By: Young Ah Kim
Introduction
Lehman Brothers is often cited as an example of corporate governance failure largely due to poor oversight by the board.[1] Richard Fuld, former CEO of Lehman Brothers during its bankruptcy in 2008, still does not agree with this general evaluation. Seven years later in 2015, he gave a speech at a conference in New York.[2] Fuld spoke about Lehman’s risk management, as quoted in The Wall Street Journal: “Regardless of what you heard about Lehman’s risk management, we had 27,000 risk managers because they all had a piece of the firm.”[3] The problem, however, remains that Lehman’s employees owned a very small portion of the company stock, which did not solve its agency problem.
Lehman Brothers had a high-leverage, high-risk-taking business strategy supported by limited equity.[4] For instance, it took its leverage ratio up to 30 times its equity.[5]… Read the rest