Lehman Brother Case

Discussion questions for the case: “Lehman Brothers: Crisis in Corporate Governance”

1. What is the financial condition of Lehman Brothers as of September 14th? How serious is the firm’s liquidity problem? What are your conclusions about its ability to function as an ongoing enterprise? What steps would need to be taken in order for them to open for business?

* The estimated bad assets on Lehman’s book was about $40 billion, and possibly much, much more. Lehman’s cash and collateral were being tied up by the Firm’s clearing banks, with JP Morgan Chase holding approximately $17 billion of collateral. Lehman at September 14th had $1.4billion in liquidity, and they are facing a projected cash shortfall of $4.5 billion the next day.

* The liquidity problem is very serious. If they file bankruptcy for Lehman’s about 2.5 million contracts would default and notion value could be as much as $35 trillion which will cause disaster to the global economy.

* If there is no help from the Government and no buyer would finance Lehman Brothers, I would conclude that the ability of Lehman’s to reopen their business as an ongoing enterprise would be very low.

* If they want to open for business, first they would find buyers to purchase their bad asset in a reasonable amount of money. Then, they need cash and cash equivalent to maintain their daily business. They also need to communicate with the government to discuss if there are any possible funding or bailout plans from the government.

2. What are the fiduciary obligations and responsibilities of Lehman Brothers’ Board of Directors?

Their fiduciary duties would be:

* To monitor Lehman’s risk-taking activities.

* To correct and modify Lehman’s risk-taking policies and procedures.

* To direct the company step back from the risk-taking activities and strategies.

3. In 2007, the Lehman Brothers board supported management’s decision to take on increasing levels of risk. Did the Lehman...