The CEO agenda: James Gorman, Morgan Stanley
Master of reinvention.
You’d better run your firm at least as well, if not better than, the leaders of the best multinational corporations in other sectors
James Gorman has been at the helm of Morgan Stanley for nearly 10 years. Assuming the chief executive role in January 2010, he took over a firm that had nearly died during the financial crisis and set about rebuilding it in an image both old and new.
The old: bring back the culture of Morgan Stanley that had been lost in the preceding decade. The new: rebalance the business into two parts of equal weight: a wealth management operation that would be the ballast of the firm; and a refocused investment bank that would be the engine of its earnings.
For most of his tenure Gorman has had a key lieutenant in the form of Morgan Stanley’s president Colm Kelleher, who in particular executed the transformation of a sales and trading division into a clear leader in global equities that also has the correct scale for a greatly reduced earnings pool in fixed income. Now, as Kelleher retires at the end of June this year, Gorman is thinking about the next phase of reinvention at Morgan Stanley – a new generation of leaders, one of whom is likely to step up to the chief executive’s role when Gorman himself retires “in the next three to five years”.
Gorman describes Kelleher as: “A dear friend, a fantastic guy and a great partner in this business. But we have to move forward.”
The history of banking is littered with poorly conceived succession plans, for which the execution was often even worse. Gorman is determined to avoid this. He is a great believer in long-term planning.
For now, Kelleher’s six direct reports – who each run the firm’s main business lines – will report directly to Gorman. This will give him the chance to get to know each of them better. Before long, Gorman expects to appoint one or two of the six to become president of the firm and, therefore, the presumptive chief executive-in-waiting.
“We have a strong senior team, all of them in the mid 40s to early 50s,” he says. “We have time to get this right – and if we do, we’ll have a very positive succession story.”
Getting the leadership right in banking is more important than ever. Gorman knows this all too well. At Merrill Lynch in the 2000s he had a ringside seat to the problems that crippled the firm under Stan O’Neal; and he was president of Morgan Stanley when it was forced to seek emergency capital from MUFG in 2008.
“Many bank leadership teams before the crisis were, with hindsight, poor at management,” he says. “Today, you’d better run your firm at least as well, if not better than, the leaders of the best multinational corporations in other sectors.”
Gorman admits he has learned a lot while sitting in the chief executive’s office.
“It definitely becomes easier after three or four years. You have to define the culture of the bank, without making your brand the brand of the firm. You’re dealing every day with highly priced, global talent. You’re running a complicated, political and public business. Unlike most chief executives, you have to deal with [the US] Congress regularly and regulators almost every day, and you have to build good relationships with them. And on top of all of that, this is a highly complex industry.”
Gorman seems relatively happy with the position of Morgan Stanley today. For the full year 2018, the firm produced a return on equity of 11.8% and Gorman feels he can deliver in the 11% to 15% range over the coming years, although he does not underestimate the task at hand.
“Raising your return on equity by a couple of percentage points does not sound like much, but it requires you to get thousands of decisions right to achieve that.”
To that end Gorman continues to push the non-investment banking side of the business. In April he placed Shelley O’Connor, former co-head of wealth, in charge of Morgan Stanley’s two regulated bank entities. While Goldman Sachs makes a splash with its Marcus retail platform, Gorman is quietly pushing ahead in traditional banking.
“Banking is moving from an opportunity to a growth business for us,” he says. “It’s a good, stable business in which we can generate returns in excess of our cost of capital.”
Morgan Stanley is also investing, adding administrative management platform Solium Capital to its wealth business for $900 million this year – its biggest acquisition since the crisis – and taking a 5.5% stake in European fund manager Tikehau Capital. Other bolt-on acquisitions could follow.
When Gorman steps down, he is likely to have spent 15 years running the firm. His will be big shoes to fill. He’ll be determined to give the next chief executive a prosperous road to walk down.