In-House Counsel

The Congressional Jerry Springer Show

By Hanna

Richard S. Fuld Jr., the chief executive of Lehman Brothers Holding that owns the financially charred remains of a once formidable investment bank, didn’t look very happy answering angry questions from Henry A. Waxman’s House Committee on Oversight and Government Reform yesterday or when dodging the protesters waiting for him outside who hurled insults and held up signs reading “crook” and “shame.”

I bet Mr. Fuld is not used to people talking to him like that.

He’s also not used to being held accountable to people who talk to him like that.  The only problem now is that he can’t flick them off like flies the way he did back in June when he dismissed a call by certain shareholders to forgo bonuses this year and mockingly noted “they are only people who think about their own pockets.”

The tide has now turned against him.  The FBI and at last count 3 U.S. attorneys offices are investigating whether positive statements made by Fuld to analysts about the health of Lehman’s balance sheet five days before the company filed for bankruptcy amounted to fraud.  The Securities Exchange Commission is also examining Lehman’s asset valuation practices.

One internal Lehman document dated June 8, 2008 shown to Fuld during yesterday’s hearing warned about Lehman’s financial condition and asked, “Why did we allow ourselves to be so exposed?”  Yet Fuld claimed he never saw the document before.  Maybe he didn’t see that particular document before, but had he heard that there might be a problem from some other source?

It’s hard to believe he could be that clueless.  It makes you wonder how someone so smart could be so blind.

That incongruity offers a few interesting leadership/ legal lessons for managers of any size business:

1.  Periodically reexamine the assumptions of your cash cows.  Those cows are not sacred.  Everyone loves to make money and no one wants to lose out on the latest market trend; but, if you don’t respect business fundamentals you stand to lose even more — maybe everything.

2.  Hedge your assumptions — the goal is to survive and thrive, not gamble and hope for a bailout from Uncle Sam, your shareholders, your friends, or your family.

3.  Remember who your business is serving and serve those constituencies with integrity.

4.  Create checks and balances in your business processes and systems to avoid overconfidence and Hummer-sized blind spots.

5.  Keep your finger on the business pulse more than in the cookie jar.

Keep those 5 principles in mind and you won’t be staring down a legal nightmare or find yourself starring in a Congressional Jerry Springer Show.

Full post as published by Legal Literacy on October 07, 2008 (boomark / email).