There’s comedy, there’s high comedy, and then there’s Wall Street Journal Op-Eds. Phil Purcell writes this morning about the opportunity to cure “Too Big To Fail.” He urges shareholders to split our mega-banks into smaller, more manageable entities.
Since I happen to agree strongly with that goal, I naturally sat up straighter at the breakfast table, ignored the screaming two-year-old[1] and gripped my cereal spoon a little tighter, all the better to pay attention to Purcell’s piece.
But Purcell crusades Wall Street Journal style, so I should have been prepared for his giant helping of unreflective Jell-O. He served up a plate of 1950s thoughts, masquerading as a new idea.[2]
Ah, where to begin? Let’s start with the fact that Purcell himself created one of the Too Big To Fail behemoths, leading Dean Witter’s acquisition of Morgan Stanley in 1997. He then headed the combined firm before being pushed out in 2005. All the ‘synergies,’ all the ‘costs savings,’ all the ‘shareholder value’ he made happen with that exciting merger? He’s awfully quiet about that now. I’m not saying he’s apologetic, as he mostly certainly is not. Just quiet.
At the point in his Op-Ed where he notes that Morgan Stanley Dean Witter had to be bailed out by taxpayers in 2008, Purcell ought to contritely note his part in the creation of a massive Too Big To Fail bank.[3] But he’s not about to apologize for the unholy mess that he engineered, to his personal benefit, capped off at the end by a $113.7 million[4] exit package.[5] The fact that he brought a perfectly nice retail brokerage (Dean Witter) under the same roof as an M&A and trading powerhouse (Morgan Stanley) resulted in an opportunity for private gain for him by the time he left in 2005, and public liabilities for us taxpayers in 2008, just three years later. But that’s not his concern, and that obviously goes unmentioned.
What he is very concerned with, however, is shareholder value. Purcell rightly points out that investors discount the share prices of firms that could not survive the 2008 crisis without a taxpayer bailout. Shareholder value, I agree, is a worthwhile concern. Not the primary concern when it comes to TBTF, but still, a valid concern.
Purcell proposes that shareholders advocate a break-up of the giant banks. Nevermind the fact that shareholders have close to zero effectiveness [6] [7] when it comes to managing big governance issues of publicly owned corporations. The only folks who have the power to choose to break up their own big public firms are the ones in the CEO seat. Few CEOs willingly shrink their own kingdoms. It just doesn’t happen that way.[8]
Purcell’s main recommendation is to split the TBTF banks into smaller entities, so that client-oriented firms “should be spun off to give the value to shareholders,” while high growth financial-service companies should be owned privately. You know, by private equity companies. And here’s the weird thing you’ll be shocked by: Purcell, strangely enough, runs a private equity firm that purchases high growth financial service companies! What a happy coincidence! He’s just here to help.
So, to sum up: We should combine financial firms into Too Big To Fail banks from 1998 to 2008, as it will greatly enhance the probability of extraordinary CEO pay from a shareholder-owned company, and never mind the taxpayer bailout to follow. In 2012, we should break up these same banks to sell them to your private equity business? Again, you don’t even mention the taxpayer bailout or the policy implications of the government welfare underlying your fortune?
Thanks for your thought leadership through the years, Mr. Purcell. My two year-old is more selfless than you. Now why is she crying again?
[1] My wife made me include that detail. Not sure why. Wives work in mysterious ways.
[2] “Mr. Romney! Mr. Romney! A Telex just came in for you, and I had the secretary make you a carbon copy! Mr. Purcell accepts your offer of Treasury Secretary in the new administration!”
[3] Is it too much to ask that we get a little Japanese-style begging of forgiveness from guys like Purcell? Just a deep bow and a contrite apology – I really think it would go a long way.
[4] Read about it here. There’s a great passage at the end of the NY Times coverage, in which Purcell’s departure and golden parachute kicks off a competitive feeding frenzy of private enrichment at the top of Morgan Stanley, headed then by John Mack. A compensation consultant calls it “an ‘ice cream war’ between children, where one wants as much as the other. ‘Except that, in this case,’ he said, ‘somebody seems to have got the whole ice cream factory.’” Oh, the good old days.
[5] If you have a strong appetite for self-serving crap, can I interest you in Phil Purcell’s Wikipedia entry? Which he clearly wrote himself? He’s not well-known enough to have anybody come in and edit his entry and add a dose of realism, although Wikipedia notes that the page probably needs some editing. (Meaning, there’s only been one author of the post, Purcell himself.)
[6] The “Shareholder Democracy” aka “Say on Pay” Movements exist in the minds of a few business school professors. But they’ve had no noticeable effect on the business world.
[7] The exception to the rule being a few well-known hedge fund agitators like Daniel Loeb, Bill Ackman, or the wily veteran Carl Icahn.
[8] Mubarak, Saleh, Gaddafi, and Assad used to get together at pool parties and laugh at the relative accountability and haplessness of American financial CEOs Pandit, Moynahan, Dimon, and Blankfein. Now Blankfein’s all like, “Shoe’s on the other foot now, bitch! They can’t make me leave!”
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