Blue Blood and Mutiny: The Fight for the Soul of Morgan Stanley

On Sunday, January 16, 2005, seven men met at S. Parker Gilbert's Fifth Avenue apartment. They strode past the doormen, across the black-and-white-marble floor, glanced at a portrait of someone's eighteenth-century ancestor, and ascended quietly in the wood-paneled elevator.

Parker Gilbert, tall, reserved, and patrician, was the former chairman of Morgan Stanley, the most prestigious institutional securities firm in the history of American finance. That afternoon, as he walked down the hall to open the door, his gait was stiff: he was seventy-one years old and he had spent many mornings in damp duck blinds. His hips were due to be replaced, but that might have to wait until this business was sorted out. As the apartment filled, the Gilberts' clumber spaniel, Molly, stirred on her pillow under the front hall table, picked up a toy in her mouth, and padded off toward the bedrooms. Molly wasn't unfriendly, but she warmed up slowly. Like master, like dog.

Gilbert and the other two Morgan Stanley Advisory Directors who were there that afternoon were the initial members of the cadre of mutineers who would later be known as the Group of Eight, and also, sometimes derisively and sometimes with affection, as the "Grumpy Old Men." Robert C. Scott, fifty-nine, with his Edwardian beard and starched pastel shirts, had been president of the firm until 2003; Lewis W. Bernard, sixty-three, bald-domed, blue-eyed, pixie-faced, and brilliant, the youn�gest person outside of the Morgan family ever to be made partner, was Morgan Stanley's former Chief Administrative and Financial Officer.

Gilbert had asked four current leaders of the Institutional Securities division to come over for a chat. The firm's "old guard" took an active interest in the state of the business and in maintaining the culture of the firm and met with Morgan Stanley managing directors from time to time on an informal basis. They would stop by Morgan Stanley for lunch in the partners' dining room, or call people they knew with ideas or input on clients. An invitation to the Gilberts' for a late-afternoon visit wasn't a signal that anything was afoot--and at that point, nothing was.

Gilbert, Scott, and Bernard were looking for insight into what was going on at the firm. There were signs that something was seriously wrong. The stock was trading around $50, down from a high of $110 at the peak of the tech bubble, and while other firms had recovered, Morgan Stanley's stock price was stuck. That was one of the reasons that 2004 ended with a zinger from one of the most quoted analysts on Wall Street, Richard Bove of Punk Ziegel & Company. Bove wrote, "Management and the Board have failed to generate stockholder [value] for five years. This is rapidly emerging as the lost de�cade for Morgan Stanley." Just a week before, the Wall Street Journal had reported on a letter that hedge fund manager Scott Sipprelle, a large stockholder and a former Morgan Stanley managing director, had written to the board. Sipprelle proposed a drastic restructuring of the firm, and he sounded as though he was prepared to take action if changes weren't made.