From under the radar into thin air

Easygoing Charles Johnston does not have the celebrity star power of the executives who run the other brokerage houses on Wall Street. But the president and chief operating officer of Morgan Stanley Smith Barney LLC will find himself in the spotlight if he pulls off a smooth merger betweenMorgan Stanley's and Smith Barney's operations and cultures while keeping morale up and attrition down. That Mr. Johnston, 56, a 29-year veteran broker, comes from the Smith Barney side only further complicates that task. Smith Barney holds 49% of the joint venture. “Morgan Stanley is in the driver's seat, and having somebody there [like Mr. Johnston] might reassure the [Smith Barney] broker force,” said Alois Pirker, research director at consultant Aite Group LLC. The integration will be more complex than the task Bank of America Corp. faced in merging with Merrill Lynch & Co Inc., or Wells Fargo & Co. had with Wachovia Securities LLC. Unlike the bank-broker combos, “it's 100% overlap” between Morgan Stanley and Smith Barney, he said. That means tough choices over who stays and who goes.
Along with personnel decisions, Mr. Johnston also has to contend with Morgan Stanley representatives complaining about Smith Barney bureaucracy and Smith Barney people worrying about product pushing from Morgan Stanley. Mr. Johnston acknowledged the difficulties but said that there's been good progress. For starters, he said, attrition has returned to normal since July. Moving quickly to naming senior officers, including selecting 136 complex managers in September, helped ease corporate paralysis, he said. Also in September, MSSB announced a new pay plan that will bring into line compensation for all 18,160 reps from the combined companies, beginning next year. There's been some speculation, though, that Mr. Johnston might not survive. Does he have the confidence of his boss, James Gorman, Morgan Stanley's co-president and chairman of Morgan Stanley Smith Barney? “I hope so,” Mr. Johnston said. Mr. Gorman is slated to become chief executive of parent Morgan Stanley next month. Mr. Johnston, who's been through seven mergers in his career, remains unfazed. “I can't remember when so many [employees from both sides were] enthused about a deal,” he said.