Lehman Brothers was a company that provided financial services to many countries. It was a primary dealer in the United States according to a New York times article on the 15th of September. On September 15, 2008 the company filed for Chapter 11 bankruptcy. What caused them to became bankrupt? The simple answer would be bad mortgage finance and real estate investments.
On Wednesday January 20th, Lawrance G. McDonald came to DePaul University to promote his book "A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers." He was once a former VP of the company. Lehman Brothers were ignoring the risks that they were taking. They used mark to market accounting to determine the worth of mortgages. Chief Officers knew the dangers but were silenced by people higher than them according to Mr. McDonald.
Mr. McDonald felt that the bankruptcy could have been avoided. He mentioned a few solutions for other companies would not fall to the same fate. He thinks that CEO's should have a term limit. He believes that if you maintain power too long, you start to abuse it. Richard Fuld held the CEO position at Lehman Brothers for 14 years, until it filed bankruptcy. According to Mr. McDonald there should be a risk committee on the board. That way the company can better evaluate the risk that they take. He also believes that former CEOs should become board members.
I agree with what Mr. McDonald states. CEOs should not hold that position of authority too long. It should be like a democracy and vote in the next CEO with a limited term. Having a risk committee can prevent or stop bankruptcy from happening. Just like Enron, they ignored the risks that they were taking and lost everything in the process. Former CEOs as board members can be beneficiary in helping manage the company. They can put their input, but the currant CEO still has the final decision. All in all, what Mr. McDonald broght up, seems to make sense. Maybe if we implement these rules in businesses, it could help save jobs and the overall stability of a company.
http://www.nytimes.com/2008/09/15/business/15lehman.html
Hey, this is an interesting story, and it seems a lot of other kids in our class also attended the seminar. Maybe I was unable to fully grasp what Locke was saying, and everything Mr. McDonald said sounds great, but how can you help Locke and Lehman brothers relate? You could defend the Lehman brothers maybe, "You have to spend to make money." I can't exactly find something specific that Locke has said relating to setting up these security blankets. He does talk a lot about labor instilling value, and more equals better. But, I like your post, it was well written.
ReplyDeleteThis was a very intersting idea. Having a former vp of Lehman Brothers speak about ethics.. Sounds a bit ironic I must say. As far as relating this to Locke I didnt attend the speach so I am not really getting the corralation. I am not sure if Locke would agree with the practices that Lehman Brothers was commiting both before or after the domolishment of the company.
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