Exile From Wall Street
By LANDON THOMAS Jr., NY TIMES, August 21, 2005

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PHILIP J. PURCELL is driving fast down a wide western highway as country music fills the plush interior of his Mercedes jeep. It's a glorious summer day in Salt Lake City, where the deposed Morgan Stanley chief executive has come to lick his wounds, seeking the solace of hometown friends and family - as far removed as a man can get from the serpentine intrigues of Wall Street.

"Go for a walk, say a little prayer and take a deep breath of mountain air," croons the country-and-western singer Toby Keith. A smile on his face, Mr. Purcell cranks up the volume. "Sit on the porch and give my girl a kiss. Start livin'. That's the next thing on my list."

So how does he feel? Never one for many words, Mr. Purcell seems content to let the corn pone lyrics do the talking for him. Normally a tightly wound man, he seems almost relaxed in his chinos and casual shirt, as if prepared to forget the searing war that he fought and lost at Morgan Stanley, leading to the ignominious end of a 38-year business career. "This is my new life," he said.

A new life it may well be, filled with the simple pleasures of golf outings with his seven sons and cross-country road trips with his wife, Anne. He may be $44 million richer thanks to his severance package, but that is not how a man like Mr. Purcell keeps score. Like a wounded gunslinger, beaten to the draw by a slicker, more audacious foe, there is no doubt that underneath the taciturn reserve lies a man who has not made his peace with the injustice of it all.

In the annals of Wall Street putsches, Mr. Purcell's humiliating fate is unprecedented. A sitting chief executive at a large public company was forced from his job in three explosive months without shareholders receiving any premium in return. Even C.E.O.'s with no love for Mr. Purcell admit to being shocked, if not a little scared, by the precedent.

Mr. Purcell's detractors - and there are plenty of them - as well as a large number of the firm's shareholders say he has only himself to blame. Following the 1997 merger with Dean Witter, he never completely integrated the unit with Morgan Stanley.

What's more, they say, his aloof manner left him no base of support after units that were dear to him - like brokerage and credit cards - began to drag down the bank's institutional businesses. His Machiavellian executive suite tactics and the stock's poor performance in recent years made his position all the more precarious, these people say, forcing his board to take action.

Mr. Purcell is a reluctant interviewee, unlike his more press-savvy peers such as John J. Mack, the current chairman and chief executive of Morgan Stanley, and James Dimon, the president of J. P. Morgan Chase. Throughout Mr. Purcell's professional career, dating from his days as a Sears executive, he said he has believed that as long as your business is well run, the press will take care of itself. Questions about his motives and his thoughts can elicit long pauses and occasional flashes of irritation. "If it were not for the articles and possible books, this would be a wonderful way to live the rest of your life," he said, with a tight grin, referring to his languid Utah days.

Sitting in a small office at Judge Memorial Catholic High School, his alma mater in Salt Lake City, Mr. Purcell pulled out a single piece of paper showing that Morgan Stanley's stock increased 690 percent since Dean Witter went public in 1993, outperforming the Standard & Poor's 500-stock index and peer companies like J. P. Morgan Chase and Merrill Lynch ( Citigroup, with its 998 percent return, leads the pack).

It's an unpretentious piece of work, just a few lines of numbers, and is a far cry from the glossy, color-coded pitch books that Mr. Purcell and his executive team would show to board members, investors and the news media during the leadership battle this spring.

WITH the help of one of his sons who knows his way around a computer, Mr. Purcell had pulled together the numbers the night before at his Park City home to show to a reporter and to defend his time at Morgan Stanley.

"If I look at my career in the context of the letter" - referring to the first letter written by the eight retired Morgan Stanley executives in March, calling for him to step down - "I look at this and it's pretty damn good - O.K.?" he said. "In my judgment we were on the right track, and I believe that people in businesses with a vast majority of the firm's profits supported that direction."

In many ways, it is this letter and the placid 1950's aura that surrounds Judge Memorial that best illustrate the clashing poles of Mr. Purcell. Set off a quiet suburban street in Salt Lake City, Judge Memorial, with its rigid Catholic mores and its 1952 hardwood basketball court (where Mr. Purcell starred as the team's center and where he remains an enthusiastic patron), evokes a purer, uncomplicated time for Mr. Purcell. He met his wife there (whom he married when he was 21), and his best friend from the 1961 basketball squad, Jim Yerkovich, stayed on as the basketball coach and greets him warmly at the school's entrance upon his return that day.

In fact, after graduating with a master's in business administration from the University of Chicago in 1967, Mr. Purcell seriously considered returning to Salt Lake City to work in his father's insurance agency. Top of his business school class, he had whittled a raft of offers down to one from McKinsey & Company and - believe it or not - an opportunity to join Morgan Stanley in New York as a junior investment banker. "Working for my dad would have been a great life, and he was disappointed," Mr. Purcell said. "But I told him that I was going to do something in big business."

It was a seminal decision for Mr. Purcell: while his wife was pushing for a return to the comforts of home, his ambition was leading him to the rougher corporate world and a stint at McKinsey that would lead to Sears and eventually the top job at Dean Witter in 1986.

AS for the letter, which was sent to Mr. Purcell and his board on March 3, it triggered some of his darker impulses as he engaged in a bitter battle with the so-called group of eight who wanted him out. In his view, he was still the best man for the job.

"We were doing what we believe was right for shareholders, clients and employees," he said.

During the ordeal, popular executives were forced from their jobs. And Mr. Purcell even went so far as to get his board to approve a $200 million pool that was to be allocated to chosen bankers in order to secure their loyalty to the firm.

From the beginning, Mr. Purcell said he recognized the severity of the letter, given the standing of the dissident executives at the firm. Morgan Stanley's investment bankers, many of whom also saw Mr. Purcell as a disengaged leader who did not sufficiently value the contribution of their businesses, agreed with his prognosis.

"Phil, this ain't no Scott Sipprelle letter," growled Joseph R. Perella, the grizzled deal maker and mentor to the firm's investment bankers, according to people who were briefed on the conversation. Mr. Purcell had tracked him down in California at a semiconductor conference and read to him, word for word, the contents of the letter. Mr. Sipprelle, a former Morgan Stanley banker and manager of a hedge fund, had sent a similar letter a few months earlier that many saw as a bullet that Mr. Purcell might be able to dodge.

Followers of Mr. Purcell's career draw a parallel between his clash with Morgan Stanley's investment bankers and his years as a young Sears executive in the late 1970's. Back then, he was advising Edward R. Telling, the company's chief executive and Mr. Purcell's mentor, that Sears should move away from its classic retailing model and branch out into financial services.

While Mr. Telling was convinced, the old Sears merchants who had spent their careers at the company were not, and they saw Mr. Purcell's pitch as nothing more than fast talk from a management consultant. Despite their resistance, Mr. Purcell, then in his early 30's, saw them as lovable dinosaurs - strong, honorable men who fought on despite the seismic shift in their trade.

"These guys had been seared by the Second World War, and they never turned on their firm even though they were caught in an industry transition that was bigger than they were," Mr. Purcell recalled.

Although Mr. Purcell has committed billions of dollars in capital to investment banking at Dean Witter and Morgan Stanley, there has always been a sense that he has doubted that bankers could continue to bring in the rich returns to justify their high pay. Wary of their compensation, egos and appetite for risk, he has tended to prefer the more predictable earnings and calmer personalities that retail brokerage, asset management, credit cards and sales and trading offered.

Asked to explain the roots of the spring rebellion, he acknowledges that the tension between Morgan Stanley and Dean Witter factions never really disappeared following the 1997 merger.

"John Mack and I worked extremely hard to make the deal a merger of equals, which would result in a one-firm firm," said Mr. Purcell, borrowing Mr. Mack's favorite trope. "And in a large measure, we have been successful."

But not successful enough. People close to Mr. Purcell point to the long-standing resentment among Morgan Stanley bankers over the terms of the merger. Despite the 10 percent premium that Dean Witter was paying, as well as its larger market capitalization, there was a sense that Morgan Stanley was the acquirer, not Dean Witter, and should receive the choice jobs as a result.

While many explanations have been put forward to explain how Mr. Purcell could have lost control of his board and firm so quickly, none is as compelling as his failure to cultivate a strong successor to himself after Mr. Mack left the firm in 2001 following a failed bid for Mr. Purcell's job.

Miles L. Marsh, the lead director of the board, said that a number of internal candidates had emerged at the time that the group of eight mounted its challenge. Among those being considered were: Vikram S. Pandit, who ran institutional securities; John P. Havens, the head of equities; Zoe Cruz, the head of fixed income; and Stephen S. Crawford, the chief strategy officer whose career had been fast-tracked by Mr. Purcell. But Mr. Marsh concedes that they were several years away from being ready for the top job.

None of these candidates, however, had the credibility of Mr. Mack. And despite all that has been made about hard feelings between him and Mr. Mack, Mr. Purcell said their clashes centered on executive personnel decisions and were never about strategy. "John and I have never disagreed about the businesses," he said. That point was underscored last week when Mr. Mack decided to keep the Discover Card business, a unit that Mr. Purcell created from scratch, under the Morgan Stanley umbrella. Mr. Mack declined to comment.

Mr. Purcell, who is 61, has told his closest associates that he always had a date in his mind for when he would depart, which would have been well before his 65th birthday.

It is easy to think how differently things would have turned out if he had agreed to step aside in 2001, when Mr. Mack approached him for his job, claiming that there had been an agreement between them. The stock was trading at more than $80 (on Friday it closed at $52.04) and the merger was seen as a success. Mr. Purcell could have gone out like Michael Jordan, burying a jumper for a sixth championship ring. "If I said to John in 2001, fine, that would have been easy. We could have done it Michael Jordan-style."

BUT while he may have had a date in mind, Mr. Purcell is relentlessly competitive and was not about to give up his position under pressure. But it is easy to see why he might second-guess that decision. Months after Mr. Mack left in 2001, the Nasdaq stock market crashed, laying bare the festering problems within the brokerage division, punishing the firm's highflying stock and setting the stage for the challenge to Mr. Purcell's leadership.

What also made Mr. Purcell vulnerable was his unstinting loyalty to senior executives who failed to garner sufficient support inside the firm to make them credible. There was James F. Higgins, a longtime friend of Mr. Purcell's who ran the firm's retail division until 2000 but who clashed with Morgan Stanley executives; Philip Raskin, a polarizing advertising executive who was the firm's chief marketing officer and a close adviser to Mr. Purcell; and finally, Mr. Crawford, whose rapid promotions and ultimate appointment as co-president was never fully accepted inside or outside the firm.

For such a seasoned executive, these relationships appear to have been a blind spot, and even his closest associates wonder why he put himself out on a limb for these men. But Mr. Purcell still stands by those decisions. "Steve Crawford is one of the most capable people I have met in my whole career, and I have been around a lot of capable people," Mr. Purcell said. "I feel badly about how he as been portrayed in the last three months."

HIS detractors are more pointed in their criticism and they blame Mr. Purcell for imposing an alien culture on the firm. "At Morgan Stanley, integrity was always the No. 1 value, and competence No. 2," said Robert G. Scott, a former president of the firm and the leading voice for the group of eight. "Under Phil's leadership, loyalty became the highest value, and you cannot be a leader in that kind of environment."

In response, Mr. Purcell said, "I am very proud of the management team left behind when I retired, and they are continuing to do well with John's leadership."

Mr. Purcell's explanation for stepping down has not changed much from his initial words in June. He said that he had become a distraction for the firm, and that the campaign waged by the dissident executives - in tandem with some bankers within the firm as well as outside investors - was showing no sign of letting up. But the passing of time has made it no easier to stomach.

"The G-8 political campaign was waged with real passion," he said. "And I don't believe it was fair or accurate. But as your dad tells you when you are a kid, life is not always fair. I decided for the good of the firm to step down."

Does he have any bitterness toward directors for turning on him? After all, many of these men - like Michael A. Miles, the former chief executive of Philip Morris; Edward Brennan, the former chief executive of Sears; Charles F. Knight, the former chief executive of the Emerson Electric Company; and John W. Madigan, the former chief executive of the Tribune Company - were either friends, neighbors or former business associates. Mr. Purcell says no and contends that his board was strong and independent despite criticisms to the contrary.

Mr. Purcell says that Morgan Stanley is well positioned for the future. He insists that the bank should be compared to diversified giants like Citigroup and J. P. Morgan Chase, not more-focused outfits such as Goldman Sachs. "I would not trade our position at Morgan Stanley with anyone," he said. "That is not to say that there is not more to be done, but I have enormous confidence in the firm's ability to grow and to be successful with its strategy and John Mack's leadership."

Mr. Purcell says he is ready for retirement. He says that he will never work for a public company again, and for the moment has no plans for any other venture.

He has an office in Jersey City, N.J., with a nice view of the Hudson River, but he has yet to spend much time there.

Having taken a look at the actuarial estimates in his pension plan, he has discovered that he is expected to live to 84. It is a surprising thought for Mr. Purcell, who at 6-foot-4, a slight paunch not withstanding, still looks as if he could hit a jump shot or two on the creaky wood of Judge Memorial's basketball floor. "So I've got 22 years left," he said, letting out a big belly laugh. "How lucky can a guy be?"

Bush Donor Profile: Philip J. Purcell
Occupation: CEO
Employer: Morgan Stanley
Home: New York, NY

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Morgan Stanley CEO Philip Purcell joined business consulting firm McKinsey & Co. in 1967, becoming managing partner. Purcell left in 1978 to be Sears Roebuck's vice president of corporate planning. Purcell headed Sears' 1981 acquisition of Dean Witter, helping to create the Discover credit card. Purcell headed Dean Witter Discover & Co. when Sears spun it off as an independent entity again in 1993. Morgan Stanley (see William Strong and Murray Palmer) merged with Dean Witter Discover in 1997, with Purcell becoming CEO over Morgan Stanley's John Mack (Mack is a Bush Ranger who now heads competitor Credit Suisse First Boston). Morgan Stanley has surfaced repeatedly in recent investment bank scandals. A Morgan broker in Puerto Rico confessed in 2004 to diverting more than $50 million from clients of Morgan and predecessor Dean Witter over more than a decade. Morgan paid $2 million in 2003 to settle National Association of Securities Dealers charges that the firm improperly rewarded its brokers for selling Morgan's proprietary mutual funds over those of competitors. That same year it paid $50 million to settle Securities and Exchange Commission (SEC) charges that it secretly reached sales agreements with outside mutual funds and then rewarded brokers who promoted those funds without disclosing this conflict to clients. The Wall Street Journal reported in 2004 that the SEC is probing alleged "market-timing" abusesor rapid-fire mutual fund tradesthat prompted Morgan to dismiss two Baltimore employees. NASD fined the firm $5.4 million more in 2004 for allegedly funneling hot stock offerings to favored customers in exchange for bloated commissions. A French court ordered Morgan to pay $38 million in 2004 to LVMH, which controls luxury brands Dom Perignon and Louis Vuitton. The judge ruled that a Morgan analyst tarnished the company to curry favor with competitor Gucci Group. Italian tax police sought Morgan documents in 2004 after the founder of "Europe's Enron" said that Parmalat misled markets on the interest rate on a $377 million bond issue that Morgan managed in 2003. The federal Equal Employment Opportunity Commission alleged in a pending lawsuit that Morgan Stanley Institutional Equity Division systematically discriminated against as many as 100 female employees, paying them less and restricting their opportunities for promotions. The suit alleges that the firm retaliated against bond seller Allison Schieffelin, firing her after she complained about discriminatory treatment. Washington State regulators accused the firm in 2004 of "systematic problems" with "lack of supervision" for failing to prevent its brokers from advising Microsoft employees to exercise their stock options to make reckless investments. In 2004 the firm hired former securities top regulators from the State of New York, the SEC and Europe. Environmentalists called for a Discover Card boycott in 2001 to pressure Morgan Stanley over China's massive Three Gorges Dam. The firm underwrote bonds for a Chinese development bank funding Three Gorges and owned 35 percent of project investor China International Capital Corp. Morgan paid the SEC $40 million in 2005 to settle "laddering" charges. Regulators said the firm orchestrated initial public sales of hot new stocks by steering them to investors who agreed to buy more shares as the price rose later in the day.

Philip J. Purcell

Philip Purcell's retirement letter
The complete text of Morgan Stanley chairman and CEO's letter to company employees.
June 13, 2005: 12:54 PM EDT
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New York (CNN/Money) - Morgan Stanley Chairman and Chief Executive Officer Philip J. Purcell Monday morning announced his intention to retire as soon as his successor is named, but no later than by the firm's next annual meeting in March 2006. He sent the following letter to all Morgan Stanley employees.

A letter to my colleagues
This morning I am announcing my intention to retire by the time of our next annual shareholder meeting in March, 2006.

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.

You have all done an extraordinary job serving our clients despite the almost daily distractions. Your dedication and commitment to clients have been clear for all to see. I feel strongly that the attacks are unjustified, but unfortunately, they show no signs of abating. A simple reality check tells us that people are spending more time reading about the acrimony and not enough time reading about the outstanding work that is being accomplished by our firm.

What matters is not one person, but the over 50,000 people of Morgan Stanley, and our many clients and shareholders. The whole is greater than the sum of the 2 parts and clearly more important than any one part. Even in the midst of the distractions of recent months, the firm's integrated securities strategy is coming together and will certainly bring great success in the future. My main regret is that I will not be here as the firm realizes the full potential of the execution of this strategy.

I will retire when my successor is appointed. The Board has begun a search for a new Chairman and CEO, led by Chuck Knight, who is head of the Board's Compensation, Management Development and Succession Committee. I, of course, will do everything I can to assist the Board in this transition. I will make sure that the firm stays on course until my successor is chosen and that we continue to be relentless in pursuing our business goals.

Let me say that it will not be easy for me to leave. I take enormous pride in what the people of this firm have accomplished. Since the merger in 1997, we have gained share in almost every market category, and in my view, we are without peer in the global financial marketplace. Since the merger, our stock price has outperformed the S&P 500 nearly three-fold and the S&P Diversified Financial Index by 50 percent. There is no finer firm on Wall Street. And when the dust settles that will remain the one unqualified truth of this debate.

It's been said that the true test of a leader is the performance of the institution he leaves behind. On that score, I feel my legacy is in good hands. Morgan Stanley has a great depth of talent and an outstanding management team led by Zoe Cruz and Steve Crawford. We have a strong independent Board which has recently named Miles Marsh lead director. The management team and the Board are unanimously supportive of our integrated securities strategy. The Board has asked me to assure you of their full support as we go through the transition and in the future.

To each of you, I offer my heartfelt thanks for the extraordinary opportunity I have had to work with and lead you. I have enormous faith that the best of Morgan Stanley will be lived in the days and years ahead.

I have one last thing to say...let's get back to work.

Philip J. Purcell

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