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6.1 Lehman Brothers
Lehman Brothers was one of the main casualties of the US end of the global financial crisis that began in 2007. The US Government, fearing the loss of confidence in the financial markets bailed out Fannie May and Freddie Mac, AIG, and some other financial institutions. But when it came to Lehman Brothers, then the fourth largest investment bank in the US, the Government refused to support and the bank filed for bankruptcy. Whether this was a sound decision is, probably, not the subject for this case – though that decision did precipitate a lot of subsequent problems.

Rather the case has been written to generate discussion about the domination of a major institution by one man – Richard S. Fuld Jr. The case claims that Lehman Brothers was dominated by Richard S. Fuld Jr. Was this desirable? What steps could have been taken to avoid it? Who could have initiated these steps? The discussion should raise questions: where was the board, particularly the independent outside directors? Did they understand the risks involved in the business model being pursued by the CEO? Were they acquiescent, pliable, too-trusting, or dominated by the man who was chairman of the board, chairman of the executive committee, and CEO? Where was the audit committee, indeed, where were the auditors? Where was the nomination committee, which should have been considering board structure and membership? Indeed, where was anyone capable of standing up to Fuld?

The second issue concerns the directors’ ages. Certainly many of them had relevant past experience, but many were old. True, some old people can contribute significantly to board discussions from the experience, knowledge and wisdom. But others deteriorate with age. The Lehman’s board lacked a balance.

The third question - is it possible for the research analysts of a financial institution to give independent investment advice to clients about a company when the financial institution has an interest in

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