John J. Mack

Chief Executive Officer of Morgan Stanley

Born November 17, 1944, in Mooresville, NC; son of Charles (a wholesale grocery business owner) and Alice Azouri Mack; married Christy Rose; children: John, Stephen, Jenna. Education: Duke University, B.A., 1968.

Addresses: Office—Morgan Stanley, 1585 Broadway, New York, NY 10036.

Career

Worked for two brokerage firms, including one in North Carolina and Smith Barney, before joining Morgan Stanley, New York, NY; began career at Morgan Stanley in sales in the fixed-income division, 1972; became managing director, 1979; named head of taxable fixed-income division, 1985-92, then chairman of operations committee, 1992-93, president, 1993-97; after merger with Dean Witter, Discover & Company, was president and chief operating officer of Morgan Stanley Dean Witter, 1997-2001; resigned from newly re-christened Morgan Stanley, 2001; joined Credit Suisse First Boston as chief executive officer, and Credit Suisse Group as vice chairman, 2001; promoted to co-chief executive officer of Credit Suisse Group, 2002; left Credit Suisse Group, 2004; served as chairman of Pequot Capital, a hedge fund, 2004-05; returned to Morgan Stanley as chief executive officer and chairman of the board, 2005.

Sidelights

Several years after leading Morgan Stanley as president and chief operating officer and being forced out in a power struggle, John J. Mack was hired as its chief executive officer and chairman of the board. Mack had worked his way to the top of Morgan Stanley from a sales position. After leaving the company, Mack held executive positions at Credit Suisse before being asked to return to Morgan Stanley. In a New York Times article, David Barboza wrote of Mack, "He is a dynamic, decisive leader, a manager who clearly knows where he wants to go, and insists on action and on executing orders—a style that once earned him the nickname 'Mack the Knife.'"

Mack was born and raised in Mooresville, North Carolina, with his five older brothers. His father, Charles, was of Lebanese descent and ran his own wholesale grocery business. Football was a passion of young Mack's life. His success on the gridiron led to a football scholarship at Duke University, where he played line backer. Mack already had good business sense, selling snacks to fellow students out of his own dorm room store. He graduated from Duke University in 1968 with B.A. in history.

After graduation, Mack immediately began working with brokerage firms. His first job was for a small company in North Carolina, before joining Smith Barney. Mack was hired at Morgan Stanley in 1972, working as a salesman in the fixed-income division. Seven years later, he was named managing director of that division. In 1985, Mack became the head of the taxable fixed-income division, which included bonds. He spent the next seven years in that position, where he developed a reputation as a harsh cost cutter. Mack faced a tough challenge in 1992 when a number of bond traders left the company together and became employed by a competitor. He rallied those traders who remained with Morgan Stanley.

In 1992, Mack moved on to a new department, serving as the chairman of the operations committee. In this position, he was in charge of coordinating the daily affairs of certain parts of the company. His goal was to better coordinate communications between clients and various divisions in the company as Morgan Stanley continued to expand globally. In this position, Mack also had other responsibilities, including some management of personnel, controlling of expenses, and coordinating of operations. In the spring of 1993, he was named president of the Morgan Stanley Group and put in charge of the Investment Banking Division.

When retail brokerage firm Dean Witter, Discover & Company, bought Morgan Stanley for $10 billion, Mack took on new challenges in the newly merged company, now known as Morgan Stanley Dean Witter. Mack was already being groomed to become chief executive officer of Morgan Stanley before the merger took place. After the merger, Mack was named president and chief operating officer and did well. However, he still wanted the top job at Morgan Stanley Dean Witter. This desire eventually resulted in a power struggle with the company's chief executive officer and board chairman, Philip J. Purcell, who had been the head of Dean Witter before the merger. Purcell retained the control and had no plans to retire, though Mack's divisions did exceptionally well in producing a vast majority of the firm's revenues by 2001.

Mack could not convince the board of Morgan Stanley Dean Witter to change their mind. The power struggle came to an end when Mack suddenly left the company, by then again known as Morgan Stanley, early in 2001. During the few months Mack was unemployed, he played golf daily and went through some difficult times. However, Mack soon found a new job. He was hired as chief executive officer of Credit Suisse First Boston (CSFB), a troubled investment banking firm. At the same time, he was named vice chairman of its parent company, the Credit Suisse Group. Like Morgan Stanley, Credit Suisse First Boston was the product of a recent merger of parts of Credit Suisse Group, a large Swiss bank, and First Boston, another banking firm. The merger was not gelling and there had recently been a scandal involving the man Mack replaced, Allen D. Wheat, concerning First Boston stock sales and initial public offerings in the late 1990s.

When Mack was hired, some observers were unsure about Mack's leadership because he had never run a whole company before and faced many difficult management issues at CSFB. He ran half of the newly reorganized company, and was in charge of investment banking, trading, and asset managements. (The other half was the financial services unit.) Critics were also concerned that while Mack served as CEO of Credit Suisse First Boston, he had to retain several million shares of Morgan Stanley stock worth hundreds of millions of dollars. Mack was one of the largest shareholders of Morgan Stanley because he was restricted from selling his shares. Credit Suisse First Boston was a major competitor of Morgan Stanley.

At CSFB, Mack wanted to improve morale among employees, increase teamwork, make it the largest investment bank in the world, and re-define the company's vision as well as reduce costs. Within a year, Mack reorganized and reduced the size of the company and convinced key employees to restructure their pay arrangement to be more in line with other Wall Street companies so CSFB could grow again. He also dealt with looming legal issues from the previous regime by agreeing to pay hefty fines to settle charges related to problematic stock sales. Mack made another deal over charges that CSFB tried to run the Treasury bond market. He paid out a total of $130 million in fines, but did not admit to any wrongdoing on the part of CSFB, and avoided fraud charges. Mack emphasized the importance of acting ethically on every level, an ongoing problem at the company. He was able to quickly return CSFB to profitability, primarily through cost-cutting.

In the fall of 2002, Mack was named the co-chief executive officer of the Credit Suisse Group, with Oswald J. Grubel, who led the financial services unit of the company. They replaced Lukas Muhlemann, the CEO of Credit Suisse Group. While assuming additional duties, Mack remained in charge of CSFB and hoped to better integrate it into the Credit Suisse Group. He continued to face new CSFB-related legal problems with federal regulators. The government believed that the company's analysts had given out misinformation to land investment banking deals. Some CSFB bankers were also believed to use initial public offering shares to gain the attention of clients. Mack was not happy about the new charges as he believed that firms should be ethical, well-managed, and take care of clients before making money. He continued to overhaul CSFB in this area by establishing a strict code of conduct and company procedures for dealing with clients. Legal challenges continued in 2003 when one of CSFB's leading bankers in the 1990s, Frank P. Quattrone, was arrested. Quattrone had been a significant part of many of the previous federal investigations into CSFB's practices.

Though CSFB had earnings of $1.7 billion in 2003, after losing $1.3 billion in 2002, and continued to post profits in 2004, the company's legal problems seemed never ending. CSFB had to pay more fines to the U.S. government. Moreover, Mack had to spent less time with CSFB and more time with the parent company, Credit Suisse, at its headquarters in Zurich, Switzerland. Mack's presence was needed at Credit Suisse to develop strategies to deal with a number of complex issues in the company. There was also talk that Credit Suisse as a whole might be for sale since the company still faced money problems. Mack believed the best way to improve Credit Suisse and take it to the next level was by merger, but the Credit Suisse board members did not want to take this route. Mack was also under pressure to move to Zurich, a move he did not want to make. Early in the summer of 2004, Mack decided not to renew his contract with the company, which expired in July of 2004.

Mack soon joined a smaller hedge fund, Pequot Capital, as chief executive officer. As Mack was getting settled in his new job, Morgan Stanley was struggling financially and in the market for a new CEO. Though Morgan Stanley's board was initially reluctant to even consider asking Mack back and even publicly stated at one point that he was not a candidate, speculation spread inside and outside the company that Mack was to be named CEO. Mack was offered the job, succeeding Purcell, the man he tried to replace in 2001. Purcell had been forced out by an internal revolt of traders and bankers. Mack was seen as someone who understood the company's problems and it was believed that he could bring the firm together better than anyone else. Many directors wanted Mack, but he wanted to make sure the board was composed of members that supported him, since all but one had been selected by Purcell. However, even some of these members supported Mack's return. Mack and Morgan Stanley finally came to an agreement in June of 2005, with Mack signing a five-year contract paying him about $25 million per year, at least for the first 18 months.

Mack again faced many challenges as the new Morgan Stanley CEO. He wanted certain executives who had left after a shakeup several months earlier to return. This move meant that some current executives would leave or, at the very least, be antagonized. Mack also had to deal with morale problems, dropping stock prices, and profits that were not expected to be strong in the short term. In addition, he had to answer strategic questions, including what to do with the credit card unit (the company owned the Discover Card) and retail brokerage units, which were not making as much money as the rest of the company. And, as at CSFB, he faced a few regulatory questions because of a lack of certain documentations. Morgan Stanley was also ordered to pay out millions in damages to a financier because of a lawsuit.

When Mack took over Morgan Stanley, many top executives stepped down, but he was able to bring aboard significant personnel. Mack's first big hire was an outsider, James P. Gorman, to head the individual investor group. Observers believed that this hire showed Mack was committed to turning the company around. Mack also looked to acquire a hedge fund and put the right people in place to ensure Morgan Stanley returned to profitability and a leading position in the marketplace.

Though Mack was known for his toughness and being physically imposing, he also had a reputation for being an executive who was compassionate and cared deeply about his employees. Many noted his ability to listen and relate to others. Describing this aspect of his professional personality, Barboza in the New York Times called Mack "a dedicated, passionate leader who insists on accountability and loathes incompetence."

Sources

Books

Standard & Poor's Register of Directors and Executives, McGraw-Hill, 2006.

Periodicals

BusinessWeek, February 12, 2001, p. 84; July 30, 2001, p. 76; September 23, 2002, p. 90.

BusinessWeek Online, June 25, 2004.

Business Wire, January 24, 2001.

New York Times, March 3, 1993, p. D4; February 6, 1997, p. D7; July 13, 2001, p. C1; January 27, 2002, sec. 3, p. 1; September 20, 2002, p. W1; April 25, 2003, p. C1; June 23, 2005, p. C1; June 28, 2005, p. C1; June 30, 2005, p. A1; July 1, 2005, p. C1, p. C8; July 6, 2005, p. C1; August 17, 2005, p. C1; November 24, 2005, p. C1; January 12, 2006, p. C1; January 21, 2006, p. C1.

—A.Petruso