Shortly after John Mack took over as chief executive of Morgan Stanley nearly three months ago, he held a town-hall meeting with the company’s brokerage division. The brokerage unit, known as Dean Witter before merging with Morgan in 1997, had been run by Mack’s predecessor, Phil Purcell. With Purcell out, many brokers believed Mack would sell off the division. Mack had other ideas. “I’m a big believer in what you do; I think you’re a hidden asset; and I’m here to support you and I want to be your partner,” he said during the presentation, according to a transcript.
Mack received a standing ovation. “These were guys who were crying just a couple days earlier after hearing Purcell was gone,” according to a broker who attended the event, reports Senior Writer Charles Gasparino in the October 3 issue of Newsweek (on newsstands Monday, September 26). “John definitely said all the right things.”
The question now is whether Mack is doing all the right things. One of the most striking things about the new Morgan is that, thus far, it isn’t all that much different from the old. While there are stark contrasts in leadership style Mack hasn’t altered Purcell’s strategy of operating a financial supermarket with brokerage and asset-management services under one roof. The stock price remains stuck around $52, after trading for roughly twice that amount several years ago, and the company is still hamstrung by politics. One example: Mack has tried to lure back several top execs who left under Purcell, but they won’t return as long as Zoe Cruz remains in the No. 2 spot, according to the magazine.
Earlier in the year, Cruz was promoted by Purcell and given a board seat. When Mack became CEO, he took away her board seat and demoted her to “acting president,” leaving some to believe that she would leave the firm along with other Purcell loyalists. But Cruz has managed to survive and thrive. She’s one of the highest-ranking women on Wall Street, and maybe more important, she and Mack go way back. Mack tells Newsweek that he intends to give her the president’s job permanently, though he may appoint a co-president. “Zoe is direct and she has ability,” he says. Cruz, through a Morgan spokeswoman, declined to comment. Mack concedes that Pandit and others who left, including top investment banker Joe Perella, are unlikely to return primarily because of Cruz, whom they associate with Purcell’s unpopular leadership style.
“There’s a lot of people I’d like to offer a job to that I won’t get,” Mack told Newsweek. Because he’s still putting together his team, he says judging his performance now is premature. Analysts say he has about a year to turn things around. If he doesn’t, he may find that he has even more in common with Purcell than a belief in Morgan’s grand strategy: early retirement.