Deals & People May 19, 2023

Morgan Stanley CEO James Gorman To Step Down Within 12 Months

The CEO oversaw Morgan Stanley’s push into the wealth management space.

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Morgan Stanley’s James Gorman plans to step down in the next 12 months, the CEO and chairman said at the investment firm’s annual shareholder conference Friday.

“The specific timing of the CEO transition has not been determined, but it is the board and my expectation that it will take place in the next 12 months,” he said. “That is the current expectation in the absence of major change in the external environment.”

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Gorman was named CEO of Morgan Stanley in 2010, replacing John Mack, who had steered the firm through the financial crisis. Gorman told shareholders that Morgan Stanley’s board had identified three potential successors, but did not name them.

Gorman, 64, oversaw a push by the New York-based investment bank into wealth management and investment advice, with the investment management division staffed with 1,300 financial professionals overseeing $1.4 trillion in assets under management as of March 31.

Gorman’s push into retail investment management included the acquisition of E*Trade Financial Corp. in February of 2020, at which time the CEO said the deal would make the firm a top player across financial advisory, self-directed investing, and workplace savings. He noted the acquisition would continue “the decade-long transition of our firm to a more balance sheet light business mix, emphasizing more durable sources of revenue,” Gorman said in a statement at the time.

In October of that same year, Morgan Stanley bought wealth manager Eaton Vance Corp., bringing on $500 billion in AUM, as well as the firm’s capabilities in individual separate accounts and customized investment solutions.

“Eaton Vance is a perfect fit for Morgan Stanley,” Gorman said in a statement at the time. “This transaction further advances our strategic transformation by continuing to add more fee-based revenues to complement our world-class investment banking and institutional securities franchise.”

Wealth-Focused Career

Gorman took the CEO role after being co-president of Morgan Stanley and overseeing the firm’s global wealth management business, investment management business and operations and technology group. Gorman joined Morgan Stanley in February 2006 as president and chief operating officer of the global wealth management group.

Prior to joining Morgan Stanley, Gorman led the global private client business for the then investment firm Merrill Lynch, which is now owned by Bank of America Corp.

Gorman is a native of Australia with an M.B.A. from Columbia University.

Retirement Footprint

Morgan Stanley’s Graystone Consulting, which provides retirement plan advisement to plan sponsors, named a new head in 2020 from the wealth management space. The workplace retirement advisory named Jeremiah France, formerly chief operating officer of U.S. Wealth at Mercer Global Investments, to be managing director and head of the division.

The firm’s workplace benefits and investing division, Morgan Stanley at Work, late last year added 401(k) retirement saver robo-adviser technology when it purchased the technology of Blooom, a Leawood, Kansas-based startup. Morgan Stanley also brought on some of Blooom’s leadership, according to statements it made at the time, without providing details of the deal.

“To help bolster our retirement offering, we can confirm we bought components of Blooom’s technology in an asset purchase, while onboarding the Blooom team,” the spokesperson said in an emailed response.

Compliance May 18, 2023

SEC’s New Stock Buyback Rules Come Under Legal Challenge

The Chamber of Commerce has sued the SEC in the 5th Circuit and seeks a review of a new SEC final rule which requires disclosures related to stock buybacks.

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The Chamber of Commerce of the United States of America filed a legal challenge on Tuesday against the Securities and Exchange Commission’s final rule on stock buyback disclosure. The rule was finalized on May 3.

The business advocacy group’s petition for review was received by the U.S. Court of Appeals for the 5th Circuit on May 12. The Longview (Texas) Chamber of Commerce and the Texas Association of Business are also listed as petitioners, allowing the claim to be filed in the 5th Circuit, which includes Louisiana, Mississippi and Texas.

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The Chamber of Commerce’s press release stated that buybacks help distribute capital efficiently and increase returns for investors. In the Chamber of Commerce’s view, the SEC’s final rule would air sensitive managerial decisions and amounts to government micromanagement. The Chamber of Commerce also expressed skepticism that the SEC is trying to protect investors with the rule and accused the regulator of trying to reduce the frequency of buybacks by creating additional disclosure rules. The petition for review asks the 5th Circuit to review the rule without providing any specific points of contention.

A 2002 D.C. Circuit decision in Sierra Club v. EPA held that petitioners “must either identify … evidence sufficient to support its standing to seek review or … submit additional evidence to the court of appeals.”

The SEC’s final rule requires stock issuers to disclose daily share repurchasing data in their quarterly or semi-annual reports and adds Item 408(d) to forms 10-Q and 10-K for this purpose. Issuers will have to disclose the day(s) the shares were bought back, the number purchased and the average price at which they repurchased the shares. They must also disclose the objective or rationales for the buybacks and the criteria used to determine the size of the buyback.

Lastly, issuers will have to disclose policies related to transactions in the issuer’s securities during the repurchase program by its directors; if executives traded within four days of announcing the buyback; if the buyback was done for purposes related to a 10b5 plan; and the creation or termination of any 10b5 plans from their directors and executives.

A 10b5 plan is a trading plan which allows insiders, such as executives, to schedule trades in their company’s stock under pre-defined parameters. The plan is not mandatory but can be used as an affirmative defense against insider trading. The SEC finalized a rule in December 2022 which requires a “cooling off” period of three months before an insider could trade on those plans to prevent them from creating a 10b5 and trading the next day.

Though SEC Chairman Gary Gensler did not mention insider trading in his statement accompanying the announcement of the final rule, it appears to have informed his decision to finalize the stock buyback rule. He explained that the rule would reduce “information asymmetries” between a company engaging in a buyback, which is highly knowledgeable of its own business, and investors who might not be. The SEC also packaged 10b5 plan and executive trading disclosure along with stock buyback disclosure into the same rule.

Stock buybacks are one way to return value to investors. They have a lesser tax liability than paying dividends and can increase share prices. The practice has drawn criticism from Democrats. President Joe Biden identified it as a policy priority in February’s State of the Union address and proposed increasing the stock buyback tax to 4% from 1%, and legislation proposed in February by Senators Sherrod Brown and Ron Wyden, D-Ohio and D-Oregon, respectively, would do just that.

Research from asset manager Janus Henderson found that in 2022 share buybacks hit a record level of $1.3 trillion worldwide.

The huge wave of buybacks “is not a one-year phenomenon,” the Janus report stated. Buybacks have almost tripled in value since 2012, up 182%, besting the 54% growth in dividends during the same period.

The SEC rule passed by a 3 to 2 vote. SEC Commissioner Mark Uyeda said the rule was unfair to foreign issuers who otherwise would make these disclosures in accordance with the requirements of their home jurisdictions, but this rule applies to them as well. Uyeda explained: “This change fundamentally upends the Commission’s long-standing and bipartisan approach of largely deferring to the disclosures made by FPIs pursuant to their home country reporting requirements.”

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