I read an article in the UK's Times newspaper by Andrew Gowers, former editor of the Financial Times, who was working at Lehman Brothers as it collapsed. As the head of corporate communications at Lehman, Gowers had a ringside view of events. I’ve reproduced parts of his article below - it shows how the dictatorial attitude of Lehman’s CEO, Dick Fuld, lay the seeds for the company’s destruction.
Without further ado, here are some telling extracts from the article - you can read the full article here.
(all emphasis mine)
“To say he [Fuld] was surrounded with a cult of personality would be an understatement. He was the textbook example of the “command-and-control CEO”.
Those closest to him slaved like courtiers to a medieval monarch, second-guessing his moods and predilections, fretting over minute details of his schedule down to the flower arrangements and insulating him from trouble – from almost anything he might not want to hear.
His ferocity could be intimidating, his eyebrows beetling tight over his hard eyes, his brutally angular brow appearing to contort in rage. He would regularly upbraid colleagues for minor wardrobe malfunctions.
Even when in a relatively upbeat mood he seemed to take pleasure in violent imagery.
But the style also contained the seeds of disaster. It meant that nobody would or could challenge the boss if his judgment erred or if things started to go wrong.
The curious thing was that at some level Dick Fuld knew that trouble was brewing well before the crisis broke. I witnessed him give a fascinating talk about risk at a private lunch with newspaper editors nearly two years ago. With a precision that seems almost uncanny, he virtually prophesied the looming crash."
(So, he knew what was coming, but probably continued to delude himself because of the power he wielded)
"In truth Fuld had become insulated from the day-to-day realities of the firm and had increasingly delegated operational authority to his number two, a long-standing associate named Joe Gregory.
If Dick was the king, Joe was Cardinal Richelieu. [Joe] was also a ruthless enforcer for the boss. His job was not to encourage debate or intellectual curiosity in subordinates but to bend the bank to Dick Fuld’s will.
If something went wrong, you could be sure that Gregory would be on the telephone in a towering rage. Even very senior executives would dread getting one of those calls. They would describe the experience as analogous to being provided with “a new asshole” and called him Darth Vader behind their hands.
Standing in his way by showing aversion to risk could be fatal to your career. Divisional chiefs who urged caution or tried to rein back on risky bets were swiftly ousted.
So he [Fuld] was shut off from independent sources of information, from challenging questions and from up-to-date views from the front line of Lehman’s daily battle in the markets. He was fed instead with the carefully filtered facts that his inner circle thought he wanted to hear.
Here was a corporate governance structure almost preprogrammed to fail: an overmighty CEO, a top lieutenant eager to please and hungry for risk, an executive team not noted for healthy debate and a power struggle between two key players.
To make matters worse, they mounted an increasingly shrill campaign against their critics. One particular hedge fund manager, David Einhorn of Greenlight Capital, had been critical of Lehman’s financial disclosures, thus suggesting to some observers that the bank might have something to hide. Einhorn became an obsession for Fuld and his closest hench-men, who speculated openly about hiring investigators to tail him or search his rubbish bins.
You could say it was a case of shooting the messenger.
Fuld also reminds me of the attitude of Adam Applegarth, CEO of another shattered financial institution,
According to an article in the Daily Telegraph, an observer said: "He [Applegarth] had a habit of asking people who their top five fast bowlers [in cricket] were. And when they gave their opinion he would fire back that they were wrong and the real answer was X, Y and Z. Those who disagreed with Applegarth or questioned his decisions were brushed aside."
The Telegraph article added: "A banker once questioned Adam on his business model. Applegarth retorted that he clearly didn't understand the model or the business. That banker was ever after a persona non grata."
Is it any surprise that these companies collapsed? That said, it’s not the CEO’s fault; organization systems are set up as dictatorship systems, and that’s where the real problem lies.