The last week has been noteworthy and historic for many reasons, not least the collapse of 158 year old Lehman Brothers. Richard Fuld was Lehman's Chairman and CEO on the day it announced its intention to file for Chapter 11 protection, September 15th.
As before, we're taking the top 10 posts from Google blog search to construct this post. While it is something of a straw poll, we'd hope to find something interesting and noteworthy nevertheless.
A breakdown of the 10 articles from Google blog search and their respective quadrants.
| Self Awareness | Relationships |
| 6 | 0 |
| Culture | Business and Social Systems |
| 1 | 3 |
While it would be presumptious to lay the blame for Lehman's demise at the door of Mr Fuld, it is interesting to see how the commentary on his position and leadership breaks down in the table above. The heavy empahsis on self awareness and systems being somewhat inevitable. People's questioning of Mr Fuld's own character, while acknowledging the role of commercial and legal systems that proved to be as significant as own personality is par for the course for any leader who must balance internal and external influences on their organisation.
The interesting information that arises from the table above is the need to better understand the relationship between Richard himself and the systemic events that enveloped and eventually suffocated his business. Gaining such insight is far easier said than done given the lack of access to the private sphere of people's lives. If one were to speculate however (something not alien to Richard himself), one might be drawn to some choice extracts in the Times.
They called him the Gorilla – the brawler known as the scariest man on Wall Street
In that first fist fight, Mr Fuld was said to have been defending a young cadet who was being taunted by the senior officer
Mr Fuld, who represented the US at squash, claimed to be defending the underdog again when he found himself wrestling with the father of a child playing hockey against his son
Over the past few months he refused to acknowledge that Lehmans was in difficulty – despite frequent warnings from leading analysts. Had he acted sooner, he would have been able to avoid bankruptcy. A series of interested buyers surfaced in recent months, but Mr Fuld would not sell at the prices offered. By the time he appeared to face up to the situation at the end of last week, it was too late: Lehman was past the point of no return.
Based on the information above, questions about his personality, a possible lack of self acceptance and the events of September 15th all remain tantalisingly unanswered.
The remainder of this note details each of the 10 articles and relevant extracts.
Self Awareness
What an American civil war, two world wars and the Great Depression could not do has now been achieved by something called the subprime credit crisis, along with the assistance of an overly deferential corporate governance system that was blind to the risks being faced and a Napoleonesque CEO who could not see the disaster that was looming.
Dick Fuld, who threatened to break the legs of any partner caught shorting Lehman stock – gambling on the value of shares falling – is now just another name on a lengthening list of the “Masters of the Universe”, a phrase made famous by Tom Wolfe in his 1987 novel of Wall Street ambition and greed, The Bonfire of the Vanities, who have crashed to earth.
Oh Dick Fuld, you poor thing. A teeny, tiny sliver of my heart really does go out to Dick. A Wall Street titan and leader of the firm since 1994, Mr. Fuld has seen Lehman through many a storm and proved through this his loyalty and commitment to employees. Yet his pride, assuredness, and some may say, greed, got the best of him. In his quest to write off the inevitable, slowness to shore up his balance sheet with enough capital and what seems an absolute disregard for reality, he drove his coveted firm to where it stands today - bankrupt, trading at 21 cents and making a last ditch effort to have Barclay's buy something, anything, of what is left.
Richard Fuld, a one-time international squash player accustomed to playing the angles, finally found one he couldn’t master. Over 14 years, Fuld, 62, turned a money-losing bond trading shop into a full-service investment bank. He won acclaim from Wall Street leaders such as Lazard Ltd. chief Bruce Wasserstein, who on June 4 called him “very able.” Fuld joined the circle of CEOs sought-after by boards, such as the New York Federal Reserve’s. Fuld ultimately gambled almost four times the firm’s shareholder equity last year on mortgage securities that he insisted were hedged by other bets. “It makes me rather sad to see this organization brought to its knees as the result of what I’ll call a lack of control, poor management of internal risk and ultimate self-interest,” said Walter Gerasimowicz, who worked at Lehman as an investment strategist and now heads Meditron Asset Management in New York.
"Dick went wrong three to four years ago when Lehman bought these assets, now he's paying the price," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. "I don't think he knew when he was investing in mortgages where this could lead, and how important confidence is." At key junctures Fuld seems to have played a game of brinksmanship, refusing to accept offers that could have rescued the firm because they didn't reflect the value he saw in the bank.
Fuld, after nearly 30 years at the same firm; after being so intimately tied up in the trees, just couldn't see the forest to save himself, or his employees. "But his failure goes beyond refusing to make a trade that he did not like. Lehman also displayed confusion and ambiguity about how to address the credit crisis...The investment bank suffered from not conveying a clear message either internally or externally," notes the FT. His fall was classic, downright Shakespearean. A tragedy. At least a b-school case study.
Culture
The speculations were going on since about a month. There were talks of possible stake sellout to complete buyout. People were quite optimistic though. It has been two months since I joined Lehman Brothers (India office) and four months since I received my B.Tech degree. I won’t say that the situation here is the first for me alone; it is the first for almost all of us here. When we saw Bear Stearns go down, it was like, “Oh! It’s not good. But we will sail through”. When it has come down to us, I know now how it feels like. It’s not that I am too much worried about a job or anything. A bit alright, but not much. After all, I am a recent college pass-out and that too from Computer Science. I hope to get a new job sooner or later. But still there is a sinking feeling deep down. After all guys, I might not come back to the job tomorrow.
Business and Social Systems
Lehman Brothers’ options ran out late on Sunday after it failed to find a buyer, leaving more than $600bn owed to creditors in the US, Europe and Asia. Thousands of staff at the fourth largest bank on Wall Street face redundancy. The firm was brought to its knees by ill-judged investments in mortgage finance and other real estate. In the third quarter, the business reported losses of $3.9bn after taking huge writedowns on the value of those investments. Last Wednesday, Lehman announced a series of measures to cut its exposure to real estate and raise cash, but Wall Street was not convinced and confidence in the firm evaporated. Its shares had lost almost 95% of their value this year.
The three-legged banking/investment consortium is probably going to be put out of its pain tomorrow. The vulture feeding frenzy is frightening other bloated, lame banking/investment houses which are frantically trying to find bookies who will place bets on them as they limp around the race track. Sorry, guys. It won't turn you all into Secretariats. The rescue operation has failed. The attempt to split Lehman into a good bank/bad bank has failed.
That wider-than-expected loss increases pressure on Lehman to rebuild its crumbling capital base at a time when investors are showing little interest in purchasing mortgage-related assets at anything above fire-sale prices. What’s more, even a day after Lehman shares plunged 45% as talks with potential investor Korea Development Bank collapsed, there are signs that Fuld has yet to recognize the urgency to move now, before any more declines in the company’s share price further reduce its ability to dictate terms of any transaction. Lehman said in a press release Wednesday that it "is in advanced discussions with a number of potential partners" for Neuberger, "and expects to announce the details of the transaction in due course." Lehman’s "promises, promises" approach offers a stark contrast to the path being taken by another struggling brokerage firm, New York rival Merrill Lynch (MER, Fortune 500). Lehman, by contrast, keeps saying it intends on "de-risking" its balance sheet by cutting mortgage exposures, creating a much stronger, if smaller, firm that will emerge next year. Fuld has even branded the recent decline of the company’s shares a "distraction," as if the low market value being accorded Lehman somehow doesn’t carry an important message of its own.
Footnotes
[1] A blogger called Geoffrey spent last Monday and Tuesday (15th and 16th Sept) outside Lehman's offices, asking people for write their comments on Lehman on a portrait of Richard Fuld.
During those sessions I asked people if they worked (or used to work) for LEH. If they said yes, they got a green pen. No--they got a black one.
You can see the finished version here.
[2] I suspect Carl Ichann will likely see recent events as a possible line in the sand for his crusade to up the DNA of American CEO.
The collapse of Fannie, Freddie, Lehman, AIG, Merrill and IndyMac and over a dozen regional banks is emblematic of the era of credit excess on the part of banks and abdication of government oversight in lending standards. We simply cannot afford to allow our businesses to be run by hobbyists who parade around with the trappings of success like country club memberships, fancy limos, corporate jets, 50-yard line seats, skyboxes, golf outings, fishing trips, etc, all at shareholder expense, and pretend that they do a job that they abjectly fail to achieve. The evidence that board members and managers are failing is screaming at us from the front pages of every newspaper and the talking heads on every television show. This must change - and change fast.
By debbieqd October 3, 2008 - 7:28 pm
Mr. Fuld owes me $35,000 of my life savings. What must I leverage to get it back? Perhaps the fallen titan of Wall Street should offer a course in “How to game the system 101.” Those of us who never played, may learn how to make our money back.
By Alla October 10, 2008 - 7:30 am
It’s funny there has been so much attention focused on Fuld. He is but one of so many Wall Street bosses that did not have the foresight to avoid this financial credit/confidence crisis. There are plenty of failures and fire sales aside from Lehman. Instead of pointing fingers, we should be asking how to build a better future going forward – where this kind of mistake cannot be repeated.
By Bruce Lewin October 10, 2008 - 8:20 am
Hi Allan, yes, an interesting point… For me, there are a couple of thoughts that follow.
Specifically about Richard, people’s commentary was very heavily focussed on his personality and in light of what has transpired re: the bailout and the fortunes of other organisations, one must wonder what role this played during the events leading up to Lehman’s filing. While we may never know, it is a point that for me at least, endures.
The other interesting point about building a better future is that while this would largely fit into the systems box, I don’t really feel that improving on banking business models and their governance per se is my greatest strength! That said, I wholly support the notion of a better future and avoiding these mistakes again. (Out of interest, where are you with any possible improvements here?)
By extension, I would suggest that even with a revised set of rules for banks, there will still be self awareness, relationship and cultural failings of leadership. Perhaps not on the scale of the ‘systemic meltdown’ we are currently witness to, but significant for colleagues, customers and other stakeholders nevertheless.
By Allan October 10, 2008 - 2:49 pm
Bruce,
I can’t pretend to know how English laws should change to govern English institutions. From our side of the pond though, I would hope that we don’t over-regulate financial institutions. Our reactionary Sarbanes-Oxley laws came about after the collapse of Enron and have made our capital markets significantly less competitive. It created an opening for other major stock exchanges (London) to compete for listings by companies seeking to go public. It has also made American companies reluctant to go public and tap the capital markets. Limiting the options of our own companies can only make them less competitive.
The biggest problem, in my humble opinion, was the ability over-leverage portfolios. Financial institutions sometimes had portfolios leveraged 20-to-1 in terms of debt-to-principal. Without putting in too many regulations, I would attempt to reign in this practice. I don’t pretend to know how to do that – my only caveat would be to not over-regulate.
Here’s something one of our great Founding Fathers said:
“All human situations have their inconveniences. We feel those of the present but neither see nor feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.” – Benjamin Franklin
By Bruce Lewin October 10, 2008 - 5:14 pm
Allan, what can I say other than agree 🙂 (the exception being that a little London/NY competition never harmed anyone!)
By ed October 11, 2008 - 1:56 am
did someone punch Lehman Brothers ceo Richard Fuld in the face at his gym?
I saw a bit in the Jay Leno monologue. Jay has a new deck of playing cards
called “CEOs of Evil”, including the ceo’s at AIG, Lehman Bros.
This could be the start of an very interesting trend, personal reapprasials
on these ceo’s of evil.
http://www.mccainalert.com