Business Case Studies, Leadership Case Study, Tata Group,Ratan Tata

Code : LDS0013

Year : 2005

Industry :Banking, Insurance and Financial Services

Region : USA

Teaching Note:Not Available

Structured Assignment :Not Available

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Introduction: In the year 1935,when theGlass-Steagal BankingAct4 was introduced in the United States, the existing J.P. Morgan Bank chose to operate as a commercial bank.However,many of its employees quit J.P.MorganBank to forman investment bank called “Morgan Stanley”. For years this bank was known as an elite or high-end investment bank. In the year 1997, the companymerged withDeanWitterDiscover &Co., a retail brokerage firmbased in Chicago,which dealt inmutual funds and credit cards.DeanWittermainly focused on themiddle class. Philip J.Purcell (Purcell), the chief ofDeanWitter, took over as the CEO of the newly merged company “Morgan Stanley Dean Witter Discover & Co.” The name was changed to “Morgan Stanley DeanWitter & Co.” in 1998 and in 2001 to “Morgan Stanley”.

TheMorgan Stanley-DeanWitter merger was not taken well from the beginning by many in the world of Investment Banking.5 Purcell was keen on making his concept of a “financial supermarket” work, with everything from credit cards to corporate banking under the same roof. But industry sources believed that he had trouble integrating the strategies and operations of the investment banking business with the retail brokerage business. According to experts,Morgan Stanley’s stock growth rate between 1997 and 2005 at 68.7%was not comparable with respect to the stock growth of its rivals like BearStearns (130%) and LehmanBrothers (269%)6 [Exhibit 1]. Purcell had differences of opinion regarding his strategies forMorgan Stanley with his seniormanagement executives and boardmembers due to whichmany leftMorgan Stanley; this led to employee unrest within the firm. InMarch 2005, eight ex-Morgan Stanley executives and shareholders (known as the “Group of 8”) went public with their grievances against Purcell and demanded his resignation. On June 13th 2005 Purcell announced that he would step down as CEOas soon as a successor was named. On June 30th 2005, JohnMack (Mack), formerMorgan Stanley President and an employee ofMorgan Stanley for almost three decades, was named the new CEOof the company.