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Morgan Stanley chief faces shareholder revolt

A day after Morgan Stanley announced its plan to spin off its Discover Card division, dissident shareholders demanded that the investment firm's chief executive, Philip Purcell, be dismissed and be replaced by one of their own.

Morgan Stanley shares sank more than 3 percent on Tuesday.

In a statement, the so-called "group of eight" former executives and current shareholders said Purcell should be replaced by former president Robert Scott, and that a separate non-executive chairman be named. Purcell currently holds both positions.

Scott said that, as CEO, he would contact former Morgan Stanley executives who left the firm after last week's management shake up and ask them back to the firm. Scott also promised to make changes in the company's retail and asset management businesses, though the group's announcement did not give any details.

Andrew Merrill, a spokesman for the dissident group, said the group was to start lobbying shareholders yesterday at a meeting for investors at Sanford Bernstein, the research arm of Alliance Capital Management. Brad Hintz, a Bernstein analyst, is a former Morgan Stanley executive.

Hintz did not return a call seeking comment.

In a statement, Morgan Stanley reiterated its support for Purcell.

"The board is well acquainted with Mr. Scott and his record running our individual investor group and Discover card businesses and can only reiterate what it said yesterday in its message to employees," the company said.

"The board is fully behind Phil Purcell and the firm's management team. There is no fair or compelling case for a change in the CEO, an action that would involve risk or discontinuity," it said.

Scott ran Morgan Stanley's retail investment group from 2001 through late 2003, at which time revenues fell off substantially, though much of that could be attributed to the market's downturn after the dot-com bubble burst. Profits also fell for the first two years of his tenure, but recovered somewhat in 2003.

Meanwhile, Morgan Stanley's share price fell sharply after the company announced the spinoff of Discover into a separate publicly traded company. Morgan Stanley shares fell US$1.85, or 3.2 percent, to close at US$56.45 Tuesday on the New York Stock Exchange.

In a news release on Monday, Purcell said that it was "the right time" for the spinoff, which would leave the credit division as a stand-alone business. He did not provide details of how many Discover shares would be distributed to shareholders for each existing Morgan Stanley share.

While the Discover Card issue may have been taken care of, the dissident shareholders continued to push for change at Morgan Stanley, and the company still has outstanding issues that concern investors on Wall Street.
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