Lame Duck Purcell

Philip Purcell Philip Purcell can't even get kudos for quitting.

Sources said Monday that the Morgan Stanley chief executive's surprise decision to retire after a successor is named--no later than next year's March shareholder meeting--does little to quell the doubts about the future of the company.

In fact, they said, Purcell's lame-duck period while the board and an outside search firm look for his replacement, just casts a longer shadow on Morgan Stanley, which has struggled for months with internal management turmoil that has threatened to choke off business with clients.

Without knowing who the next CEO will be, it will be hard to recruit top talent to fill the holes left vacant by the departures of several key managers, and it may encourage even more defections as rivals take advantage of the instability, recruiters said.

Morgan Stanley has hired some executives in recent weeks, including seven equity sales traders (who help fill the void left when eight up and left for Deutsche Bank in April), and two senior bankers in Europe. But that was before Purcell quit.

It also hired senior mergers lawyer David Heleniak David Heleniak from Shearman & Sterling to be its vice chairman, filling a void left when senior banker Joe Perella Joe Perella left.

The fact that Morgan Stanley's board has hired Spencer Stuart 's

Tom Neff Tom Neff to look outside the firm for candidates doesn't bode all too well for Zoe Cruz Zoe Cruz and Steve Crawford Steve Crawford , the up-and-comers who were handpicked by Purcell to be his new co-presidents in a late-March senior management shuffle that precipitated the turmoil at the company.

Purcell even named them to the board days after promoting them.

Their elevation prompted the resignations of several other senior executives, none of whom are now in the running for the CEO job, including Vikram Pandit Vikram Pandit , former head of institutional securities, John Havens John Havens , former head of equities, and Stephan Newhouse Stephan Newhouse , former president. Charles Knight Charles Knight , the director who is in charge of the search, said they would not be considered.

Executive recruiters say it is unusual for Wall Street firms to look beyond their own ranks for new leaders, and that generally, in that scenario, the new chief comes by way of a merger.

Purcell tried to put a stop to that speculation during a conference call Monday. "We've got a very consistent strategy," he said. "I hope and expect is that our people will rally around the leaders that they have."

Some said Morgan Stanley could stabilize the situation by naming Sir David Walker Sir David Walker , the chairman of its international division, as an interim chief until the search is concluded. Sir David operates as a senior ambassador to the firm's clients and wouldn't be seen as a long-term replacement. But he does have clout and would be seen as a soothing influence, a source said.

Purcell wound up on top of Morgan Stanley in the 1998 merger of it and his firm Dean Witter Discover . The former McKinsey analyst survived numerous challenges to his leadership, and managed to get rivals John Mack John Mack and Robert Scott Robert Scott ousted in separate incidents.

Mack went on to Credit Suisse First Boston and most recently said he had joined hedge fund Pequot Capital as its chairman. Scott has been leading a group of eight former executives calling for the ouster of Purcell and the breakup of the company.

Analysts said Morgan Stanley's board has a tough few months ahead. "You don't have the rats who jumped off the sinking ship come back and save it, and you don't hire the folks who put the hole in the ship," said Richard Bove Richard Bove , an analyst at Punk Ziegel .

Zachary M. Seward contributed to this item.

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