Lesson from the Lehman Brothers
Lessons from Lehman Brothers: Will We Ever Learn?
MGT 521
September 9, 2013
Introduction
Lehman Brothers financial services filed bankruptcy on September 15, 2008, in the New York Southern District U.S. Bankruptcy Court. Resulting in an immediate 500 point drop in the Dow Jones (Did Ernst & Young Really Assist Financial Fraud? 2011). This day became known as ‘‘Dark Monday’’ (Donaldson, 2012). This was to date, the largest bankruptcy filing in history unleashing a “crisis of confidence that threw financial markets worldwide into turmoil, sparking the worst crisis since the Great Depression.” However this financial icon’s fall is no surprise. The bankruptcy examiner released reports saying that the firm’s executives and auditor, “lambasted” for what they did to cause the collapse of the firm (Robbins & Coulter, 2010).
The Lehman Brother culture was one of risk and reward. At the company, “Excessive risk taking by employees was openly lauded and rewarded handsomely. Employees knew they could give risky ideas and they would get rewards for them. Individuals making questionable deals were hailed and treated as ‘conquering heroes’.” (Robbins & Coulter, 2010, pp. 147-148). If anyone would question decisions made or speak out in disagreement, executives would not listen. In addition, the executives would overrule and go with the least desirable decision. Most companies would be wary of taking so many risks and only give reward after that risk had proven to be a good decision. For the Lehman Brothers if the risk turned out to be bad and the company was actually at a lost, they would conceal it. Lehman was once known for its “Family” like culture. So what happened? According to Greenfield (2009), "the mistake lay in putting too much faith in an outmoded culture and failing to see how its very strength undermined the business”. Additionally, the culture was afraid of change and diversity. This also led to the company’s downfall. “A culture that is too
MGT 521
September 9, 2013
Introduction
Lehman Brothers financial services filed bankruptcy on September 15, 2008, in the New York Southern District U.S. Bankruptcy Court. Resulting in an immediate 500 point drop in the Dow Jones (Did Ernst & Young Really Assist Financial Fraud? 2011). This day became known as ‘‘Dark Monday’’ (Donaldson, 2012). This was to date, the largest bankruptcy filing in history unleashing a “crisis of confidence that threw financial markets worldwide into turmoil, sparking the worst crisis since the Great Depression.” However this financial icon’s fall is no surprise. The bankruptcy examiner released reports saying that the firm’s executives and auditor, “lambasted” for what they did to cause the collapse of the firm (Robbins & Coulter, 2010).
The Lehman Brother culture was one of risk and reward. At the company, “Excessive risk taking by employees was openly lauded and rewarded handsomely. Employees knew they could give risky ideas and they would get rewards for them. Individuals making questionable deals were hailed and treated as ‘conquering heroes’.” (Robbins & Coulter, 2010, pp. 147-148). If anyone would question decisions made or speak out in disagreement, executives would not listen. In addition, the executives would overrule and go with the least desirable decision. Most companies would be wary of taking so many risks and only give reward after that risk had proven to be a good decision. For the Lehman Brothers if the risk turned out to be bad and the company was actually at a lost, they would conceal it. Lehman was once known for its “Family” like culture. So what happened? According to Greenfield (2009), "the mistake lay in putting too much faith in an outmoded culture and failing to see how its very strength undermined the business”. Additionally, the culture was afraid of change and diversity. This also led to the company’s downfall. “A culture that is too
References: Did Ernst & Young Really Assist Financial Fraud? (2011). Strategic Finance, 92(9), 14-17. Retrieved from http://search.proquest.com/docview/857240730?accountid=458 Donaldson, T. (2012). Three ethical roots of the economic crisis. Journal of Business Ethics, 106(1), 5-8. doi:http://dx.doi.org/10.1007/s10551-011-1054-z Greenfield, H. (2009, Fall). Culture Clash. The Conference Board Review, pp 60-65 Robbins, Coulter, S. (2010). Management (11th ed). Pearson Learning Solutions. Retrieved from http://online.vitalsource.com/books/9781269357937/id/pg147