Lehman brothers: The bank that made the world go bust!

Make money and don’t tell anyone must have been the core value of the Lehman brothers. They say if one is to learn something they should pick a leaf. I am going to pick a tree from strategic management and say, core values of a company are designed not to change regardless of the circumstances. I can honestly say the true core values for the Lehman brothers never changed. As one of the oldest investment firms on Wall Street the Lehman brothers stayed true to their “core values”, love money, bring in junk loan mortgages, and become a leader of the housing industry at all costs!

A house is the biggest purchase of one’s life. A home on the other hand is where someone can be happy.

The Lehman brothers were not only selling houses. They were selling homes, somewhere where people could have birthday parties. They were selling the American dream! But when someone would sign a mortgage agreement, it had an interest rate that would look attractive at first but get higher with time. Thus making someone’s mortgage payments higher with time. Lehman were in business of approving fraud! Loans with fake company ids or the same company id for different loans. Richard Fauld, then CEO of the Lehman brothers was the longest serving executive on Wall Street. Under his reign the company was known for giving record breaking bonuses and salaries to its employees. He had a reputation for being aggressive. He, Richard went by the name, “the gorilla”! He was so famous on Wall Street that he even had his own elevator in the building where the company was located.

Lehman became known for using loop-holes in the law to cover themselves. They wanted more money than the stakeholders were willing to approve. They didn’t care about their employees (mortgage brokers) credibility. Regular sexual harassment was a culture and dirty business executives were hired to do the dirty work. They wanted to see people afraid of them. Their total assets were valued at 1.5trillion while their notional assets were valued at 5 trillion. The Lehman brothers were doing well! Oh so we thought. But a lack of clear communication channels lead to the tipping point. They were foreclosures across the US, and many people’s lives fell apart. And how did the Lehman brothers manage to do all this for so long? Well one of the ways they would do it is that they would repay their loans right before their public reporting of their financial position then a few days after the reporting, they would borrow it back. They would hide compensations and making their financial books look better than they really were. The senior vice president of Lehman brothers, Mathew Lee was fired six months before the company declared itself bankrupt. No one thought the Lehman brothers would ever go bust! The company president, Richard Fuld was living a very lavish lifestyle and denied misleading investors. He rather blamed the government for pushing non-qualified loans. He called it the perfect storm.

So, the Securities and Exchange Commission either knew all this but didn’t do anything or they just didn’t know what they were looking at. The challenge is every new president brings in new people who haven’t worked in the area for a long time. For example Obama brought in a lawyer to investigate Lehman brothers but he also so happened to have been working for another company that had interests in the Lehman brothers and law and behold no charges were made against the Lehman brothers. People lost their houses and people went homeless.

Richard Fauld was never charged and since the financial collapse bonuses at Wall Street have soared to more than 31 billion dollars. After the election of a new US president, Donald Trump discontinued the investigation and established an act that protects consumers form abusive lending practices. An act designed to reduce beaurocracy in small banks and unleash America’s economic potential, “as it was in the past”!

Henri Fayol talked about the 14 principles of management in his book. I am going to talk about six of the principles of management the Lehman brothers used in the following ways:

1. Division of work. At Lehman the real estate brokers were responsible for bringing in mortgage loan clients. The brokers had to meet their quota and they brought in mortgage loan consumers at all costs including junk loans just to meet their quotas.
2. Authority and responsibility: Personal integrity of the manager is the safe guard against the abuse of authority. But at Lehman, dirty managers were hired to do the dirty work so there was no personal integrity from top to bottom. Managers and other people in authority were known for all kinds of fraudulent activities including sexual harassment of female employees at the work place.
3. Discipline: According to Mullins, discipline is, in essence, the outward mark of respect for agreements between the organisation and its members. (2016) Lehman had no respect for neither their employees nor their customers because it sold the customers loans that were not of any use to them without the consideration of the credibility of its employees.
4. Unity of command. The Lehman brothers I must say did very well in this principle. The management was united in its endeavour to make fake profits at all costs and pay themselves abnormal bonuses.
5. Unity of direction: Lehman also had a unity of direction. The only difference is that that direction was never in the best interest of the consumers. Their best interest was always in the making of their top level managers richer. Whether the middle level managers and the other lower level employees knew and to what extent is a question for a another research paper.
6. Subordination of individual interest to general interest. The interest of the Lehman brothers definitely dominated individual or group interests.

Conclusion

Should we change management, with the Lehman brothers as an example I think we should, but I also think we shouldn’t fire all managers. Former senior vice president of the Lehman brothers is living proof that not all managers are useless. He, Mathew Lee stood up for his own personal values by being a part of the whistle-blowers of Lehman brothers and by standing up so much for his own personal values that he put his own career on the line. Ultimately I think it comes down to the individual to first develop his own personal values before ever entering or accepting a management position because once that’s done, no circumstances, good or worse will ever change them( personal values).