Morgan Stanley’s board of directors has come out in support of embattled CEO Phillip Purcell, although it has also made it easier for the board to remove him in the future.

The board, which met over the weekend, said it unanimously concluded that “suggestions for management changes or a corporate re-organization beyond the proposed spin-off of its Discover Card business would not be in the best interest of shareholders.”

The directors also approved a number of changes designed to strengthen the company’s governance policies.

“We have said consistently that management enjoys the confidence of the board and we reiterate that commitment today,” the directors said in a statement. “We have thoroughly examined all of the issues surrounding leadership, structure and strategy and conclude that it is in the best interest of shareholders that we support management and not split up the company.”

Several former Morgan Stanley executives and shareholders have been agitating for Purcell’s ouster, and possibly the company’s split into its retail and institutional halves.

As for governance, the board approved: the acceleration of the planned “de-staggering” of the board, which will now start with the company’s 2006 annual meeting; the creation of a “lead director” position, which the board expects to fill shortly; the addition of two additional outside directors; the elimination of a provision in Morgan Stanley’s corporate bylaws that requires a supermajority vote of the board to remove the CEO; the broadening of the Compensation Committee’s charter to include oversight of plans for management development and succession; and, rotating board committee chairs.

“We have listened carefully to our institutional shareholders, to our clients, and to the leadership ranks within the firm, and we have put in place a program that positions Morgan Stanley at the forefront of good governance practices. We are now moving forward, helping Morgan Stanley’s leadership team build the best integrated securities firm in the world,” the board said.

Shares of Morgan Stanley fell in early trading Monday, giving back most of the previous session’s 5% gain after the weekend board meeting. Morgan shares fell 5.2% to US$49.90 in early trading.