Morgan Stanley:Becoming a "One-Firm Firm

Harvard Business School 2000.5.31 Author(s): M. Diane Burton,

Thomas J. DeLong, Katherine Lawrence

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Agenda

1. Description2. Objectives3. Morgan Stanley Background4. Becoming a One-Firm Firm5. The Challenge Ahead

6. Questions

Morgan Stanley Background

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1. Description John Mack, the newly appointed president of Morgan Stanley,

feels strongly that the firm needs to change in order to compete in a changing investment banking environment. Mack and his senior team undertake initiatives in order to transform the culture and working style of the firm from individualistic to team-oriented. The case provides detailed information about Morgan Stanley's existing culture and systems as well as the kinds of changes that it hopes to make. Morgan Stanley views the human resource management systems as a tool for attaining strategic objectives.

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2. Objectives

Consider what and how John Mack should proceed in implementing his new strategy and vision for Morganwith special attention to the alignment and consistency of HR levers

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3. Morgan Stanley Background

The Rise to Prominence

Tough times

A Global Enterprise

Top Team Tensions

John Mack

A Need for Leadership

Lack of Career development

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The Rise to Prominence 1933 The Glass-Steagall Act 1935 Morgan Stanley founded in 1935 under the halo of the

Venerable House of Morgan, for 35 years, maintained a top-notch position as "investment bank to the bluest of the blue-chip companies.

1970 230 employees focused traditional corporate finance The mid-1970s expanded internationally, adding office in

Paris and Tokyo 1977 1000 employees with a third in sales and trading and a large

percentage overseas. The Early 1980s it was the top of the underwriting pyramid,

capitalizing on exclusive relationships with most of Fortune 500. White Shoe Bankers---Morgan Stanley

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Tough times

1983 global underwriting for almost its entire life, ranked adisappointing sixth.

1986 sold 20% shares in public offering --netted $250 million

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A Global Enterprise

1992, 7000 employees ,18 locations ,$3 million()

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Top Team Tensions

chairman Fisher President Greenhill

1970 Greenhill Fisher

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Top Team Tensions ()

MS FG

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John Mack

1972 (associate) MackMSFisher Fisher Mack Mack

1976 (vice president) 1977 (principal) 1979 (managing director) 1985 the head of Fixed Income Division 1992 the firm`s chief operating officer

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A Need for Leadership

Neal Garonzik-- We needed to be able to serve clients in a myriad of ways and could not expect only one part of the firm to focus on them. Mack amplified, We needed to be able to service people from A to Z, in all markets, as a team.

John Mack explain--We have not done a good job in pushing down the importance of management and explaining what we expect from you once you become a principal on a desk or a managing director. What is required of you? Well, you have not finished. You have further responsibilities. You have a job to do. And your job, other than making money, or building the systems that youre building, is to teach the people below you.

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Lack of Career Development

Career development-- looking for raw intellect and some basic social skill

Performance appraisal --An up-or-out promotion system

John Mack perceived the firm to be losing the franchiseas they operated as if they were a holding company with different divisions running independently.

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4. Becoming a One-Firm Firm

A New Vision

Early Change Initiatives

Performance Evaluation, Promotions, and Compensation

Revamping the Performance Appraisal System

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A New VisionMorgan Stanley New Mission Statement

Our goal is to be the worlds best investment bank and the firm of choice for our clients, our people, and our shareholders.,

We will succeed by meeting the global needs of our clients --both providers and users of capital --at a level of performance which is exceptional. This commitment to add maximum value will be characterized by extraordinary effort and innovation, and by conducting ourselves with absolute integrity.

Morgan Stanleys people are the source of our competitive advantage. We will distinguish ourselves by creating an environment that fosters teamwork and innovation, by developing and utilizing our employees abilities to the fullest, and by treating each other with respect and dignity. 1. 2. 3.

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Early Change Initiatives

The concept of a One-Firm Firm Shake up the culture and facilitate cross-divisional

interactions DeLong to join Morgan Stanley full-time to "bring HR to a

new level." DeLong took the title " Chief development Officer" and set about building a professional human resources management organization that he named the "Office of Development and establishing strong ties will all members of the operating committee.

Were all skeptics, were all very smart, and we can all do it better. We can all sit there, as I used to sit there, and say, Here it comes again...

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DeLong

1. .began to examine the recruitment and hiring process in an effort to establish common themes and the Office of Development designed an orientation process that would deliver a common message to each new recruit, regardless of division.

2. Division heads began speaking to the managing directors of otherdivisions.

3. Managing director conferences brought people together from across the firm and around the world day-long sessions.

4. DeLong traveled around the world talking to managing directors about management. Mack wanted them to know that they had the responsibility to be good managers.

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DeLong () Socially, Mack wanted people to feel comfortable with each other. Smaller

efforts included expanding the managing directors dining room to encourage people to meet.

Mack also sponsored outside activities to get managing directors to mingle. A quarterly social dinner brought 25 to 35 managing directors and their spouses together.

Mack continued to dine with junior professionals, and he encouraged all his managers to follow his example.

Mack DeLong described:

John must have held a dinner a night for two years. He had unbelievable commitment. Hed take out analysts. Hed take out associates. Hed take out secretaries. He did not care where they were on the organizational ladder.

Mack

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Performance Evaluation, Promotions, and Compensation

1. Mack

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Wall Street has historically had a culture where the biggest producers have always made the most money despite the fact that they are destroyers of culture anddestroyers of people. You have to have the courage to stand up and fire those destructive forces.

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Revamping the Performance Appraisal System

Enhance the professional development of all professional employees

Achieve greater objectivity and fairness, and base performance evaluation on explicit performance criteria that broadly define desired behavior

Increase real-time feedback

Recognize superior, long-term professional performance

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Revamping the Performance Appraisal System()

Enhance the professional development of all professional employees. Provide the primary basis for annual compensation andpromotion decisions

Provide more substantive annual performance appraisals

Encourage teamwork

Increase cross-departmental and cross-divisional feedback

Increase the consistency and confidentiality of the process

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5. The Challenge Ahead

The message of A one-firm firmFor the first time in 3 to 4 years Im out of my comfort zone. I have a new job. Im pumped up about it. Theres a lot Im still learning about it. Im uneasy. Im on edge. But every morning Im pumped up because Im not used to it and I havent done this before.

MackMS

Morgan Stanley Website

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Five Core Values

Integrity Excellence Respect for individuals and cultures Entrepreneurial spirit Teamwork

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Company Organization

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Revenues

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Number employees

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Workforce-chart

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6. Questions

Why does Mack want a one-firm firm? What would a one-firm firm look like? What is different? What are the challenges facing Morgan Stanley as John Mack

takes a leadership position? What is John Mack's vision and strategy for Morgan Stanley? Do

you buy it? Will it have the desired effect on integration? What are the costs and benefits of installing this new performance

management system? How effective has the change strategy been to date? What

actions, if any, would you recommend?

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6. Questions-2 What are the challenges facing Morgan Stanley as John Mack

assumes a leadership role? Assess John Macks vision for Morgan Stanley. What are the key

elements? How different is it from the way the firm has historically operated?

How effective has John Mack been as a leader of the change initiative? What are his strengths? What are his weaknesses?

Evaluate the change strategy and steps taken to date. How effective have they been? What else must be done to ensure a successful transformation?

A key component of the change initiative is revamping the performance appraisal system. What were the problems with the existing system? What are the goals of the new system? To what extent is the new performance appraisal system aligned withthe vision and strategy?

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Morgan Stanley and Organized Labor

1. We buy more than $150 million in services each year from union companies.

2. We have spent nearly $1 billion in construction in the last three years with union contractors.

3. We are committed to developing a Responsible Contractor Policy to reflect our current fair practices and govern future service purchases.

4. Our five model portfolios reflect that we invest in many strong companies where organized labor is well represented.

5. And we have served as trusted advisors on financial matters to unions across the country.

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Morgan Stanley and Organized Labor-2

1.Successful businesses benefit from strong management, productive and committed workers, high-quality human resource management and good labor-management relations.

2.Financial security for workers and retirees, including sound retirement plans and affordable healthcare, is an important component of a healthy, growing economy.

3.Respect for workers rights helps promote economic growth.

Thanks for your time!