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Commentary: Can Phil Purcell Change His Spots?


Phil Purcell, please, please, do something about your aloof management style. That's the message that shareholders and investment bankers have been blasting for weeks. They want the Morgan Stanley (MWD) CEO to go with bankers on their client calls, walk the trading floors, woo shareholders -- and hang out with Masters of the Universe in New York on Saturday nights instead of scuttling home to Chicago.

You might think Purcell would make an effort to change his spots after all the recent commotion about him and his firm. But you'd probably be wrong. Although he has caved in to criticism from investors and employees by announcing plans to spin off the Discover credit-card business, which he built from scratch, there is little sign he intends to change the way he runs Morgan Stanley. His supporters say that's because he doesn't need to.

Although detractors say Morgan Stanley has lagged peers recently, the company claims it has delivered a 258% return to its shareholders since he took charge in 1997, vs. a 167% return for the Standard & Poor's Diversified Financials Index. Moreover, the investment bank says it is gaining market share in everything from mergers to stock offerings. Even in the throes of a bitter war of words, it managed to advise Unocal (UCL) on its $18 billion sale to ChevronTexaco (CVX) -- one of the biggest deals so far this year. The company credits Purcell with landing four major initial public offerings last year and spending half his time with clients. "If you call Phil and say, 'Can you do this?' he says 'Yes,' and it gets done," says William B. Smith, who worked with Purcell for 18 years and is one of five advisory directors who recently sent a letter to the board defending him.

Although the firm's investment bankers may now be screaming for more of Purcell's attention, Smith adds that in the past "[they] were not overly solicitous in asking him to get deeply involved in their businesses." Through a spokesman, Purcell declined to comment.

Moreover, Purcell's two new co-presidents remain perfectly comfortable with his choice to be a strategy-setting arbiter. "He is not going to be a micromanager," says Stephen S. Crawford. Echoes Zoe Cruz: "He is going to let us run with the ball."

Maybe so. But if nothing changes, he will find it hard to win over temperamental investment bankers who are highly disillusioned in the wake of his most recent management shakeup. These bankers feel that Purcell is far too aloof and not involved enough in winning business. The investment bank accounts for nearly two-thirds of operating profits, and if these bankers bolt, those profits could take a major hit. And that could hamper Purcell's efforts to placate critics because he needs the bankers' support more than ever to make his vision of building a world-class integrated securities firm work.

How can someone so smart be so, well, stubborn? Although Purcell's style rubs some investment bankers the wrong way, a person close to the firm says his standing is better with the retail brokerage and asset management divisions. The main reason he won't change is because the board won't twist his arm. Directors dismiss serious complaints about his management style as none of their business. According to a source close to the board, the directors concluded that complaints about Purcell had little merit because they found no specific errors of judgment. And they believe it is not their place to tell Purcell how to conduct himself. But in investment banking, where building personal relationships is essential, style can matter almost as much as substance.

There is room for Purcell to change minds. For a few hours on Apr. 4, when rumors of a possible takeover by London-headquartered HSBC (HBC) flew around, some critical bankers sided with him because they feared their salaries would nosedive if they had to work for a retail bank. Briefly, Purcell looked like the lesser of two evils. But another attack on Purcell by the Group of Eight former Morgan Stanley top guns quickly triggered a new round of grousing by bankers.

Purcell may have another chance to redeem himself. He says he wants the Discover spin-off to usher in a new chapter of the firm's history. If he's going to achieve that fully, he'll have to turn over a new leaf himself.

By Emily Thornton with Stanley Reed in London


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