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The senior partner of New York’s Shearman & Sterling is leaving the firm to become vice chairman of embattled investment banking giant Morgan Stanley & Co. David W. Heleniak, the head of Shearman since 2001, will have a broad role within Morgan Stanley’s senior management in areas of policy, governmental relations and regulatory and legal affairs. General counsel Donald G. Kempf will report to Heleniak, 59, who will himself report directly to Chairman and Chief Executive Officer Philip J. Purcell. Heleniak will also serve on Morgan Stanley’s management committee. John Madden, co-managing partner at Shearman, will replace Heleniak as senior partner on an interim basis, with an election for a permanent replacement to follow. A top mergers and acquisitions lawyer, Heleniak is a veteran of several massive deals in which he frequently worked with Morgan Stanley bankers. But his move comes as the bank faces considerable internal turmoil. A group of former top executives at the bank has called for Purcell’s resignation, charging that his mismanagement has made the bank less competitive with rivals like Goldman Sachs & Co. Such complaints will not be completely unfamiliar to Heleniak, whose tenure at Shearman also has seen its share of controversy and internal dissent. In a statement announcing the move Wednesday, Purcell stressed the long working relationship between the bank and the 1,000-lawyer firm. “It seems a natural evolution of our strong, longstanding relationship with Shearman & Sterling that one of their leaders should become one of ours,” Purcell said in the statement. In a separate statement, Heleniak said: “I am thankful to have been a part of [Shearman] for 31 years and look forward to an ongoing relationship in my new role at Morgan Stanley.” Heleniak held a number of senior positions at the firm, including heading or co-heading the New York mergers and acquisitions group from 1987 to 1995. He took the helm as senior partner, the firm’s top spot, in 2001 after his predecessor, Steven Volk, left to become vice chairman of Credit Suisse First Boston. Heleniak took over as the firm faced a precipitous drop in profits due to the decline in mergers and acquisitions and capital markets activity at the time. Shearman was hit harder than many of its rivals both because of its commitment to overseas expansion and because it lacked a strong litigation practice to counter the downturn in major transactions. In October 2001, the firm laid off large numbers of associates, making it one of the most visible symbols of the weakening legal economy. Since then, its profitability has not recovered as robustly as that of other top New York firms. The firm’s profits per partner in 2000 of $1.35 million placed it close behind firms like Sullivan & Cromwell and ahead of rivals like Debevoise & Plimpton and Paul, Weiss, Rifkind, Wharton & Garrison. But Shearman’s profits per partner dropped to $950,000 the next year and have only recently recovered to their 2000 level. Meanwhile other New York firms have soared near or above the $2 million mark. Heleniak has made efforts to boost Shearman’s litigation practice but the firm’s relative underperformance has fed some discontent. Earlier this year, an anonymous memo circulated among the partnership calling for Heleniak’s resignation. But a former partner at the firm said that, while there was dissatisfaction with the firm’s direction, the memo, which called for more associate layoffs to raise partner profits, did not represent widespread sentiment. The movement against Purcell has been considerably more vocal at Morgan Stanley, a publicly traded company. Many shareholders, angered by the stock’s poor performance and concerned about a series of high-profile defections among investment bankers, have backed Purcell’s critics and had hoped a board meeting last weekend would end with his dismissal as CEO. Shares tumbled Monday on the news that the company opted to keep Purcell. Formerly the CEO of Dean Witter & Co., Purcell became head of Morgan Stanley when the retail brokerage and blue-chip investment bank merged in 1997. Many observers have pointed to a culture clash between the bankers and the brokers that culminated in the 2001 ouster from the firm of John Mack, the CEO of Morgan Stanley before the merger. Heleniak’s predecessor at Shearman has been closely allied with Mack, who became CEO of CSFB after leaving Morgan Stanley. Volk left CSFB, where he rose to be chairman, after Mack was forced out last June. Volk is now vice chairman of Citigroup.

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