After months of fighting for Morgan Stanley CEO Philip Purcell’s resignation, the so-called Group of Eight dissident shareholders finally got what they wanted: Purcell announced Monday morning that he was stepping down once a successor could be named, but, in any event, no later than the firm’s next annual meeting in March 2006. The company also announced that earnings would fall short of expectations, coming in 15 percent to 20 percent below the year-ago numbers of $1.10 per diluted share. Weak market conditions compared to the prior period was blamed.
“It has become clear that in light of the continuing personal attacks on me, and the unprecedented level of negative attention our firm—and each of you—has had to endure, that this is the best thing I can do for you, our clients and our shareholders,” Purcell wrote in a letter released by Morgan Stanley.
The dissidents, former Morgan Stanley executives who were pushed out when Purcell took the helm, have been calling for Purcell’s head since March of this year, citing what they call poor performance in the retail division as proof that Purcell botched the 1997 merger between white-shoe Morgan Stanley and down-market Dean Witter. A severe culture clash between the two arms hasn’t helped. Heat from the dissidents, the ensuing blanket media coverage and Purcell’s recent appointments of Zoe Cruz and Stephen Crawford as co-presidents have since helped spur a series of high-profile defections at the company.
Although Morgan Stanley’s board of directors has continually said it supports Purcell, the departures of another nine-person team of senior sales and trading executives Friday, as well as the earnings short fall, may have been the final straws, analysts said.
“Our take is that you basically have [Purcell’s] position dependent on producing good earnings and selecting good talent to do that,” said Richard Bové, an analyst at Punk Ziegel. He expects earnings to be weakest in trading and risk management—the two areas headed by executives Cruz and Crawford, he said. That, together with the constant level of people defecting, resulted in the board’s pushing him out, he said.
Bové doesn’t expect the defections from the retail brokerage division to slow down following today’s announcement. The unit’s performance has faced continual criticism in the past few months, and “we’re not talking about any certainty being put in there. There will be more uncertainty for a period.”
On the other hand, Morgan Stanley probably won’t make any big changes to the retail or other divisions while it is hunting for a new CEO, he says, particularly because he anticipates that it will want to look for a merger partner. “At this juncture it would be a mistake to make any changes within the company. Anyone who wants to tamper with the retail system would be making a mistake. It may be producing below hopeful levels. But the solution of the problem is to fix it, not to eliminate it,” he said.
According to CNBC television, which first reported Monday that Purcell would be stepping down, headhunter Tom Neff will lead the search for a new CEO.