In the days before Morgan Stanley threw in its lot with Dean Witter, I once went for a chat with Dick Fisher, then Morgan Stanley’s chairman and chief executive, and John Mack, its famously ambitious and hard-nosed president.
The late Mr Fisher was as advertised, a Yankee charmer who talked genially about the firmbank and its future. Mr Mack was something else. With his nickname of Mack the Knife, I had expected a tough guy with blunt opinions but he turned out to be intimidating in another way.
Mr Mack was silent for most of the conversation. Instead of talking he sat back in his chair, observing me and a colleague with a feline smile. It was as if Mr Fisher had brought along his trained tiger to ensure good behaviour and the beast was wondering to itself what we would taste like.
Mr Mack is now the leading candidate to take over Morgan Stanley from Phil Purcell, who ousted him in 2001. It is probably the outcome Mr Purcell wanted least and Charles Knight, the director leading the search for a new chief executive, attempted to rule it out. But they faced superior forces.
Under pressure from shareholders, the board rightly conceded that Mr Mack would have the best chance of restoring Morgan Stanley’s poise. Even those who stood to lose most from his appointment – Zoe Cruz, its co-president, and Lawrence Fink, chief executive of Blackrock and another leading candidate for the job – suggested it was a good idea.
The cult of the charismatic CEO – a star outsider who is brought in by a board to shake up a company, sell underperforming divisions and boost growth – has been discredited in the past few years. Many so-called stars failed to perform and alienated the employees rather than rallying them behind a common cause.
Mr Mack has charisma but it comes from being an insider rather than an outsider. He spent 29 years at Morgan Stanley before being pushed out. He used to manage many of those involved in the struggles. They are more likely to listen to him than others if it comes to deciding whether recently promoted recently-promotedexecutives such as Ms Cruz should stay in place.
Another way of phrasing this is that Mr Mack has authority. There is, of course, a difference between power and authority. Mr Purcell was good at wielding the former. He appointed allies to the board of directors and saw off all challengers from the old Morgan Stanley – the investment banking side of the merged group – starting with Mr Mack.
Recent events have shown that dictatorship from a narrow political base is vulnerable to revolt. Mr Purcell was regarded as an outsider by the Wall Street crowd. He came from Chicago and returned there at at weekends, was uncomfortable with clients or bankers and did not mix much with either group.
In contrast, Mr Mack is steeped in the traditions and personalities of Morgan Stanley. He is one of the family: even those who dislike or fear him accept his right to be around. It is not surprising that the struggle has caused such heat. The clash between power and legitimacy is an archetypal drama, re-enacted in Shakespeare plays and Hollywood films.
Boards often overlook itthis when choosing leaders. They are tempted to pick somebody who has achieved things elsewhere, fearing that an insider will be unwilling or unable to make tough decisions. That was Credit Suisse’s approach when it hired Mr Mack to run its investment bank after he left Morgan Stanley.
They ignore the fact that companies have tribal qualities, like all human organisations. It would be hard for Wal-Mart to have a chief executive with no links to Bentonville, Arkansas. One reason why Lee Scott comes across as its natural leader is that he can tell stories about his days working with Sam Walton.
Companies do not emphasise it because it implies that leaders need permission from workers. General Electric’s rationale for moving promising executives around is to broaden their experience. But they equally gain in authority: they are less likely to be seen as the creatures of only one GE division.
Legitimacy especially matters in investment banks because they are divided into units that have little day-to-day contact, and are run by executives with personal wealth in the tens (sometimes hundreds) of millions. It is useless to order around such people; they will only be inclined to obey if they feel loyalty.
“The natural tendency is for these firms to fragment so it takes a strong belief in the leader’s authority to hold them together,” says Rakesh Khurana, author of Searching for a Corporate Saviour: The Irrational Quest for Charismatic CEOs.
Mr Mack took on this challenge at Credit Suisse, where he managed to persuade high earners such as Frank Quattrone to modify their lucrative contracts before he was ejected in a strategy dispute. Some people there found him too aggressive and intrusive in his efforts to forge one culture from the fiefs.
They are used to Mr Mack’s ways at Morgan Stanley. The company man sounds like an old-fashioned idea in an era of mobile management. Yet leaders achieve more when employees trust them and are willing to be led. Even if Mr Mack bites, they know where he was trained.
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