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Taking a more aggressive stance toward Morgan Stanley’s 13-person board of directors, a group of eight dissident retired executives sent the board an open letter, dated Monday, April 11, with 14 questions about its corporate governance practices and other issues. Meanwhile, as the Council of Institutional Investors held its spring conference in Washington, the chief investment officer of powerful California pension fund, the California Public Employees’ Retirement System, said the fund giant will push for a meeting with Morgan Stanley’s board. “We think the situation at Morgan Stanley is a problem, and a few institutional investors with the Council are mobilizing to meet with Morgan Stanley,” a CalPERS spokesman said. The major institutional and mutual fund holders of Morgan Stanley’s shares are members of the Council of Institutional Investors, including Barclays Bank, J.P. Morgan Fleming Asset Management, Fidelity Investments and State Street Corp. If enough institutional investors holding Morgan Stanley stock speak up, they would have the power to force the board to call a special meeting of shareholders. Such a meeting is the only avenue the G-8 would have to achieve their primary goal, the ouster of chief executive Philip Purcell. Until then, the G-8 will have to continue a publicity campaign to gather enough momentum to force a shareholder vote. Monday’s letter seems designed to push aggressively for a meeting with the firm’s board, which has so far ignored the G-8, or at least declined to communicate directly with it, the letter indicates. A Morgan Stanley spokesman dismissed the new letter as “a rehash of the issues this group has been airing for the past three weeks.” The G-8 previously published two letters — on March 31 and April 4 — to the Morgan Stanley board by taking out ads in The Wall Street Journal. Later, the G-8 appeared on CNBC to present one of its members, former Morgan Stanley president Robert Scott, as an alternative to the embattled Purcell. While the previous letters seemed to focus on Morgan Stanley’s financial performance as a reason for ousting Purcell, Monday’s letter focuses on the board’s behavior in corporate governance issues. Those include Morgan Stanley’s alleged slowness in staggering the terms of directors — an initiative already approved by shareholders — and the board’s alacrity in naming three directors in December 2004 and April 2005 without a shareholder vote. The two directors named in April were new co-presidents Zoe Cruz and Stephen Crawford. Monday’s letter also directly asks the board about some moves that have been rumored in the press, such as the speculation that Morgan Stanley paid out lofty retention bonuses to some executives to get them to stay; the suggestion that the departures of president Stephan Newhouse, president of institutional securities Vikram Pandit and chief deputy John P. Havens were not voluntary; the mechanics of the board’s sudden reversal on the fate of soon-to-be-spun off Discover Financial Services; and an April 9 story in The Wall Street Journal that said Morgan Stanley could have settled litigation with Sunbeam Corp. for $20 million in 2003. Morgan Stanley is now in court in West Palm Beach, Fla., over the Sunbeam matter, in which plaintiff Ron Perelman is seeking about $2.6 billion in damages. Monday’s letter also asks several regulatory questions, including why the firm did not previously disclose a Wells Notice it received from the Securities and Exchange Commission in January about its potential failure to retain e-mails. The letter also asks the directors whether the board has investigated allegations that Morgan Stanley’s relationships with its regulators, including the SEC and NASD, have deteriorated. The letter’s closing indicates that the G-8 dug up the questions by talking to Morgan Stanley’s “constituency” over recent days and weeks. That may refer to the G-8′s recent road show with Morgan Stanley’s institutional investors in Boston and New York. Morgan Stanley’s stock closed at $54.34 on Monday, down 2.4 percent from the previous close of $55.67 Copyright �2005 TDD, LLC. All rights reserved.

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