Clive Mathieson | September 12, 2009
LAST Monday James Gorman and his boss, Morgan Stanley chief executive and Wall Street legend John Mack, broke bread at the reasonably priced Ilili Lebanese restaurant on Manhattan's Fifth Avenue.
Ilili's website promises mood music, soft, amber lighting and candles to create a "sexy, sophisticated atmosphere in which to enjoy a relaxed meal".
Whether that helped Mack deliver his news, or Gorman receive it, is unclear. But over blackened cod and a fattoush salad, Mack told his co-president it was time for him to take over the 74-year-old firm and, in doing so, complete the highest ever climb for an Australian on Wall Street.
Gorman's elevation to the CEO's seat had been expected by many. But according to The Wall Street Journal, Mack told Morgan Stanley's board in July that he wanted to push ahead with Gorman's promotion sooner rather than later. "There was no reason to wait," he said.
Over lunch, Mack relayed the message to Gorman, saying the board had decided he was the best person for the job and the time was right.
In New York yesterday, Morgan Stanley announced that Mack, 64, would step down as CEO at the end of the year but remain as chairman for at least two years. Gorman, the 51-year-old "native of Australia", as Morgan Stanley describes him, will become CEO on January 1.
The Melbourne born and educated Gorman will be responsible for guiding the bank -- which had a near-death experience last year but, unlike some fallen rivals, emerged largely intact and independent -- through the post-crisis landscape.
On his side will be a reputation inside and outside the bank for being talented, tough and direct.
"I have a direct way of speaking," Gorman once said. "What I do is tend to lay out everything. I tend to tell people what I'm going to do and how I'm going to do it and what is successful for us and what's not ... Without being too parochial about it, I think Aussies are more direct. I find, having been here for 22 years, in this culture directness is well received but not practised very much."
Gregory Fleming, a Yale law professor and former Merrill Lynch president who worked with Gorman at the bank, agrees with his self-assessment. "He is very straight with people, and you always know where you stand," he told The Wall Street Journal.
While Mack's once redoubtable reputation has been tarnished by Morgan Stanley's performance before, during and after the great financial meltdown 12 months ago next week, Gorman has risen quietly but quickly through Wall Street ranks.
In 1999, he quit his partnership at management consultancy McKinsey & Co to join Merrill Lynch as chief marketing officer. In 2001, he became president of the US private client division and in 2002 took over as head of the global private client businesses, Continued -- Page 28
The Mack attack that fizzled overseeing almost $US2trillion of funds. Already the most powerful Australian on Wall Street, in late 2005 he was approached by Mack, who had just been appointed Morgan Stanley CEO, to run the bank's retail broking unit. He nearly tripled its operating profit in three years.
In October 2007, Gorman took on the additional role of co-head of strategic planning with chief financial officer Colm Kelleher. And one month later, he was named one of the firm's two co-presidents. (It was announced yesterday that the other co-president, Walid Chammah, 55, would relinquish the role and remain chairman of Morgan Stanley International in London.)
Gorman is credited with the massive but successful integration of Citigroup's Smith Barney broking unit with Morgan Stanley's own broking business. Morgan Stanley bought 51 per cent of Smith Barney from Citigroup for $US2.5billion ($2.9bn) in January, giving it control of the world's biggest brokerage workforce. Gorman became its chairman.
Steve Harker, Morgan Stanley's Australian chief executive, says he swapped emails with Gorman this week and describes his fellow Australian as "very excited" by the promotion to the top job.
Harker says Gorman brings to the role "a great intellect, a great understanding of the wide range of our businesses and great strategic skills". Gorman, he agrees, is tough and direct. "He's very Australian; he calls a spade a f..king shovel," says Harker, a straight shooter himself.
Harker says he has had a fair bit to do with Gorman in the past six months as Morgan Stanley bedded down the integration of the Smith Barney brokerage arm, which effectively doubled its Australian workforce to more than 800.
"He's very active and very supportive of the Australian business," Harker says.
Gorman -- incidentally, an anagram of Morgan -- said yesterday it was "a great honour to be a part of this extraordinary organisation and culture". He said he did not expect to change Morgan Stanley's strategy.
"We're pretty clear about what kind of company we're going to be," he said. "A lot of what has to happen now is to really focus on day-to-day execution."
Bank watchers, however, believe his appointment signals that the board remains cautious after the tumult of the Mack era. Gorman's background, notes The Wall Street Journal, is in selling stocks and bonds to retail investors, which is less profitable than the bond business in which Mack specialised, but is also less risky.
Mack's strategy of boosting trading risks backfired in 2007 when bad bets led to the firm's first quarterly loss. More recently, Mack has been criticised for not taking enough risk, particularly in fixed-income markets.
Morgan Stanley shares plunged as low as $US6.71 in early October before the firm won a $US9bn investment from Japan's Mitsubishi UFJ Financial Group and $US10bn from the US government.
Mack has since repaid the US Treasury and the stock has rebounded, yesterday closing at $US28.34, still 34 per cent below the level when Mack returned to Morgan Stanley to replace Philip Purcell as CEO.
Eighteen months ago, Mack told the board he wanted to hand over the CEO title when he reached 65 in November.
Like Purcell, Gorman has run retail-oriented financial brokerages but never worked as a trader or banker. Some analysts question whether he will have the same difficulty as the discredited Purcell in winning over the institutional securities side of the business.
"I am concerned that the Morgan Stanley board of directors is placing an admittedly capable executive with a largely retail brokerage operating background in charge of a global capital markets firm with the second-largest investment banking franchise in the world," Brad Hintz, an analyst at Sanford C. Bernstein & Co and a former treasurer at Morgan Stanley, told Bloomberg.
"It was a similar decision in 1997 that led to the lost decade of Morgan Stanley."
Mack dismisses the concerns, saying Gorman is much more accessible to bankers and willing to make client calls than Purcell.
Gorman adds that a majority of his recent client meetings have been with customers of the institutional side of the business.
Robert Kidder, lead director of the Morgan Stanley board, also has no qualms about Gorman's talents, saying he has in the past two decades worked in "virtually every aspect of the financial services industry".
"James Gorman is ideally suited to lead Morgan Stanley forward," he says.
"James has a long track record of developing aggressive strategies backed by strong operating skills and relentless execution. He is a proven leader who has shown the ability to attract and retain top talent throughout his career."
Gorman grew up in Glen Iris and Armadale in Melbourne, the sixth of 10 children born to engineering consultant Kevin and his wife Joan. Like his older sister Katherine Williams, now a judge of the Victorian Supreme Court, Gorman studied law. After graduating from the University of Melbourne, in 1982 he joined Phillips Fox and Masel. However, it wasn't long before he was off, travelling to Columbia University in New York to complete an MBA.
In 1987, he told an interviewer, he once convinced McKinsey & Co to hire him as a summer intern. By the 1990s, he was a partner.
Gorman, who is married to an American, Penny, and has two teenage children, could not be contacted by The Weekend Australian yesterday. But a couple of years ago, he opened up on his childhood in Australia and, perhaps, offered some clues as to how it guides his personality and management style today.
"People often ask me what it was like growing up in a family of 10 children," he told The Age newspaper in late 2005.
"Well, it was loud. It also bred tolerance because in a family that size, you have to decide whether you want to fight your whole life, or fit in. I am sixth in line and probably the most shy, but rather than fight, we talked a lot, particularly over the evening meal, where each had to contribute something specific to a designated topic for discussion at the end of each day.
"That meant from an early age we were all exposed to the very full range of behaviours, personalities and political beliefs that you could ever expect to get over dinner from a family of 12 very extroverted Australians of Irish descent in Melbourne. We are competitive to a point. We all like to win but none of us particularly enjoys seeing others lose."
Additional reporting: Bloomberg, The Wall Street Journal's Joe Bel Bruno, Jessica Papini, Aaron Lucchetti and Susanne Craig
