Shareholders want CEO out

NEW YORK -- A day after Morgan Stanley announced its plan to spin off its Discover Card division, dissident shareholders demanded Tuesday 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.

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 nonexecutive chairman be named. Purcell currently holds both positions.

Scott said that, as CEO, he would contact former Morgan Stanley executives Stephan Newhouse, Vikram Pandit and John Havens -- all of whom unexpectedly left the firm in the wake of last week's management shake-up -- and ask them back to the firm.

Newhouse was replaced as president by co-presidents Zoe Cruz and Stephen Crawford, who were named to Morgan Stanley's board on Monday. Pandit and Havens left in response to the management changes.

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.

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."

A representative of the dissident group did not return repeated calls for comment.

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 $1.85, or 3.2 percent, to close at $56.45 in trading Tuesday on the New York Stock Exchange.

In a news release 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 shares of Discover stock would be distributed to shareholders for each existing Morgan Stanley share.

"The rationale for this action is twofold," Purcell said. "One, to maximize the shareholder value in the Discover Card division, and allow management of that business to capitalize on the momentum, both in performance, and in the opportunities opening up in the payments market, and two, to further intensify our focus on the high return growth opportunities within our integrated securities businesses."

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.

"The retail brokerage side still has issues that need to be resolved," said David Trone, an analyst with Fox-Pitt Kelton. "It has somewhat slow growth characteristics, sub-par profitability relative to other securities businesses and other retail brokerages in its peer group."

Copyright C 2005 Deseret News Publishing Co.
Provided by ProQuest Information and Learning Company. All rights Reserved.