Lehman Brothers: Decline of the Equity Research Department Case Study
Problem
The main problem discussed in the Harvard case study, “Lehman Brothers: Decline of the Equity Research Department” is the slow demise of Lehman’s Equity Research Department. The department’s painful downfall begins when the equity’s division head Jack Rivkin, a leader who was loved and well-respected among his team, was replaced by Paul William, a fixed-income manager who was unfamiliar and unqualified to deal with equities. To some employees in the department, William’s appointment was a “slap in the face.” Once Lehman gained independence from American Express, pressures to cut costs and downsize became apparent, causing Lehman to lay off thousands of employees within a 5-year timespan. Besides laying off some of the company’s best analysts, of those who were spared, many of them chose to leave the company and joined competing firms. In addition to numerous rounds of lay-offs that Lehman Brothers implemented, a large chunk of funding was cut from the equity research department, which ultimately lowered their performance ranking. Although many attempts to regain traction in equities were made, such as the restructuring of management and rehiring star analysts who had originally left the firm, those attempts seemed to do little to help bring Lehman to where they once were.
Theory
The case of Lehman Brothers is a great example of the effects of organizational commitment. Many of the employees in the equity research department had affective commitments, as they had an emotional attachment and involvement with their leaders, Jack Rivkin, Fred Fraenkel, and Stephen Balog, and their department truly worked as a team. During their leadership, the research department had the focus of commitment of being a team and ranking at the top of the Institutional Investors. However, once these great leaders were replaced by people who were ignorant to equity research or neglected to engage and form relationships with their subordinates, the researchers’ commitment to
The main problem discussed in the Harvard case study, “Lehman Brothers: Decline of the Equity Research Department” is the slow demise of Lehman’s Equity Research Department. The department’s painful downfall begins when the equity’s division head Jack Rivkin, a leader who was loved and well-respected among his team, was replaced by Paul William, a fixed-income manager who was unfamiliar and unqualified to deal with equities. To some employees in the department, William’s appointment was a “slap in the face.” Once Lehman gained independence from American Express, pressures to cut costs and downsize became apparent, causing Lehman to lay off thousands of employees within a 5-year timespan. Besides laying off some of the company’s best analysts, of those who were spared, many of them chose to leave the company and joined competing firms. In addition to numerous rounds of lay-offs that Lehman Brothers implemented, a large chunk of funding was cut from the equity research department, which ultimately lowered their performance ranking. Although many attempts to regain traction in equities were made, such as the restructuring of management and rehiring star analysts who had originally left the firm, those attempts seemed to do little to help bring Lehman to where they once were.
Theory
The case of Lehman Brothers is a great example of the effects of organizational commitment. Many of the employees in the equity research department had affective commitments, as they had an emotional attachment and involvement with their leaders, Jack Rivkin, Fred Fraenkel, and Stephen Balog, and their department truly worked as a team. During their leadership, the research department had the focus of commitment of being a team and ranking at the top of the Institutional Investors. However, once these great leaders were replaced by people who were ignorant to equity research or neglected to engage and form relationships with their subordinates, the researchers’ commitment to