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Foes keep heat on Morgan chairman

CEO survives vote of board, but path to ouster is eased

NEW YORK -- Investors hoping for big changes at Morgan Stanley made their disappointment known yesterday, sending the Wall Street firm's shares sharply lower two days after embattled chairman and chief executive Philip Purcell survived an emergency board meeting with his job intact.

The board also decided to make it easier to remove Purcell in the future -- now requiring a simple majority vote rather than the three-quarters vote previously needed -- but otherwise said no changes in management or in the company's structure were necessary.

That left Purcell secure in both his positions, at least in the short term, but left him with the same issues as before Saturday's board meeting. Investors are still disappointed in Morgan Stanley's lagging stock price, Wall Street analysts covering the company remain unimpressed with the lack of a strategic vision from the company, and the group of eight dissident shareholders and former executives pushing for Purcell's ouster have promised to continue their fight.

''This didn't fix any of the problems out there for Morgan Stanley," said Richard Bove, an analyst for Punk, Ziegel & Co. ''In essence, what they've done is created a situation that means a long, protracted fight for the company."

The dissident group said yesterday that the board's action failed to address any of the problems they have complained about in more than a month of public lobbying. The Council of Institutional Investors, a leading group of national and state pension funds with extensive Morgan Stanley stock holdings, asked for a meeting with both the dissidents and the company.

However, no major shareholder has come out in favor of the dissidents' call to replace Purcell with former Morgan Stanley executive Robert Scott. A source close to the group, speaking on condition of anonymity, said the dissidents would redouble their efforts to force a proxy battle; they hope to garner enough votes to defeat the board at the next annual meeting, install a competing slate of directors, and fire Purcell.

But that gives Purcell plenty of time, since the company held its 2005 annual meeting in March. If he can improve the company's earnings performance by early next year, that would show he has a plan for the company to lift its stock price.

Shareholders are the ones the company must satisfy to halt the dissidents' effort. As rumors of the emergency board meeting spread Friday afternoon, investors bid up Morgan Stanley shares, hoping the meeting signaled Purcell's departure or that it could lead to a possible sale to another, larger financial corporation.

Shares of Morgan Stanley dropped 6.1 percent yesterday. The stock was pressured by downgrades of the brokerage sector by two Wall Street research analysts, but Morgan Stanley led its peers in losses.

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