Lehman Brothers and Berkshire Hathaway

Lehman Brothers & Berkshire Hathaway

Of the investment-banking giants, Lehman Brothers perhaps suffered the greatest loss of value in the shortest period of time. What were the underlying causes of Lehman's failure? While CEO Richard Fuld's take-no-prisoners management style certainly didnt help we need to dig deeper into the company's underlying management model to understand what happened.

Based on my analysis of the case, here are some contributory factors: board structure of Lehman Brothers, engagement of directors and risk management.

Board structure: From structural wise, Lehman had 10 directors, eight of whom met independence standards of the NYSE. Their average age was 68 years old (versus 61 years at the average large corporation. Their directors had diversity of professional background, a mix of current and former CEOs, executives from profit and non-profit organization. They were "busy" in terms of outside board affiliation. The failings of Lehman became apparent when we looked beyond its structural, and consider more subjective factors such as professional background and engagement in board responsibilities.

There was notable absence of financial service expertise on the board and current business experience. There were no current CEOs of major public corporations on the board. Their CEO on board were well into retirement. Their board members had no experience understanding the increasing complexity of financial markets. Moreover, why the directors of non profit organization were recruited in the first place. In addition their board of directors consisted of a theatrical producer and a former actress. The directors had a diversity professional experience, but a significant lack of experience on financial issues, which I believed cause the failure of Lehman Brothers.

Engagement of directors: How engaged directors were in monitoring the activities of Lehman management? Critics have alleged that the board did not sufficiently monitor...