The 64-year-old is resigning his position at the end of this year but will stay with the company as chairman of the board.Before quitting active management, however, he chose to tell a Wharton Business School forum audience of the harrowing days last September, right after Lehman Brothers went bankrupt, when all eyes were on Morgan Stanley to go down next. He came under enormous pressure from federal regulators to sell the investment bank or find a partner.
Even though Mack entered the week with $181 billion in cash, ready for a run on the bank, by the following Sunday the financial officer informed him that they would run out of money in three days. The Treasury secretary and New York Fed boss kept phoning, phoning, pushing him to sell the bank to JPMorgan, a distress sale to save the financial system, but he told them he'd rather take the bank down than sell it for $1. Then at the last minute, he got a deal with Japanese investment bank Mitsubishi to pump over $8 billion into Morgan Stanley, thus saving the bank to live and prosper, including all its 45,000 employees.
“When you take on a job, and it doesn't have to be one of these big jobs, you have a responsibility to do what you think is right and stand up sometimes when the odds are against you and people are pushing you,” said Mack. “Stand up for what you believe in, do what you think is right, be prepared to pay the consequences, but don't be pushed around when you know in your heart of hearts it's the wrong thing to do.”
Of course it's not easy to make a hero out of an investment banker these days, but this is not about heroics. This is about taking common sense business lessons from near-death experiences. Learning from John Mack's tough times at the helm of Morgan Stanley doesn't mean absolving the bank from being part of the problem. It does, however, offer an amazing look into that surreal point when time narrows from 30-year bonds to right now, today, before the market opens tomorrow morning.
John Thain, former CEO of Merrill Lynch, was pilloried last January for redecorating his office in lavish style shortly after he had sold the brokerage firm to Bank of America. People complained that Thain had spent more than $1,000 for a wastebasket when the global financial system had barely escaped a threat of meltdown.
Yet Thain, too, made a good defense of his actions in another Wharton forum just a couple weeks before Mack's appearance. He said that while in hindsight he probably wouldn't have redecorated his office, he reminded his listeners that in the world of high finance, you're supposed to look and act rich, that top-flight offices are generally very plush. But what he really defended was his sale of the brokerage firm to Bank of America for $50 billion. He said he did the best he could for his employees and shareholders, and looking back one has to agree with him. Regulators and BofA stockholders today are combing through the sales process, looking for smoking guns, but the brokerage firm is a solid asset for the bank and is contributing to profits.
Thain lamented that the American dream of advancing by merit had been demonized, told how he had arrived in New York knowing no one, how he had advanced up the executive ranks based on how well he worked. In the end, when his new job was crumbling around him, he acted in the best interests of the shareholders and workers, no matter what would become of his own career.
Put aside the controversy over executive pay, forget that Thain earned tens of millions from a job he only had for nine months and ask yourself a simple question. In your heart of hearts, did he do the right thing? I would say, yes, he did.
