deutsche Bank Northern Trust UBS Global Asset Axa College Retirement Equities Fund MORGAN STANLEYDismal Stock PerformanceFive Year Perspective
. | Dec 31, 1999 | April 1, 2005 | Change |
Bear Sterns | 42.60 | 98.27 | +131% |
Merrill Lynch | 41.53 | 55.95 | +35% |
Goldman Sachs | 94.06 | 104.30 | +16% |
Lehman Brothers | 84.55 | 92.78 | +10% |
Morgan Stanley | 71.38 | 56.87 | -20% |