Risk Management: Corner Office in a Brave New World

James Gorman still has more than three months before he takes the reinsat Morgan Stanley – just shy of an eternity in today’s world and certainly one on Wall Street – but already financial markets are placing a value on his leadership, and those inside and outside are betting on whether he will be able to help this bruised organization.

Investors gently signaled that they liked the way Morgan Stanley is handling its transition in leadership by modestly bidding up shares. There was good transparency, with lead director Robert Kidder explaining that outgoing CEO John Mack told the board 18 months ago he wanted to step back from the CEO role when he turns 65 in November.

But that’s just the first step.

James Gorman
James Gorman

To succeed from here, Mr. Gorman will have to create a new narrative for Morgan Stanley before one is written for him in the marketplace.

He has to retain, motivate and energize his top performers, help able employees realize their potential and be candid with weaker performers.

He must communicate a strategic vision that is credible – for example, defining the organization’s balance between its investment banking and its retail brokerage operations.

Saying that new CEOs don’t get much of a honeymoon these days is a titanic understatement.

Before Mr. Gorman even hinted at a strategic direction or made a first decision, every past memo or speech, every past decision or omission, is parsed, analyzed and commented upon by legions of industry experts, journalists and employees. His actions from previous engagements will be thoroughly pawed through.

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What that means, ironically, is that the person ultimately responsible for his organization’s risk management plan can create a whole new set of risk factors. If Mr. Gorman falters in his ability to communicate his leadership vision, or if he is perceived to lack credibility, or if his message to one critical group of stakeholders is in conflict with the interests of another group, then Morgan Stanley has created a new set of liabilities. Welcome to the corner office of the brave new world.

In the modern era of 24/7 scrutiny, the risk management element of CEO selection begins with the search committee. Soft skills like communication that CEO search committees once viewed as a nice-to-have are now essential. One needs to look no further than a motivational communicator like Ronald Reagan or an articulate and energized one like Barack Obama to underscore the value.

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So far, Mr. Gorman has been given strong marks by some at Morgan Stanley for opening communication lines. He also has been given credit by some for what he did in the past at Merrill Lynch, where he doubled profit margins and raised broker productivity. But at Merrill, he took a strong team and made it better. At Morgan Stanley, most of the staff needs a boost and the company lags behind its competition in assets under management and profit margins.

He has promised not to “Merrillize” Morgan Stanley, so as optimistic as some top performers at Morgan Stanley might be, they really don’t know where he’ll take the organization. Still three months before taking over the top job, he has a relatively clean slate. But it won’t stay that way for long.

From a communication point of view, there is no investment a company makes with as much potential downside or upside as hiring a new CEO. In some cases, it’s a bet-the-company gamble. And in today’s world, the repercussions of that decision can be felt immediately. Most of all, the new CEO needs to know that he or she is the primary conduit between the inside of the organization and the outside of the organization. The whole world is watching and everything is at stake.

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Ray Kotcher is the CEO of Ketchum Public Relations, one of the world's largest global public relations agencies and a unit of Omnicom Group Inc.