An American Lion

This is self-serving, and probably a little misleading:

JAMES P. GORMAN, a 6-foot-2 Australian, recently took up boxing lessons, in keeping with some of the trappings of his Midtown Manhattan office. On one wall, opposite an inspirational poem by Rudyard Kipling (“The Thousandth Man”), hangs a photograph of Elvis Presley sparring with Muhammad Ali.

“I have a lot of respect for Ali,” says Mr. Gorman.

As the new chief executive of Morgan Stanley, an investment bank that narrowly escaped the financial smackdown that destroyed many of its competitors, Mr. Gorman may have to get ready for some fisticuffs.

He is tasked with overhauling a firm that put a primacy on high-risk trading under his predecessor, John J. Mack, and one that has spent the last several years often riven by factional disputes and internal debates over strategy.

Under Mr. Mack, Morgan Stanley made errant mortgage bets and commercial property gambles that cost it billions of dollars and almost destroyed it. The firm was saved by a $10 billion bailout from the federal government, since repaid, and by Asian investors who wrested a large stake in the firm in exchange for cash.

During Mr. Mack’s tenure, from 2005 to the end of last year, the stock price fell 32 percent. And the firm, which will celebrate its 75th anniversary this year, is expected to announce this week the first annual loss in its history.

That the first annual loss comes after 2009 is no mark against the firm. What I fear is that the American investor will start to avoid risk. You cease to be an investor if you avoid risk; you are simply an accumulator at that point.

Here, they qualify what “change” means:

Mr. Gorman says that Morgan will eventually begin taking bigger risks and wagering more money to do so, but that it will avoid big, concentrated bets on complex products that few people understand — and that have the potential to blow up an institution.

“We are still taking risks,” he says, but “we will not have the outsize risk positions that will endanger the firm.”

Still, some analysts remain tentative about Morgan Stanley’s prospects in a financial landscape littered with corporate wreckage and dominated by a handful of wily survivors. While the firm’s traditional investment banking franchise has emerged strongly from the crisis — topping JPMorgan and Goldman in some of its businesses — it has shrunk its fixed-income division and taken piles of money off the table in its broader institutional securities business.

Guy Moszkowski, an analyst at Bank of America Merrill Lynch, notes that Morgan Stanley has about $17 billion in capital committed to its institutional securities business, compared with his estimate of around $40 billion at Goldman and $33 billion at JPMorgan.

Over the last few years, “they seemed to hang back from risk-taking even at times when they could get paid richly,” Mr. Moszkowski says.

“Then they pushed themselves forward when the party was already ending,” he adds. “Morgan Stanley lagged again last year. The net result is they zigged when they should have zagged. There is an issue in that they have fallen behind their peers, though I believe they can resolve it.”

Who drove those decisions? Well, the board drove those decisions. Please note that “the board” does not appear until the third page of this article:

WHATEVER its long-term merits, the deal did little to reverse Morgan Stanley’s sagging fortunes. Around the middle of last year, with the share price lagging, Mr. Mack confirmed previous plans to step down. Mr. Gorman won the race to succeed him, in part because the firm’s board, which voted unanimously for him, was impressed by his strategic abilities and work he had done turning around the retail business.

The board liked that Mr. Gorman wanted to strengthen Morgan Stanley’s institutional securities group and reduce risk-taking, says Robert Kidder, a director.

Did they replace the board, or did they replace the CEO? Think about that for a minute. They admit their ambitions were too great and their strategy was wrong, but they merely changed CEOs. Did they close divisions, reorganize the board, change the focus of the company, and make infrastructure changes? In other words, was the change institutional or cosmetic? Doesn’t anyone understand that this same board will tell a new CEO how to do things, and that the board is the one with the poor track record in this equation?

According to another person familiar with the board’s thinking, who requested anonymity because the deliberations were confidential, Mr. Gorman’s calm demeanor offered a marked and welcome break from Mr. Mack’s more volatile temperament.

Ah-ha! So it really wasn’t about “business decisions.” It was about style. And the board, which I can see no evidence of being altered, changed, or peopled with new thinkers, went with calm and cool over passionate and vocal. At the end of the day, money is made whether or not the man at the top yells or not. Is that really the important thing here? Or was a change in CEOs made because the board cannot be held accountable for what it told the previous CEO to do?

This is a microcosm of the American business scene. Were there changes, or scapegoats? Changes in short term tactics or changes in philosophy and long term strategy? Are any firms accepting losses in the short term in order to make steadier profits in the long term? Unless I’m mistaken, the American business scene is still dominated by the need for maximum profits, lean payrolls, and short term success by selling, repackaging, and pushing *bullshit* rather than common sense.

Yell at me if I’m wrong on that, okay? Your uncle Norman is a big boy, and he can take it.