...Lessons from Lehman Brothers: Will We Ever Learn Learning Team B MGT/521 July 27, 2015 Sandra Griffin Lessons from Lehman Brothers: Will We Ever Learn The culture at Lehman Brothers was one of greed, excess, and corruption. According to Lawrence Serewicz (2011-2013) “…profits before prudence means risk that can never be avoided” (para 19). Lehman Brothers culture was clearly that of “…go along to get along” (para 20). The culture at Lehman Brothers was a culture that encouraged risk taking. Robbins & Coulter (2010) reveal that culture and reward system supported and handsomely rewarded employees that made questionable and risky deals, while those that questioned poor decisions were overruled or completely disregarded. Top executives failed to recognize or ignored the magnitude of the problem and continued to hide behind falsified documents and loopholes like “Repo 105”. The culture at Lehman Brother was an environment of “don’t ask, don’t tell”. Executives shunned employees for asking questions about the risky actions and deal-making of top executives, or those in a position to make financial decisions regarding the company. A lot of incidents that were knowingly harmful to the company financially were swept under the rug. Many employees went along with the decisions for fear of losing their jobs. In return for their silence and willingness to go along with poor decision making, they were over compensated for their employment. The textbook notes that individuals...
Words: 1078 - Pages: 5
..."Lessons from Lehman Brothers: Will We Ever Learn?" #2.Discussion Question: What was the culture at Lehman Brothers like? How did this culture contribute to the company’s downfall? Discussion: The unethical culture by the top executives in the Lehman Brothers company was one of the major contributions to the downfall of this organization. According to the legal expert Anton R. Salukis, Lehman Brothers excessively used accounting manipulations. The negligence or the willful blindness of Lehman’s CEO, Richard Fuld, promoted the practice of filing misleading financial reports by abusing an accounting device, Repo 105. Through this accounting manipulation, they could remove fifty billion of unwanted assets off the balance sheets on 2008 [ (Robbins, 2012, p. 147) ]. Looking into the culture of this corporation, it can be said that this company was corrupted and the only purpose of its leaders was the appetite for money. Because of the company’s success, the leadership became greedy. This greediness motivated them to falsify information that covered up the true company’s financial health. They engaged into bigger and riskier deals just to maintain their image to the stakeholders. The Lehman Brothers executives used a corrupted strategic plan to create a picture of a respectful status and an excellent financial statement. The culture of this company encouraged unethical practices within the employees of the company. Lehman Brothers was a company that had unrealistic plans, and money...
Words: 279 - Pages: 2
...Lessons from Lehman Brothers: Will We Ever Learn? Steven Figueroa, Adrian Bland, Victoria Fabuluje, Amy Ramkey, Carmen M. Ortiz MGT/521 03/10/14 CHRISTINE GNIEDZIEJKA Lessons from Lehman Brothers: Will We Ever Learn? 2. What was the culture at Lehman Brothers like? How did this culture contribute to the company's downfall? Anyone knows that rewarding bad or illegal behavior can lead to the making of a person who is irresponsible and reckless. This is a general description of the type of employees involved in the Lehman Brothers company culture. The Lehman Brothers culture was out of control and a blind eye was turned to any high risk deals and or illegal modifications done to the company balance sheet. Many failed or wrong decisions made by management often went without consequence. In fact, individuals making any high risk or questionable deals were treated like superstars or moneymakers rather than irresponsible or uncalculated decision makers. This type of reward system can only draw the attention of the greedy and crooked minded. The type of culture created was a recipe of disaster for the Lehman Brothers company. There were some employees that did not agree with many of the choices made by upper management. But, when they attempted to voice their opinion or concerns they were ignored and overruled leaving them no choice but to follow suit. By ignoring any standards, ethics or controls to guide the Lehman Brothers culture the employees were left to express their...
Words: 1151 - Pages: 5
...Lessons from Lehman Brothers: Will We Ever Learn? On September 15, 2008, financial services firm lehman Brothers filed for bankruptcy with the U.S Bankruptcy Court in the Southern District of New York. That action - the largest Chapter 11 filling in financial history – unleashed a “crisis of confidence that threw financial markets worldwide into turmoil, sparking the worst crisis since the Great Depression.” The fall of this Wall Street icon is, unfortunately, not a new one, as we’ve seen in the stories of Enron, WorldCom, and others. In a report released by bankruptcy court-appointed examiner Anton Valukas, Lehman executives and the firm’s auditor, Ernst and Young, were lambasted for actions that led to the firm’s collapse. He said, “Lehman repeatedly exceeded its own internal risk limits and controls, and a wide range of bad calls by its management led to the bank’s failure.” Let’s look behind the scenes at some of the issues. One of the major problems at Lehman was its culture and reward structure. Excessive risk taking by employees was openly lauded and rewarded handsomely. Individuals making questionable deals were hailed and treated as “conquering heroes.” On the other hand, anyone who questioned decisions was often ignored or overruled. For instance, Oliver Budde, who served as an associate generals counsel at Lehman for nine years, was responsible for preparing the firm’s public filings on executives were paid,” Budde argued with his bosses for years about that matter...
Words: 635 - Pages: 3
...Mini-case 2 Letting Go of Lehman Brothers Question 1: Do you believe that the U.S. government treated some financial institutions differently during the crisis? Was that appropriate? To assure the financial stability and viability of the U.S. financial system, the U.S. Federal Reserve, the Comptroller of the Currency and the Federal Deposit Insurance Company (FDIC) have the responsibility to support, protect and buffer financial institutions whose failures, they believe, might have a significant effect on the market as a whole. Before making a decision about whether an institution should be poured capital into, the Federal Reserve will consider the institution`s collateral and the ability to repay loans. The Federal Reserve said that the companies that did receive bailouts, such as AIG, Fannie Mae and, Freddie Mac, clearly had the collateral and showed great promise of paying them back in the future, while Lehman Brothers did not. When Federal Reserve Chairman Ben Bernanke was asked how the Lehman case differed from that of American International Group Inc., which received $182 billion in taxpayer aid, Bernanke said there was a fundamental difference. They believed AIG, as the biggest insurance company in the U.S., had valuable assets which could back up the Fed's emergency loan. So the Federal Reserve will absolutely be paid back by AIG. However, Richard S. Fuld Jr., the former chairman and chief executive officer of Lehman Brother, said that they did have the collateral...
Words: 1679 - Pages: 7
...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...
Words: 1005 - Pages: 5
...Read Case Application 1, "Lessons from Lehman Brothers: Will We Ever Learn?" at the end of Ch. 5 of Management. Discuss the scenario with your team. Discuss the second, third, and fifth discussion questions at the end of the case with your team. Answer each question based on your team's discussion in no more than 350 words per question. Click the Assignment Files tab to submit your assignment. 2. What was the culture at Lehman Brothers like? How did this culture contribute to the company's downfall? The culture at Lehhman Brothers was questionable. Based on the readings, they gave their employees the ability to make high risk decisions to take in high financial rewards without approvals or collaborating with other team members. The culture was based on which employee made the most money, regardless of the risk. The top executives were also dishonest by manipulating the balance sheets to ensure short term financial results were beneficial to the organization, Lehman Brothers executives and employees lacked ethic and moral values resulting to the company's downfall. 3. What role did Lehman’s executives play in the company’s collapse? Were they being responsible and ethical? Lehman’s executives play in company’s collapse was caused by their conduct “serious but nonculpable errors of business judgment to actionable balance sheet manipulation.” Lehman’s executives were not being responsible nor ethical by balance sheet manipulation. They were dishonest in their finances...
Words: 371 - Pages: 2
...Abstract Lehman collapse was the largest bank bankruptcy in the United States history. Complex causes combination lead to this tragedy. This paper is going to illustrate primary causes that result in its failure, and also discuss impacts on financial systems supervision and regulations. TABLE OF CONTENTS 1. INTRODUCTION 1 2. LITERATURE REVIEW 4 3. RESEARCH METHODOLOGY 1 3.1 Data collection 2 3.2 Methodology x 3.3 Limitations 3 4. ANALYSIS AND DISCUSSION 4 4.1 5 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.2 4.3 6 5. CONCLUSION 1 6. REFERENCES 4 7. APPENDICES 1 8. ACKNOWLEDGEMENTS 1 1. INTRODUCTION The credit crunch occurred in 2008 has been arguably recognised as an extreme phenomenon during the financial crisis, which generated to the longest recession in the U.S. history since ‘the Great Depression’ in1929. Over 600,000 jobs lost in during 2008, and unemployment rate went up to 6.1% which was the highest point in 5-year time (Isidore, 2008). According to the Turner Review (2009), faultiness of regulation and supervision underpinned financial problems’ increase. Therefore, to illustrate the causes of Lehman Bother’s crash in 2008, events occurred during crisis progress are listed in Appendix 1. Among those serious cases, bankruptcy of Lehman Brothers was concerned to be the most typical...
Words: 9576 - Pages: 39
...LEHMAN BROTHERS: CASE BACKGROUND On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman's demise also made it the largest victim, of the U.S. subprime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008, the biggest monthly decline on record at the time. The History of Lehman Brothers Lehman Brothers had humble origins, tracing its roots back to a small general store that was founded by German immigrant Henry Lehman in Montgomery, Alabama, in 1844. In 1850, Henry Lehman and his brothers, Emanuel and Mayer, founded Lehman Brothers. While the firm prospered over the following decades as the U.S. economy grew into an international powerhouse, Lehman had to contend with plenty of challenges over the years. Lehman survived them all – the railroad bankruptcies of the 1800s, the Great Depression of the 1930s, two world wars, a capital shortage when American Express spun it off in 1994, and the Long Term Capital Management...
Words: 1770 - Pages: 8
...Introduction History of Lehman Brothers Subprime Crisis Explained Vicious circle & the fall of Lehman Brothers Organizational Culture at Lehman Brothers Future Conclusion Introduction Lehman Brothers Holdings Inc, aka the fourth-largest investment financial institution in the US (behind Goldman Sachs, Morgan Stanley, and Merrill Lynch), was a 158 years old bank that had to declare its bankruptcy in September 2008. Led by its CEO, Richard Fuld, Lehman Brothers was a glorious and respected investment bank for which some of the most experienced and intelligent financial analysts/investors were working. How come then, than in a less than one week, the whole structure imploded and led to one historical bankruptcy and with the same occasion, became the trigger of the 2nd most dramatic worldwide financial crisis? This essay has been written, in what seemed to me, the most logical way to approach this very interesting and complex subject. A quick peak to Lehman Brothers’ history will help the reader to understand how, starting from very humble origins, Lehman Brothers became one of the top investment financial institutions in the US before its collapse. The financial crisis of 2008, also called the subprime crisis was the biggest reason of LB’s downfall. Having done some researches, the reader will be explained, in a very intuitive but complete manner, how this crisis began and how it evolved until it affected the whole world. One can already agree that LB’s got caught...
Words: 2584 - Pages: 11
...Working Paper Series Fall of Lehman Brothers – reasons why the failure could not be stopped Arif Ahmed South Asian Management Technologies Foundation August, 2011 1 Contents Abstract ............................................................................................................................................ 3 Background....................................................................................................................................... 4 Genesis of the Problem .................................................................................................................... 5 The Abettors of Failure..................................................................................................................... 9 Controls that failed ......................................................................................................................... 12 Preventing another Lehman........................................................................................................... 16 Conclusion ...................................................................................................................................... 19 Reference ....................................................................................................................................... 22 2 Abstract Failure of Lehman Brothers marks an important point of modern economic history. In a matter of eight months a successful and...
Words: 6494 - Pages: 26
...innovation in mitigating the impact of the crisis and how the managers can foster innovation * Identification and description of relevant motivation theory that the managers can usefully apply to motivate the employees during the crisis * Feedback & Advices Page 12 * Referencing Guide Page 13 dfsfjn Introduction The organization in crisis that we chose to report on is the “Lehman brothers”. On September 15, 2008, Lehman Brothers declared the largest bankruptcy in history and changed the American and global economy. The company’s investment banking and trading divisions were acquired by Barclays the next day. They were the fourth largest investment bank in the United States and they played an important role in the financial and commercial industries. The company begun in 1844 when Henry Lehman immigrated to the United States from Rimpar, Bavaria and settled in Montgomery, Alabama...
Words: 3589 - Pages: 15
...force the country’s products are quite cheap on the international market. That is why it is not surprising that export plays a great role in the country’s economy. Cheap labor force is not the only reason for the competitiveness of the Chinese products. Cheap Yuan is another reason, but about it we are going to talk below. Some additional information about the national economy of China can be got from the following quote. “China's economy is huge and expanding rapidly. In the last 30 years, the rate of Chinese economic growth has been almost miraculous, averaging 8 percent growth in Gross Domestic Product (GDP) per annum. The economy has grown more than 10 times during that period, with Chinese GDP reaching 3.42 trillion US dollars in 2007. China already has the biggest economy after the United States and most analysts predict China will become the largest economy in the world this century” (The Chinese Economy). As it has been already mentioned, export plays a great role in the Chinese national economy. We can even claim that a great percent of GDP is formed from the revenues from export. The country’s products are really cheap on the international market. Yuan is one of the reasons for such low prices. In fact, Yuan has always been quite undervalued. Taking into account potential of the national...
Words: 3461 - Pages: 14
...super-bank CitiGroup afloat in the belief that they were ‘too big to fail’. However, this did not stem the unfolding disaster. Later, Bear Stearns was the first to crack. The primary reason was that they were big in mortgages and big in packaging them and creating securities out of them, buying them. However, it then went spiraling out of control (David Faber). Fortunately, Bear Stearns was bailed out to prevent a chain reaction. Yet, it eventually hit. The world’s fourth largest investment bank, Lehman Brothers. They’re having to bring in a quarter of a trillion dollars a day, that goes out the next morning, just to survive (Ron Suskind). Unlike previous examples, Henry Paulson delivered the message that there would be no government bailout. Paulson himself had bet the markets would ‘self-correct’ in the long run. However, he was proven to be wrong. Everything freezed, igniting the start of the crisis. And it really started because Lehman Brothers went into bankruptcy (Charles Duhigg). Lehman collapses, and there were shock waves through the world financial system, all...
Words: 1806 - Pages: 8
...financial institutions and Lehman Brothers 8 D- Measures to mitigate financial crisis 11 E- Conclusion 15 F- References 17 A- Introduction The subprime mortgage crisis happened in the U.S. financial system into the most horrible recession from the time when the Great Depression. This report tracks how the subprime mortgage crisis outspread, disturbing first the housing sector and then the economy on the whole. When banks started lending to subprime borrowers, it looked immense. Unexpectedly, anyone could get a house through a mortgage loan, even with modest or no money down payment. Nevertheless not the entire of those mortgage borrowers were high-quality nominees for the mortgage loan. The defaults of these subprime mortgage borrowers helped lash out the subprime crisis. (Rudd, 2009). The circumstances of the mortgage markets became more deteriorated due to the involvement of Investment Banks in underwriting the mortgage loans. The amplified exploitation of the secondary mortgage markets by lenders further to the numeral of subprime mortgages lenders could create. As a substitute of gathering the originated loans on their financial statements, lenders were capable to plainly sell the loans in the secondary financial market and accumulate the originating charges. This untied up additional resources for still new lending positions, which amplified liquidity sources even added. The financial Institutions such as Bear Stearns and Lehman...
Words: 3985 - Pages: 16
