The Canary in the Morgan Stanley Coal Mine
I wasn’t surprised that Morgan Stanley Dean Witter CEO Philip Purcell announced his decision to quit last week, and I’ll tell you why. It had little to do with Morgan’s deteriorating financials (the stock has declined 28% over the past 5 years, and its revenues, client assets, and pretax profits have declined as well). But a lot of CEO’s survive for years even when their companies have poor numbers. There’s always a way for a CEO to spin the bad news: lousy market conditions, unfair competition, nasty regulatory pressures, nastier unions, customers who have to be “educated”, wait till next year, and so on.
But there’s one thing that can’t be spun. It’s the one thing that ineffective leaders--whether CEO’s, division managers, or owners of start-ups—can’t control or camouflage: and that’s the exodus of the best and brightest talent. In today’s knowledge economy, intellectual capital rules. People who are smart, forward-looking, bold, proactive, and capable of mobilizing others are very marketable. And they’re the first to start polishing their resumes when conditions within the firm become frustrating, debilitating, and performance-dampening, which is what was happening at Morgan Stanley. Certainly, many good and talented people stayed with the firm. But the trend was clear: Under Purcell, a dominant firm slowly slid towards mediocrity, and as one ex-executive of Morgan Stanley noted, “no one comes to work to be mediocre. That’s why employees are leaving.”
The best and brightest are not quitters; they do not desert when the going gets rough. On the contrary, top performers in any arena—business, science, academia, government, etc.-- relish the challenges of overcoming hurdles in order to achieve something wonderful, or to grow a business in defiance of a thousand “that’s impossibles!” What top performers can’t stomach is an organizational environment racked with elements like persistent mediocrity, destructive “gotcha” politics, opportunistic decision-making, career advancement based on unquestioned loyalty to an aloof leader, or the worship of managers based on their position power rather than their accomplishments.
Philip Purcell could bob and weave in explaining the steady deterioration of Morgan Stanley’s financials and brand. He could feint and sidestep in explaining the steady unraveling of his core strategy, the “one-stop-shopping” fantasy of the Morgan-Stanley-Dean-Witter merger. And no matter how bad the news, he could always count on politically astute “yes-men” and “yes-women” in the ranks, and on his docile, crony-filled board. But what he couldn’t do was stem, or justify, the steady departure of the top financial minds of the firm, including waves of investment bankers, marketers, managers, and entire teams of securities traders.
And that, my friends, is the canary in the corporate coal mine--the big clue to corporate demise. If you want to assess the prognosis for any CEO, don’t look at the financials. Look to see if the best performers are staying, or leaving. You can even take it a step further: When analyzing the company’s recruiting efforts, look to see whether the best and most interesting players in the industry are attracted to the company, or if they choose to go to a more exciting environment. If the personnel canary is dying, it’s over for the CEO, and unless radical changes are instituted by his or her successor, it may be over for the company too. That’s why Purcell ought to leave now, rather than leaving Morgan Stanley in lame duck limbo until next year.
One postscript: as a reward for killing the canary, Mr. Purcell will walk away with over $60 million. It’s good to know that somebody in the mine struck gold.
But there’s one thing that can’t be spun. It’s the one thing that ineffective leaders--whether CEO’s, division managers, or owners of start-ups—can’t control or camouflage: and that’s the exodus of the best and brightest talent. In today’s knowledge economy, intellectual capital rules. People who are smart, forward-looking, bold, proactive, and capable of mobilizing others are very marketable. And they’re the first to start polishing their resumes when conditions within the firm become frustrating, debilitating, and performance-dampening, which is what was happening at Morgan Stanley. Certainly, many good and talented people stayed with the firm. But the trend was clear: Under Purcell, a dominant firm slowly slid towards mediocrity, and as one ex-executive of Morgan Stanley noted, “no one comes to work to be mediocre. That’s why employees are leaving.”
The best and brightest are not quitters; they do not desert when the going gets rough. On the contrary, top performers in any arena—business, science, academia, government, etc.-- relish the challenges of overcoming hurdles in order to achieve something wonderful, or to grow a business in defiance of a thousand “that’s impossibles!” What top performers can’t stomach is an organizational environment racked with elements like persistent mediocrity, destructive “gotcha” politics, opportunistic decision-making, career advancement based on unquestioned loyalty to an aloof leader, or the worship of managers based on their position power rather than their accomplishments.
Philip Purcell could bob and weave in explaining the steady deterioration of Morgan Stanley’s financials and brand. He could feint and sidestep in explaining the steady unraveling of his core strategy, the “one-stop-shopping” fantasy of the Morgan-Stanley-Dean-Witter merger. And no matter how bad the news, he could always count on politically astute “yes-men” and “yes-women” in the ranks, and on his docile, crony-filled board. But what he couldn’t do was stem, or justify, the steady departure of the top financial minds of the firm, including waves of investment bankers, marketers, managers, and entire teams of securities traders.
And that, my friends, is the canary in the corporate coal mine--the big clue to corporate demise. If you want to assess the prognosis for any CEO, don’t look at the financials. Look to see if the best performers are staying, or leaving. You can even take it a step further: When analyzing the company’s recruiting efforts, look to see whether the best and most interesting players in the industry are attracted to the company, or if they choose to go to a more exciting environment. If the personnel canary is dying, it’s over for the CEO, and unless radical changes are instituted by his or her successor, it may be over for the company too. That’s why Purcell ought to leave now, rather than leaving Morgan Stanley in lame duck limbo until next year.
One postscript: as a reward for killing the canary, Mr. Purcell will walk away with over $60 million. It’s good to know that somebody in the mine struck gold.
posted by Oren Harari at 9:01 AM
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