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Morgan Stanley begins search to replace Purcell

Morgan Stanley's board had been contemplating a successor for Philip Purcell for several weeks. Now it actually has a job to fill.

Purcell said on Monday that he had agreed to step down as Morgan Stanley's chairman and chief executive, ending an intense battle with a group of former senior executives who had been calling since March for his ouster. About that time, the board told Spencer Stuart, the global executive search firm, to start keeping its eye on potential directors who might be able to succeed Purcell, according to a person close to the process.

"Originally, it was in the context of `Let's find some new directors,'" this person said. But recently, the search took an additional twist. "It eventually became, `We need a new leader, too.'"

Who that leader may turn out to be is unclear, with the names of at least 25 executives on the table.

The board is widely expected to choose someone from outside the firm: Morgan Stanley's management ranks have been depleted by an exodus of high-profile executives. And the recent ascension of Zoe Cruz and Stephen Crawford, Purcell's chosen successors, has not been embraced by many within the firm.

The board has made it clear that none of the eight former senior executives who waged the campaign against Purcell or any of the five members of Morgan Stanley's management committee who resigned in the last few months would be welcomed back. Neither would John Mack, Morgan Stanley's former president, whom Purcell forced out in a 2001 post-merger power struggle.

A great deal will depend on the company's strategic direction. Does it decide to stay the course as a not quite top-tier financial services supermarket after the proposed spin-off of its Discover Financial credit card unit? Does it try to grow in a merger? Or will it focus on its investment banking business and larger, institutional clients?

A different type of candidate might be ideal for each strategy. But whoever it is, that person will need to have a stellar reputation to forge credibility with Wall Street and stability within the firm.

"The big question that will be up to the board will be how to restore confidence in Morgan Stanley as a brand name, and either attract back the people who left or attract new ones of the same caliber," said Rakesh Khurana, a Harvard Business School professor who studies executive leadership.

At a meeting last week, Morgan Stanley's board members, several handpicked by Purcell, concluded he was no longer the right man. They had grown tired of defending themselves in the press, and by that point, according to the person close to the process, the question of Purcell's stepping down changed from whether to when.
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