Governance Problems at Morgan Stanley
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Case Code: CGOV004 Case Length: 20 Pages Period: 1998 - 2005 Pub Date: 2005 Teaching Note: Not Available |
Price: Rs.400 Organization: Morgan Stanley Industry: Investment Banking Countries: US Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Morgan Stanley under Purcell's Leadership
One of the very first indications of Purcell's slowness in taking strategic decisions emerged in the late 1990s when Mack recommended a merger with Chase Manhattan . However, Purcell was of the view that merger with JP Morgan would be more beneficial. This division of views led to a stalemate and no decision was taken, and Chase Manhattan ended up buying JP Morgan in 2000. In 2004, came another instance where Purcell's prevarication proved costly for Morgan Stanley. By the end of 2003, the financial services industry in the US was witnessing a major consolidation phase. However, when Morgan Stanley's board questioned Purcell about his plans, it appeared he had no clear plans for takeover other firms...
Board of Directors
Sinopec's board of directors (BoD) performed all the duties and responsibilities as mentioned in the guidelines of CCGLC in China (Refer Exhibit VI). The BoD at Sinopec comprised of 13 directors, of which four were independent directors. The board was headed by the Chairman and also had the Vice-Chairman-cum-President on the panel. The Chairman and Vice-Chairman could be elected and removed by the members of the BoD by passing a simple majority vote...
Purcell's Traits and Workplace Culture
The $9.9 billion merger of Morgan Stanley and Dean Witter resulted in the formation of the largest securities firm in the world. At the time of the merger, Morgan Stanley was the third largest underwriter of common stocks and Dean Witter was the third largest securities retailer, whose Discover Card was used by 39 million Americans. The firm had combined assets of $270 billion. The merger was aimed at removing barriers between banks and investment firms. Commenting on the merger, Time wrote, "One potential problem: whether the distinct corporate cultures of the two companies can be blended into one seamless operation. While investment bankers tend to view brokers with disdain, seeing them as penny salesmen trying to milk old ladies of their life savings, brokers feel that investment bankers, with their plush offices and luxury perks are wasteful and out of touch."...
Legal Problems under Purcell
Purcell's tenure in Morgan Stanley was also one when several legal problems came up. In April 2003, Morgan Stanley paid $125 million to settle claims that stock research was affected by the conflict of interest between investment bankers and analysts. Federal regulators alleged that research analysts from Wall Street firms had issued biased stock ratings in order to retain their investment banking clients. Morgan Stanley was one of the ten Wall Street firms , which were part of this settlement...
Declining Shareholders' Value
Morgan Stanley was the market leader in the investment banking industry. The company had a market share of 10.7% in global equity and equity related underwritings in 2004. In the global debt market, Morgan Stanley occupied the second position with a share of 6.9%, and a share of 16.3% for global stock offerings by US issuers. The company's net income grew from US$ 2988 million in 2002 to $ 3787 million by 2003 and reached $ 4486 million by 2004. The earnings per share (EPS) increased from $2.69 to $4.06 between 2002 and 2004, but it was lower than the EPS of $4.73 in 2000 (Refer Exhibit IV for details of selected financial data)...
Purcell And Morgan Stanley's Board
The role played by the board of directors of Morgan Stanley came under public scrutiny with analysts questioning the credentials of the board which seemed to concur with everything that Purcell wanted. During the late 1990s, Purcell gained considerable power in Morgan Stanley owing to the success of his financial supermarket model. However, instead of going out and meeting clients, Purcell wooed the board in order to consolidate his position. In 2001, when Mack left the firm he spoke out against Purcell in the media, saying, "Purcell isn't up to the job, and the board is ignoring Purcell's shortcomings." After this, the board refused to speak on the issue even after being prodded by Chairman Emeritus Fischer...
The Challenges Ahead
The 'Executive Compensation Plan' (ECP) at Sinopec was designed by an autonomous consulting company, proposed by the company's BoD and approved by the shareholders (in September 2000). The ECP was developed in such a way as to link the financial interests of senior managers with Sinopec's operating results and stock price performance. All the senior executives of Sinopec and its subsidiaries were covered under the ECP. The senior executives included the president, the CFO, the secretary of the BoD, the vice-presidents, the BoD, and the supervisors...
Exhibits
Exhibit I: Morgan Stanley - Business Segments
Exhibit Ii: Morgan Stanley Stock Price Performance (2000 - 2005)
Exhibit Iii: Morgan Stanley and Dean Witter - Major Developments
Exhibit Iv: Morgan Stanley Selected Financial Data
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