Patricia Beard: Blue Blood & Mutiny

Blue Blood and Mutiny: The Fight for the Soul of MorganStanley by Patricia Beard is a business book about the importance of corporate culture.

MorganStanley came into existence during the depression, when Congress passed a law prohibiting banks to be involved in both commercial and investment banking. JP Morgan remained in commercial banking, while several partners, including Henry Morgan and Harold Stanley left the company to open a new investment bank.

In 1997, MorganStanley merged with Dean Witter Discover. Dean Witter Discover’s CEO, Phillip Purcell, became CEO of the merged company.

I’m reminded of the adage that history is written by the winners. From the perspective of this book, Purcell was never qualified to run a company as great as MorganStanley. He came to Dean Witter by way of Sears and the Discover Card, and never had a true background in banking. Almost as bad, he never relocated to the company’s New York headquarters or associated with others in the financial industry. Instead he commuted from Chicago and avoided client contact.

The MorganStanley culture lived by JP Morgan’s motto “A First Class Business in a First Class Way”. Promotion was through merit, and decisions were made by thoroughly thrashing out competing ideas. From the perspective of long time MorganStanley executives, Purcell undermined the company’s approach to excellence. He surrounded himself with “Yes Men” and drove off top talent with competing ideas. Promotion was through agreeing with the boss, not through merit.

In 2005, eight former executives led by former chairman Parker Gilbert, challenged the new management, demanding that Purcell resign. The fight became public with full page Wall Street Journal ads when Purcell’s hand-picked board refused to talk to them. The opposition became know as the “Eight Grumpy Old Men”.

Part of the justification for the attack was that under Purcell’s guidance the company’s stock was underperforming its peers, and the company mishandled major government and civil lawsuits. The company’s reputation was falling. But it seems to me that the real reason was that these former executives loved the company and its culture. They saw the culture eroding, and the company sliding.

The end result was that the Old Men won. Purcell was forced out. The board brought back the former President, John Mack. John Mack restored the culture, the stock price recovered, and everyone lived happily ever after.

I transferred my retirement funds to MorganStanley in 2003 and have been very happy with my results. It is probably a tribute to my account management team that I was pretty unaware of all this turmoil while it was happening. (Thanks Fred and Michelle.) At my next account review I’ll try to get a feel for their opinion of the book and the culture clash.

Many management books, seminars, or training programs talk about the importance of corporate culture. Many employees ignore the whole thing, thinking it’s a joke or a waste of time. Maybe that’s because a lot of us worked in companies with weak cultures. Blue Blood & Mutiny brings the message home.