The changing of the guard at Morgan Stanley continues as leadership loyal to departed CEO Philip Purcell heads for the exits. The company announced Tuesday that director Michael Miles had resigned his post, and analysts say more directors are likely to do the same in coming months to avoid a big proxy battle.

“Some of the board members that have been on watch for the company as performance has lagged will be in for proxy fights if they stick around,” says Sandler O’Neill analyst Jeffery Harte. “I don’t know how interested some of them would be in a proxy fight, so this should be the first of a number of departures. Otherwise, you can expect the G8 of proxy fights,” he says. The next annual shareholder meeting is set for March 2006.

Despite a number of changes made to improve corporate governance at Morgan Stanley early this year, the board has come in for plenty of heat as of late. Most recently, shareholders have filed lawsuits against the board over golden parachutes offered to Purcell, former co-president Steve Crawford and other executives. Perhaps even more important, it stood by Purcell when a group of eight dissident shareholders called for his head over lagging profits and depressed share prices, only to relent a few months later after a number of key executives fled over the scuffle.

One analyst says the entire board may well be overhauled. “The fact that they had very little knowledge about what was going on in the company suggests that if the whole group was wiped out it would benefit everyone. Hopefully, [Chairman and CEO John] Mack will get rid of them all and bring in board members who do know what’s going on, who do attempt to get involved,” says Punk Ziegel analyst Dick Bové. “The whole board tended to vote unanimously, so they should be unanimously wiped out.”

Three new directors were already elected in August: Roy Bostock, formerly an advertising chief executive; Charles Noski, formerly a chief financial officer for AT&T; and O. Griffith Sexton, a former Morgan Stanley executive and professor of finance at Columbia Business School. They will join the board in mid-September.

Their addition may have spurred Miles' departure. “I believe there is always a need for change and refreshment in any organization,” Miles wrote in a statement. “Accordingly, following the recent election of three outstanding new directors, I believe the time has come for me to step down from the Board.”

With the resignation of Miles, the board currently has 13 directors, including 11 independent directors. Meanwhile, Edward Brennan, a former president and CEO of Sears and a director since 1993, won’t be up for re-election next year, as he will be over the board’s age limit of 72. The company’s charter recommends between 10 and 15 directors.

A number of other leadership changes have been made in recent months. Mack has replaced several executives at the company, including the head of the firm’s retail brokerage. Morgan Stanley recently hired James Gorman, former head of retail at Merrill Lynch, to head up Morgan’s retail unit starting early next year. Analysts and observers say changes to the board should not have any impact on the firm’s plans for the retail brokerage.