Question

Lehman Bros Consulting Case You are to make an assessment of the issues within Lehman Brothers from 2000 until its' fall. You have access to all the material available in this field/discipline (remember to give credit). Consider this is an assignment you have been given as part of a consulting firm hired by the board to help Lehman Brothers. You are to write the Case as a consultant who is making an assessment of the issues in an organization. We have covered the environment, structures, individuals, and groups. Using the material found in “The Colossal Failure of Common Sense”, you are to provide an example of each of environment, structures, individuals, and groups from the book. You should identify examples or illustrations of the material we have covered and provide your reasoning for including those particular examples or illustrations. Four pages should begin to cover the material if you are diligent in your editing using APA. A simple outline of the case would be: Introduction to the case – should include a background of the case, and at least three major issues you have identified. An assessment of McDonald, as an individual, and the factors (from the information available to you) that may have provided the foundation for who he appears to be. As part of this assessment you should provide a recommendation for his employment and give your reasoning. Analysis of the issues in the case using class developed material to help with understanding. The analysis should include an understanding of the four major issues in OB (individuals, groups, structures, and the context), the multiple lens we view each of the issue through (the academic disciplines) and the multiple perspectives we use to understand and add value to organizations (internal and external). Recommendations you would make to the Board of Directors should include at a minimum your response to the issues you have pointed out in the introduction. You would want to consider all the components of the course in your case.

Answer 1

The impact of the financial crisis that rocked the global financial markets, economies and companies was the subprime crisis which is linked to the collapse of Lehman Brothers. The uncontrolled risk exposure and too much speculation by the fourth largest bank has led to the failure of key businesses, and evaporated the consumer wealth estimated in trillions of U.S. dollars. The impact also created hurdles to the economic activities of the developed nations such as US, UK, Germany, France, etc. Though several large financial crisis such as dot.com crash of 2000, crash of 1987, depression of 1929, etc. were experienced, the subprime crisis is the largest among all.

The financial crisis that began in mid-2007 due to US mortgage market collapse combined with meltdown of financial market structure created the huge impacts in American, Asian, European and Australian markets. Millions of investors lost their savings and financial assets. The dynamics of the financial crisis can be summarized as the financial institutions with the intent of earning higher profits went for risky investments. One of the reason for sudden rise in risky investments is the encouragement given to the CEOs of financial institutions to pursue higher profits and allowing them to include risky investments in their business strategy. The dare devil behavior of the CEOs and the top management has led to the rise in risky assets and the crisis of subprime mortgages.

The issue of subprime mortgage crisis arose when the real estate prices of the mortgaged houses began to reduce and the default rate of the borrowers began to increase. The reality was that the consumers were not able to meet their financial commitments as they were considered as creditworthy while offering the loan. The huge amounts of default loans, inability of the borrowers to meet the debt demands and the slashing of the real estate prices, together influenced the economic crisis. The decisions of the top management of the Lehman Brothers are considered as the major contributors to the financial crisis of 2008.

The structural aspect of an organization played a role in the decisions. Previously, organizations were functioning under one leader, in the beginning of the twenty first century; the top management began to function under the leadership of teams. The team leadership had four critical elements i.e. common strategy and vision; seamless communication among the team members through technology, the rewards of strategic success are declared or decided in advance, and the team members are empowered to take decisions that can gain profits or revenues. The structure of team leadership was in place when Lehman Brothers took those risky decisions.

A review of the occurrences in the team indicated that the team members were overconfident about their understanding of the business strategy and they blindly assumed that they are working for the company’s interests. The high morale in the management team gave the members a feeling of unstoppable power and that crystallized into hubris. The top managers were blinded by their own power and paid little attention to the consequences of their decisions. The aspiration to go big, the unstoppable feeling of power and the escalated risk taking mindset has pushed the Lehman Brothers management to the verge of collapse.

Lawrence McDonald, who authored the collapse of Lehman Brothers, was actually a trader with the bank and was never exposed to the happening prior to the collapse. After the collapse, with the contact of the managers of bank, McDonald gathered information and recreated the events and decisions that led to the bankruptcy. Though it is a improper to claim the book as an insider’s account, the book provides interesting information about the bank and its function before the collapse.

The Lehman Brothers would have avoided the crisis if they had been practicing ethical decision making. Ethics has special and unique effect on the business environment. The top team must have developed ethical standards in their decision making and the decisions should have been discussed among the major stake holders of the bank before they were implemented. From the cases of Enron, Lehman Brothers and others, it emerges that ethics and values have fundamental place in business, without which no business can survive for long.