A Sad Wall Street Story Line: Quality Engulfed by Mediocrity

“The problem with Wall Street,” my lunch companion remarked, “was that in a firm employing many thousands of people, it only one takes one sonofabitch to bring it down.”

He was referring to the likes of Nicholas Leeson, the rogue trader who destroyed the venerable Barings Bank; little did he suspect at the time-this was last November-that within months he would be more or less applying those same words, in public, to the firm he himself had run, with great distinction and success, for almost seven years back in the 80’s, an outfit whose traditions and standards should have rendered it impervious to big internal trouble-or so anyone with a halfway knowledge of the Street would have thought.

The guy across the table was my old friend Parker Gilbert, who had been chairman of Morgan Stanley, the firm in question, and now finds himself as the senior eminence and sometimes spokesman of a group of eight former Morgan Stanley executives (nine really, if you count my Yale classmate Bob Greenhill, who’s advising them) who are challenging the present governance of their old firm. Between them, these eight men are reported to own some 11 million shares of Morgan Stanley, but knowing Mr. Parker, and knowing some of the others, this is only partly about the money. This is about “The Firm”-as those who worked there called it (the words literally sounded capitalized when spoken)-and what it has meant, and what it should continue to mean.

As I see it, what has gone down at Morgan Stanley in the past half-decade is the exact inverse of what went down 15 years ago at American Express. At AmEx, a so-so investment-banking firm was grafted onto the powerful, premium rootstock of a first-class credit-card and retail-finance business, and the cross-breeding almost ruined the vineyard. At Morgan Stanley, a so-so credit-card and retail-finance business has been grafted onto the powerful, premium rootstock of a first-class investment-banking firm, and-if the tale of the tape is to be believed, Morgan Stanley stock having lost roughly a third of its value-is on the way to spoiling those vines.

When it was becoming clear that AmEx was in trouble, I asked in this space-I was then a regular columnist for this newspaper-“how high must the bodies pile at American Express before it’s recognized who’s at fault?” Ultimately someone figured it out, and Jimmy Robinson was shown the door. I felt badly: He was a friend, a guy I liked, but he was being given, and was taking, some bad advice-from his own ego, from the adjacent pillow, and from the usual parasites that burrow deep in the rungs of power-and blame needed to be fixed. As Herod found out, slaughtering innocents only solves half the problem.

At Morgan Stanley, the phylloxeric personality is Philip Purcell, a former management consultant who came with the Dean Witter merger into Morgan Stanley, rather like the parasitic louse that arrived in France on a shipment of American vines around 1860 and nearly wiped out the French wine industry. In the aftermath of the merger, Mr. Purcell maneuvered himself into the C.E.O. spot. This is not surprising, because this is what management consultants do (indeed, it’s all they do): identify the power centers in an organization and cozy up to them. I’ve long held the theory that the lousy, useless recommendations the consultants deliver in those thick, spiral-bound books are part of a grand strategy to bring their corporate clients low in order that the consultants themselves may move into the corner office. Consultants preach management by concept, which is about the best way I know to wreck a business.

I have no dog in this fight-I own no shares of Morgan Stanley or any other investment bank-but I hope Mr. Purcell follows his Discovery Card out the door-and soon, because I hate to see quality engulfed by mediocrity. There was never a bluer chip on the Street than Morgan Stanley. Or a better proof that money could be earned in great, gleaming sums by combining absolute professionalism with at least the appearance of absolute probity.

Parker Gilbert started at Morgan Stanley in 1960; I joined Lehman Brothers in 1961. At that time, his firm represented the absolute zenith in team play, closed ranks, all for one and one for all. Lehman Brothers, by contrast, was strictly dog-eat-dog, riven by the kind of internal dissension that would ultimately play out in the sorry proceedings Ken Auletta captured in Greed and Glory on Wall Street (1985).

Now the roles have been reversed. Under Dick Fuld’s leadership, Lehman Brothers seems to be the kind of firm that back in my day we thought of when someone said “Morgan Stanley.” And Morgan Stanley seems to be drifting toward what Lehman was. A sorry story arc, I think. I’m not usually a great advocate of the past returning to tell the present what to do (for what a lousy idea that can be, see under “United States Golf Association”), but in this case it’s clear that the old guys are the good guys, and I’m rooting for them.