Fulding Under Pressure

I don’t like to kick someone when he’s down and out, but never have I seen a chief executive who repeatedly cannot accept responsibility for what his actions wrought. In the case of Lehman Brothers, Dick Fuld oversaw the firm for 14 years before it collapsed. But instead of admitting that he may have made a few mistakes on the road to its bankruptcy, he heaped the blame on the U.S. government for not bailing the firm out.

Right out of the gate in his testimony before the Financial Crisis Inquiry Commission he said:

Lehman’s demise was caused by uncontrollable market forces and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments.

Then he goes on to hint at some broader campaign against Lehman:

Other firms were hurt by their plummeting stock prices and widening CDS spreads. But Lehman was the only firm that was mandated by government regulators to file for bankruptcy. The government then was forced to intervene to protect those other firms and the entire financial system.

Lehman went bankrupt not because of some great conspiracy. It went bankrupt because Fuld ceased to be an effective leader and had created a culture of fear that made it impossible for his decisions to be challenged. Its end was much simpler. As Bryan Marsal, the chief restructuring officer, told me for my book Clutch, Lehman collapsed because: “They shouldn’t have had so much leverage. They shouldn’t have had such a disproportionate concentration in real estate assets. And they should have been smarter about using short-term debt to finance long-term assets.”

While the financial crisis accelerated Lehman’s problems, it was the only firm to collapse. Any chief executive should take at least some responsibility for that – or else say all the profits and growth in the good years were also do to circumstances beyond his control.

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