Cruz missile ditched at Morgan Stanley

December 4, 2007

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Zoe Cruz of Morgan Stanley is the latest high-profile financial leader to depart in the wake of the sub-prime turbulence. The current bloodletting increasingly appears to be more symbolic than rational

According to Forbes

Zoe Cruz was promoted to acting president in 2005, after a glittering career in the company she had joined twenty years earlier. Her promotion occured at a time of considerable board-room battles.

She was regarded as a supporter of Philip Purcell who controversially replaced President Stephan Newhouse and appointed Zoe Cruz and Stephen S. Crawford as Co-Presidents. Several senior figures left the organization at the time, presumably caught up in the in-fighting. Subsequently Crawford also left, and Cruz became the sole ‘acting’ president.

Capella University’s useful executive remuneration site reports that her compensation package amounts to $17 million, hardly big potatoes in these times for someone whose bonuses had pushed past $7 million a year in the recent past.

Financial correspondent Tom Bawden suggested that

The departure from Morgan Stanley of Zoe Cruz, Wall Street’s highest-paid female executive, has heightened fears that the firm is poised to unveil further mortgage-related writedowns. Her exit comes just three weeks after John Mack, the bank’s chief executive, is thought to have reiterated that she was his favoured successor. However, Ms Cruz, 52, was responsible for the division which made the loss-making mortgage investments and appears to have been sacrificed as the latest high-profile Wall Street victim of the credit crisis.

According to the report, the epithet Cruz missile is a reference to her combative business style. However, Mack had publically acknowledged her significant role in the company’s success over recent years.

Her departure has resulted in speculation that the dismissals have also created opportunities for the pool of available and talented executives such as Cruz. Mention has been made of Citygroup.

The BBC quotes a senior financial analyst, David Easthope

“The captains are going down with the ship. Whether they are rising stars or not doesn’t matter. The losses are so large and embarrassing to the organization that they are getting rid of people to satisfy the public perception that they are fixing things.”

Echoes here of tipping point theory of change.

The theory of tipping points, which has its roots in epidemiology, hinges on the insight that in any organization, fundamental changes can occur quickly when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea.

leadership questions

Can we learn more about the nature of leadership as a symbolic process through study of the well-documented demise of high profile leaders?

Might the case anecdotes also permit an evaluation of the nature of tipping points within periods of change?


Bonfire of the vanities: Let’s burn another leader

November 7, 2007

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The much-anticipated news of the departure of Chuck Prince at Citigroup broke on the eve of Guy Fawkes Day [November the 5th]. In England, it’s the day when Guy Fawkes is burned in effigy on bonfires around the land. It seems to be a time around the world when leaders are sacrificed as punishment for their misdeeds. Is this any more than a modern version of the old symbolic way of placing all guilt on a scapegoat?

In the space of a few weeks we have had the cases of Sam O’ Neal of Merill Lynch, and then Charles Prince of Citigroup.

The board of Citigroup paid tribute to Mr Prince, with Alain Belda saying: “We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders.”

In days of yore, the priestly caste prepared the leader for the ceremony of ultimate sacrifice. The leader was treated with the greatest of respect, dressed in sumptuous garments, and then dispatched with honor, thus appeasing the Gods, and saving the rest of the tribe from divine wrath.

It’s all different today, isn’t it? Or is it?

According to The Washington Post the departing leader made the following statement:

“It is my judgment that given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as Chief Executive Officer is to step down,”

He had to go, didn’t he?

The much-anticipated news of the departure of Chuck Prince broke on the eve of Guy Fawkes Day. The question was raised by the interviewer in first discussion I heard on the topic. He had to go, didn’t he? Of course, re-assured the financial expert. Citygroup has such massive losses. It has seriously under-performed. He had to go.

Citigroup has installed former Treasury secretary Robert Rubin as chairman after the widely anticipated resignation of Charles Prince, the embattled chairman and chief executive who faced mounting criticism in the wake of a $6.5 billion write-down for the third quarter. After an emergency board meeting Sunday, Citigroup, citing significant declines in the value of subprime-related securities in the past month, estimated that it would take additional write-downs of $8 billion to $11 billion. Yes, he had to go.

There are echoes in the Western understanding of the Japanese phenomenon of hara-kiri now identified in business life.

To survive the competitive business world, many Japanese companies have now embarked upon restructuring. It is those middle-age men, who contributed to the economic success of Japan since the Second World War, who are now, ironically, the target for restructuring. They have devoted almost all of their lives and often sacrificed their own family life for their companies. People have had the aisha-seisin (a deep spiritual attachment to their own company) exactly akin to that held by the samurai for the oie. The man who commited hara-kiri had trusted the company and believed that the company would not abandon the business warriors. He killed himself when he felt betrayed by the company.

But was this the same kind of ritualistic act that characterized the behavior of a discredited Japanese leader who accepted suicide, as atonement of his disgrace? Or was it more the consequence of the economic realities of modern organizations?

In our recent Western examples, the leaders are hardly treated with dishonor if we judge only the scale of remuneration involved, if the leader had failed in a contractual way. However, even within a strictly rational economic explanation, it is not difficult to see how contractually, a leader of a large organization would have negotiated a lucrative n exit, even if his performance had failed to meet targetrs and expectations.

We should look a little more deeply. It seems that Citigroup wants to reassure markets that it has no intention of changing its business model. That suggests we are operating more on the ancient symbolic model. An honorable resignation, with those sumptuous trappings to the departing leader, protects the others from disaster, and ‘rescues’ the rest of the tribe.

The real test will be whether the departure of the leader produces necessary structural changes, or seeks to avoid them.


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