Monday, June 13, 2005

The Passion of the Purcell

This morning CNBC announced that Morgan Stanley had decided to fire its CEO, Phillip Purcell. According to Reuters, “CNBC said the board's decision to fire Purcell was made at a meeting over the weekend and came after news on Friday that nine equities derivatives staffers had left the bank to join Wachovia Corp.. The departures were the latest from the bank's industry-leading equities division, where Purcell previously acknowledged poor employee morale was a concern. The departures appear to have the final straw for the board, coming after the departure of dozens of senior executives, investment bankers, and traders.”

While many speculated that Purcell’s stacking of the board would protect him, there were others – myself included – who thought that Purcell would eventually go. According to an April 1st article in Institutional Investor,

"If this happened a month ago, they would have had a stronger chance. Morgan Stanley just had its annual meeting and it won't be until a year [later] that shareholders can vote on this issue," said
Jeffrey Sonnenfeld, an associate dean at Yale School of Management. The annual meeting was held March 15. There are no provisions in the by-laws for shareholders to call for a special meeting before then, said Patrick McGurn, executive v.p. at Institutional Shareholder Services, a proxy advisory group. Under the bylaws special meetings can only be called by the firms' secretary at the direction of board members. Since the board, at present, is solidly behind Purcell, a meeting may not be called before next year.

My comment was included in “What Others Think” below

  • "The forces for dethroning are building faster than the forces to keep him. At this pace it could be a matter of weeks."--Peter Cohan, president of management consulting and venture capital firm Peter S. Cohan & Associates.
  • "If he does some things to make the dissidents partially satisfied, he has a decent shot of surviving over the next six months. However, if he takes a 'just say no' policy it probably isn't going to work for him."--Michael Holland, president Holland & Co., a money management firm.
  • "His credibility has been damaged...the odds are 100% that there'll be a change in Morgan Stanley but whether that means the departure of Purcell, I don't know."--Nell Minow, Corporate Library Chairman.

In the ensuing weeks I was particularly concerned with Purcell’s efforts to control the reporting on Morgan Stanley’s woes. But now that Purcell is out, the next step is to bring in a new CEO. I would be inclined to select one of the Morgan Stanley veterans who recently departed the firm. And once the new CEO arrives, there will be an opportunity to consider the best corporate strategy for Morgan Stanley.

With the stock price up 5% this morning in pre-market trading, the decision to oust Purcell comes as a short-term victory for Morgan Stanley shareholders. Whether it becomes a long-term victory depends on what Morgan Stanley’s next CEO does.


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