How Dean Witter Boss Beat Heir Apparent At Morgan Stanley for Merged Company
                    March 22, 2001

                    By CHARLES GASPARINO and ANITA RAGHAVAN
                    Staff Reporters of THE WALL STREET JOURNAL

                    NEW YORK -- When Morgan Stanley announced it was merging with
                    Dean Witter in 1997, some of Morgan's executives were aghast to learn
                    that they'd be reporting to counterparts from the former Sears,
                    Roebuck & Co. unit.

                    But Morgan's charismatic leader, John Mack, spread
                    the word to his troops that they shouldn't worry.
                    "Be patient," he would say. "The cream always rises
                    to the top."

                    Within Morgan, it was widely understood that Mr.
                    Mack was speaking about his own situation, too. As
                    part of the blockbuster deal, he had agreed to take
                    the No. 2 job at the newly formed Morgan Stanley
                    Dean Witter & Co., leaving the chairman and chief
                    executive titles to Dean Witter's longtime head,
                    Philip Purcell.

                    Many on Wall Street figured it was merely a
                    temporary concession. After all, Morgan was Wall Street royalty, with a
                    list of blue-chip clients stretching back to the previous century. Dean
                    Witter, by contrast, was a retail brokerage house catering to small
                    investors. As for the principals' reputation for hand-to-hand corporate
                    combat, their nicknames said it all: "Purcell the Nice" was up against
                    "Mack the Knife."

                                      But when the dust settled earlier this year, it was
                                      the 57-year-old Mr. Purcell who had consolidated
                                      his hold at the top, and the 56-year-old Mr. Mack
                                      who became jobless after a surprise resignation.

                                      What happened? A reconstruction of the power
                                      struggle, compiled through interviews with two
                                      dozen current and former Morgan Stanley Dean
                                      Witter executives and others, shows how Mr.
                                      Mack's early tactical errors, compounded by
                                      personality differences between the two main
                                      protagonists, led to his undoing. More broadly, it
                                      sheds light on the internal disruptions that are
                                      occurring out of the public eye as Wall Street firms
                    bulk up into ever-bigger financial-services supermarkets.

                    Investors are watching closely to see whether the split means trouble
                    for Morgan Stanley, one of the most profitable firms on Wall Street
                    during the heady bull market. During the past six months, Morgan
                    Stanley has lost about a half dozen key executives, many loyal to Mr.
                    Mack, in a broad management shake-up, and headhunters are circling
                    others. At the same time, the souring market is hitting Morgan Stanley
                    hard; Wednesday, the firm announced that profits fell 34% in the first
                    fiscal quarter to $1.02 billion. Some on Wall Street say that Mr. Mack's
                    departure leaves a vacuum just when Morgan Stanley most needs his
                    particular strengths -- managing trading risks and leveraging close
                    relationships with clients.

                    "Mack and his troops will be sorely missed as we
                    go into tougher times," says veteran Wall
                    Street executive Michael Holland, president of
                    Holland & Co., a New York money-management
                    firm.

                    Morgan Stanley, which declined to make Messrs. Purcell and Mack
                    available for interviews, has taken pains to play down the internal
                    feuding. In a prepared statement at the time of the January 24
                    resignation, Mr. Purcell heaped praise on Mr. Mack. "As my colleague, as
                    a leader, and as a mentor and friend to the most talented people in our
                    industry, he will be greatly missed," the statement said.

                    Mr. Purcell is working hard to assuage remaining Mack loyalists. At a
                    recent closed-door meeting with analysts, Mr. Purcell said senior
                    executives had pledged orally to stay put for five years. As for the
                    defections, he said the company will do just fine with new blood.
                    "Having new people in these jobs is good," Mr. Purcell told the analysts.

                    But it's clear that the fighting left deep wounds. The fault lines first
                    surfaced in early 1997 during a series of dinners at the Central Park
                    West apartment of Richard Fisher, then CEO of Morgan Stanley. With a
                    vista of the park spreading out below, executives of the two firms met
                    to hammer out final details of a merger that both sides wanted badly.

                    Morgan, for all its pedigree, yearned for a retail brokerage network to
                    help sell the stocks and bonds it underwrote for its blue-chip corporate
                    customers. Dean Witter, not long removed from an embarrassing
                    experiment with brokerage offices in Sears stores -- dubbed "socks and
                    stocks" -- was in the market for an image makeover, despite posting
                    solid profits.

                    There were only a few sticking points. Mr. Purcell waded into the most
                    explosive issue just a few days before the merger was sealed. Dean
                    Witter, with its larger market capitalization, was technically the acquirer.
                    It was only fair, he argued, that the first CEO come from Dean Witter.

                    Mr. Mack, who at the time was Mr. Fisher's designated successor at the
                    old Morgan, was initially taken aback. He had envisioned running the
                    firm, or at least sharing the top job. But after sleeping on it, he walked
                    into Mr. Fisher's office and said the merits of the deal were too
                    compelling "to make this an issue." Mr. Fisher cautioned him against
                    acting hastily. But Mr. Mack felt he had developed a bond with Mr.
                    Purcell. "I trust him; I know I can work with him," Mr. Mack told
                    colleagues, according to people with knowledge of the conversations.

                    Mr. Fisher, bent on clarifying Mr. Mack's future, broached the issue
                    again. Since both Mr. Purcell and Mr. Mack were about the same age and
                    their careers could be expected to last another 10 years or so, he
                    argued, it would make sense for Mr. Mack to succeed Mr. Purcell midway
                    through that period.

                    Heavy Haggling

                    Exactly what Mr. Purcell said in response is in dispute, and none of the
                    key figures will talk about it publicly. In any event, Messrs. Mack and
                    Fisher came away from their talks convinced that they had an informal
                    agreement that Mr. Mack would succeed Mr. Purcell as CEO roughly in
                    five years. A Morgan Stanley spokesman says that while Mr. Purcell
                    agrees that Mr. Mack was ultimately designated as his heir apparent,
                    there was no set timetable for when Mr. Mack would take over. One of
                    Mr. Purcell's advisors during the negotiations, Tom Schneider, says he
                    wasn't aware of any discussion of a timetable.

                    The haggling wasn't finished. Just days before the merger was set to be
                    unveiled, Mr. Purcell weighed in with another demand: a change in
                    corporate bylaws that would mean neither top executive could be
                    ousted without a three-quarters vote of the board of directors.

                    The move struck some Morgan executives as a ploy by Mr. Purcell to
                    protect himself in the event of a coup. But the Dean Witter executive
                    argued that the merger would run much more smoothly if people on
                    both sides knew that their leading man wouldn't be fired through some
                    corporate power play.

                    The Morgan side ultimately agreed. And so the blockbuster deal was
                    done. Despite a show of unity, however, there was plenty of speculation
                    inside and outside of the firm about which of the two strong-willed
                    executives would emerge on top.

                    Mr. Purcell, although not as well-known as his new subordinate, was
                    obviously no pushover. Raised in a middle-class Irish Catholic family in
                    Salt Lake City, he became the youngest managing director at McKinsey
                    & Co. at age 32. As head of strategic planning at Sears, he spurred the
                    retailer into purchasing Dean Witter in 1981, then left to head the firm
                    when it was spun off a little over a decade later. By the time of the
                    Morgan merger, he had built Dean Witter into a solid,
                    middle-of-the-pack brokerage house.

                    But most of the betting was on Mr. Mack, a stocky North Carolinian and
                    son of a Lebanese immigrant. A 27-year Wall Street veteran, he had
                    already scored a corporate coup in the early 1990s, when he replaced
                    famed investment banker Robert Greenhill as president and heir
                    apparent to the top job at Morgan. And he thrived in Morgan's
                    high-pressure meritocracy, where big producers could earn huge bucks.
                    In 1996, he pulled down salary and bonuses of $10 million -- more than
                    twice the $4.3 million in cash and stock Mr. Purcell had made in the
                    less-glamorous brokerage business.

                    But internally, the Morgan Stanley side started getting bad premonitions
                    almost from the start. Shortly after the merger, Mr. Fisher traveled
                    downtown to Dean Witter's offices to meet with Mr. Purcell. When he
                    arrived at its World Trade Center headquarters, there was no pass
                    waiting for him; he had to stand in line. Later, when Mr. Purcell ordered
                    the management suite in the Midtown Manhattan headquarters of the
                    former Morgan Stanley to be reconfigured for use of the merged firm
                    and moved to the building's 39th floor, Mr. Fisher was relegated to the
                    40th floor.

                    Mr. Fisher didn't complain about either the pass or his office. He said in
                    a recent interview that he "never felt Phil was doing anything aimed at
                    isolating me."

                    Others took a more skeptical view. Even though Mr. Purcell had spoken
                    of running the firm as a partnership, Morgan Stanley loyalists noted
                    that the new CEO did most of the speaking at the first annual meeting,
                    while his No. 2 largely remained quiet. Mr. Mack also gradually withdrew
                    from communications with securities-industry analysts.

                    Then came the usual spats over personnel. Mr. Mack was willing to tame
                    his own lieutenants to make the merger work, according to people in his
                    camp. One example involved Morgan's own brokerage group, which now
                    found itself reporting directly to Dean Witter executives. When Mr. Mack
                    heard that some of these executives weren't happy with their new
                    reporting assignments, he stamped out their complaints. "This is a small
                    piece of a big merger and I will not have any dissenters," he told Jeff
                    Salzman, the Morgan Stanley executive who was then head of the
                    group, according to a person with knowledge of the discussion. "Your
                    guys have to fall in line or I will fire all" of them. Mr. Salzman declined
                    comment.

                    Mr. Mack's closest advisers weren't spared when he felt that they were
                    impeding the merger. Elaine LaRoche, his former chief of staff, warned
                    him to watch his back. Mr. Purcell will "squeeze you," she cautioned Mr.
                    Mack, witnesses say. Mr. Mack bristled, saying Ms. LaRoche was disloyal.
                    She later was given a job in China, and has since left the firm.

                    Mr. Purcell, meanwhile, was very protective of his linemen, Dean Witter
                    veterans, often at the expense of Mr. Mack. He took special care of
                    James Higgins, the head of Dean Witter's retail brokerage operations.
                    Shortly after the merger, Mr. Mack took control of the core
                    retail-brokerage business, with Mr. Higgins officially reporting to him.

                    But Mr. Higgins often continued to deal directly with Mr. Purcell. This
                    became an issue about six months after the merger, when Mr. Mack
                    began visiting Dean Witter branch offices around the country.

                    One afternoon, after meeting with a corporate client in the San
                    Francisco area, Mr. Mack stopped by a local branch office in Hayward,
                    Calif. "I'm John Mack" he told the receptionist. "I'm here to see the
                    branch manager." People were stunned; in the past, visits from top
                    brass were planned weeks in advance. Mr. Mack, after convincing the
                    skeptical branch manager of his identity, held court, listening to the
                    concerns of brokers. When it was over, Mr. Mack thought he had hit a
                    home run, people in his camp say.

                    Then he heard from Mr. Higgins. "Could you give me a heads up when
                    you are going out to the field?" Mr. Higgins asked. After several repeat
                    performances, Mr. Higgins complained to Mr. Purcell that the
                    unannounced visits were disruptive. Mr. Purcell told Mr. Mack to
                    coordinate his visits, but Mr. Mack soon stopped them altogether.

                    Another sore spot involved an initiative by Mr. Mack to have brokers
                    offer low-cost online trading. Mr. Higgins successfully appealed to Mr.
                    Purcell to resist the effort; too many brokers, he said, would leave the
                    firm if they implemented the system immediately. Mr. Purcell agreed.

                    But Mr. Mack complained. "How can I manage retail if all these guys go
                    behind my back to you?" he implored of Mr. Purcell, according to a
                    person familiar with the matter. Mr. Purcell threw up his hands, saying
                    he had known Mr. Higgins for years.

                    The deepening turf battles were exacerbated by the very different
                    personal styles of the two top men. Mr. Purcell, who reveled in his
                    reputation as a strategic thinker, complained to others that Mr. Mack
                    had a short attention span. Mr. Mack, meanwhile, moaned that Mr.
                    Purcell couldn't make a decision.

                    Marching Orders

                    While Mr. Mack had been reared in a consensus-driven partnership,
                    where lively debate was encouraged, Mr. Purcell was more authoritarian.
                    "I can tell a bunch of Dean Witter guys to turn left and they'll do it
                    immediately," he once told a colleague. "I say that to the Morgan
                    Stanley guys, and they'll ask why."

                    In the summer of 1998, Mr. Mack, frustrated that his original deal
                    hadn't given him enough broad authority, launched an attempt to have
                    himself named co-CEO. But the idea, which had been tried with mixed
                    success elsewhere on Wall Street, went nowhere. Not even Mr. Mack's
                    chief ally on the board, Mr. Fisher, agreed. Mr. Purcell, who strongly
                    opposed the move, reassured Mr. Mack that he would someday get a
                    chance to run the firm, according to a person familiar with the matter.

                    But that day appeared as if it would never come, at least as far as Mr.
                    Mack was concerned. The explosion of an emerging-market debt fund
                    run by Morgan Stanley money manager Paul Ghaffari in the fall of 1998
                    provided Mr. Purcell with another opportunity to gain power.

                    Hit by the sell-off in emerging markets, Mr. Ghaffari's highly leveraged
                    hedge fund cost Morgan Stanley nearly $300 million in pre-tax losses.
                    Mr. Purcell seized on the losses and pushed to shift the
                    asset-management business away from Mr. Mack and to one of his
                    aides, Mitchell Merin. Two Morgan Stanley executives, Mr. Ghaffari and
                    James Allwin, head of the asset-management unit, resigned.

                    By early 1999, Mr. Mack began consulting friends about his
                    predicament. Mr. Fisher's advice: Hang in there, it's only a matter of
                    time before you get your chance. The battle lines were drawn among
                    top executives, too. At one point, Mr. Purcell approached Peter Karches,
                    Mr. Mack's top aide who oversaw the firm's institutional business,
                    according to someone with knowledge of the exchange.

                    "What can I do to keep John happy?" Mr. Purcell asked, according to
                    this person. Mr. Karches didn't mince words. His response: "Just leave."

                    By the fall of 1999, Mr. Purcell broke the news to Mr. Mack: He was
                    restructuring the company once again, and taking back control of the
                    powerful brokerage unit. Mr. Mack would get the credit-card unit, in
                    addition to the investment banking operations he had been running all
                    along. According to someone familiar with the discussion, Mr. Purcell
                    told Mr. Mack that he was going to be CEO so he needed to run a
                    consumer business.

                    Mr. Mack was dubious. Around then, he went so far as to threaten to
                    quit, alarming some board members. One person familiar with the
                    matter says some influential directors assured Mr. Mack that his time to
                    run the company would come.

                    But the balance of power had shifted against Mr. Mack, as a series of
                    departures from the board allowed Mr. Purcell to nominate new
                    directors. A particular blow came when Mr. Mack's close ally Mr. Fisher
                    left the board, which now stands at eight to three, in favor of the Dean
                    Witter camp.

                    Further humiliations followed. After months of complaints by Morgan
                    Stanley executives, and Mr. Mack himself, Mr. Higgins resigned in June
                    2000 as head of the firm's vast brokerage network. But Mr. Purcell
                    didn't tell Mr. Mack about the move until about an hour before the
                    company made the announcement, according to people with knowledge
                    of the matter.

                    When confronted by an angry Mr. Mack, Mr. Purcell told him he couldn't
                    trust him to keep the news inside the firm, a person familiar with the
                    conversation said. "You fed me!" Mr. Mack boomed, according to this
                    person. "Never refer to me as your partner again."

                    The next shoe to drop came a few weeks later when Mr. Purcell called a
                    meeting to discuss some potential management changes. This time, Mr.
                    Purcell took aim at Mr. Karches, a close friend of Mr. Mack. People with
                    knowledge of the meeting say Mr. Purcell said Mr. Karches didn't have a
                    strong enough plan to deal with the technological changes in the
                    institutional securities business, and that he needed to make
                    management changes to deal with these issues.

                    Mr. Karches was livid. "Phil, this has nothing to do with technology," he
                    barked, according to people with knowledge of the conversation. "If you
                    want to make changes, make changes, but don't insult all of us."

                    Mr. Purcell began talking to board members about removing Mr. Karches
                    from his post. Mr. Mack wasn't consulted on the issue, these people
                    say. In late August, Mr. Karches resigned.

                    By the end of the year Mr. Mack had made up his mind to leave the firm
                    in February 2001, around the four-year anniversary of the merger. In
                    late January, Mr. Mack strode into Mr. Purcell's office and announced he
                    was leaving. According to someone familiar with the meeting, Mr. Purcell
                    did nothing to change his mind and instead urged they work out the
                    details as quickly as possible.

                    Mr. Fisher jumped in. He asked Mr. Purcell not to accept the resignation
                    for the good of the company. Mr. Purcell said he couldn't do that. Then
                    Mr. Fisher asked for permission to address the board personally. Mr.
                    Purcell came back with more bad news. The board, he told Mr. Fisher,
                    doesn't want to hear from him.

                    On January 24, when Morgan Stanley formally announced Mr. Mack's
                    resignation, some long-time staffers were stunned. Mr. Purcell had now
                    won complete control of the firm. All core securities operations,
                    including the firm's institutional stock and bond business, would report
                    directly to him.

                    As for Mr. Mack, he gave a short speech to the firm's staff in New York.
                    After receiving a standing ovation, he was gone.

                    -- Randall Smith in New York contributed to this article.

                    Write to Charles Gasparino at charles.gasparino@wsj.com and Anita
                    Raghavan at anita.raghavan@wsj.com