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Morgan Stanley CEO James Gorman Copyright Andrew Burton, Getty Images
James Gorman

In Wall Street’s Hottest CEO Race, Morgan Stanley Hopes for Drama-Free Handoff

It would break with the industry norm if Morgan Stanley names new leader without losing those passed over.

(Bloomberg) -- As Morgan Stanley’s James Gorman considers who to put forth to succeed him as CEO, he’s unleashing a summer of speculation inside the bank.

Executives bumping into him on weekends try to tease out which way he’s leaning. Colleagues spend idle moments trading theories. And some have given the boss unsolicited advice, hoping to tip the scales toward their favorite — Ted Pick, Andy Saperstein or Dan Simkowitz.

Gorman, 65, is running Wall Street’s most closely watched horse race, vowing to have his successor in place in less than a year. 

But what’s especially striking is Gorman’s other declaration: He wants to defy deeply entrenched norms with a bloodless handoff — in which the rejected finalists stay, avoiding the usual cascade of shakeups and senior departures.

“Wall Street has had a history of that not happening,” Gorman said last month about the task of cajoling the losing executives to stick around. “Frankly, we will challenge that history.”

That’s notable for Morgan Stanley, which was a smoking crater of infighting shortly before Gorman arrived in 2006, and which now hopes to protect a market valuation that’s become the envy of many peers. It’s a daring bet in an industry where fragile egos and raw ambition make for messy handovers, sometimes derailing even the best-performing firms.

Mike Mayo, the skeptic-in-chief among bank analysts, remains unconvinced.

“The road is littered with CEO succession that results in upheaval of those in the upper ranks,” Mayo said. “I just think it’s going to be a challenge to keep the team as cohesive as they currently are.”

Examples abound. Most recently, at archrival Goldman Sachs Group Inc., discontent in the ranks has been rippling through the firm ever since investment banker David Solomon succeeded a generation of traders at the top. JPMorgan Chase & Co.’s Jamie Dimon and Bank of America Corp.’s Brian Moynihan have long been cagey about their intentions and avoided anointing heirs even as their hold over the nation’s two largest banks stretches toward two decades.

And then there’s Morgan Stanley itself, where lingering frictions after the appointment of Philip Purcell as CEO eventually culminated in his ouster in 2005, orchestrated by disgruntled alumni known as the Group of Eight.

The “civil wars” at Morgan Stanley and other banks were “part of an industry that forgot getting paid millions of dollars was a function of being in the right place at the right time,” said Zoe Cruz, the former Morgan Stanley executive who had a front-row seat to the blood feuds at the firm in the early 2000s.

In fact, it was her abrupt exit in 2007 that cleared the way for Gorman’s ascent to the corner office. He was elevated to be co-president, and then tapped to run the bank not long after.

No woman — including in the current process — has come as close to reaching the top of Morgan Stanley as Cruz did.

Morgan Stanley, which traces its roots to the Gilded Age tycoon John Pierpont Morgan, has morphed in recent decades. Gone are the superstar bankers who once stalked the hallways. Part of that reflects broader trends on Wall Street since 2008, where blowhards were neutered as wanton risk-taking fell out of favor and office behavior started catching up with the times. But some of it was also very deliberate, with Gorman turning the white-shoe investment bank into a financial supermarket in search of steadier earnings.

He disdains “me, myself or I” types, according to Colm Kelleher, Gorman’s former second-in-command and a history buff who toggles in conversation between fixed-income derivatives and 13th century Italian rebellions.

“What James has done at Morgan Stanley is taken that super ego out of the equation,” said Kelleher, now chairman of UBS Group AG. “Nobody else had ever done that at the firm before.”

Kelleher’s departure in 2019 effectively set the current race in motion. The reshuffle that ensued put a spotlight on four men — the current trio along with then-chief operating officer Jon Pruzan. After Pruzan signaled plans in January to leave, Gorman announced that there were three people at the firm capable of replacing him. In May, he said he aimed to hand off power in a year. When a CNBC interviewer mentioned in July that he had 10 months left, Gorman interjected: “Up to 10 more months.”

Gorman has emphasized that the board will make the final decision, but executives widely expect his preference will carry the most sway.

Projecting Harmony

The three candidates are known to dine together frequently and even appear to enjoy each others’ company. Inside the firm, they take pains to present a picture of harmony.

Pick, 54, runs the riskier institutional-securities group handling trading and dealmaking. Saperstein, 56, oversees Morgan Stanley’s $4.9 trillion wealth management machine. Simkowitz, a charismatic 58-year-old, oversees asset management and is the only one with experience on both sides of the firm.

Pick was long viewed as the clear front runner, but a federal investigation into how part of his division handles large stock transactions — known as block trades — has some wondering if his favorable odds will hold as the bank negotiates a potentially costly settlement. Saperstein, once a long shot, sits atop the most ascendant part of the firm.

And while Simkowitz remains the dark horse, executives who trade notes on the succession race say his name comes up surprisingly often. Some point to his central role dealing with the US Treasury and regulators more than a decade ago.

In one sign of the uncertainty, two senior colleagues privately bemoaned that they might not be close enough to whomever wins. They wouldn’t want to be hitched to the wrong candidate and lose clout.

Cloak and Dagger

What Gorman isn’t interested in is the cloak-and-dagger strategy of Jack Welch. As the story goes, the towering CEO of General Electric Co. famously crisscrossed the country on a rainy evening to discreetly let down a pair of lieutenants in different airport hangars before anointing Jeff Immelt his successor. The losing candidates bolted in a flash.

Gorman is letting the decision play out slowly and, to a degree, somewhat in the open as he soundboards with colleagues and peers. In conversations around the bank, he has talked up the merits of each candidate. None of the three can say they weren’t given due consideration. And the approach may help underscore that whoever gets passed over was viewed as valuable, not flawed. 

Gorman proved adept at navigating power struggles even before he landed at the bank.

Purcell was still CEO when he tried to lure Gorman to Morgan Stanley, but he demurred, waiting to see how the fractious battle inside the firm played out. He was right to hold off: Soon after, Purcell was replaced by his nemesis John Mack.

When Mack extended the invite to Gorman, he took over the smallest, most troubled division of the bank and championed its turnaround, eventually reshaping the company — and its culture.

“Most of the traditional Wall Street people wore individual jerseys not team jerseys,” Purcell said in an interview. “I think it’s more likely that if James is right, it’s down to what he’s done than how the industry has evolved.”

--With assistance from Sonali Basak.

To contact the author of this story:
Sridhar Natarajan in New York at [email protected]

TAGS: Industry
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