WOULD DISASTER HAVE STRUCK LEHMAN SISTERS ?
November 12, 2012 8 Comments
I have been inspired by Jonas Ridderstrale, a speaker at the AtelierSAP conference in Berlin last week, to speculate on what would be the state of the world today if Lehman Brothers had not been founded in 1850 by Henry, Emanuel and Mayer, but had instead been started by Henrietta, Emanuelle and May to become Lehman Sisters.
On September 15, 2008 Financial Services firm Lehman Brothers filed for Chapter 11 bankruptcy protection.
Lehman Brothers was forced into this position through the mass exodus of its clients, drastic losses in its share price and the devaluation of its assets by the credit rating agencies, mainly driven by the number of defaults in their sub-prime mortgage business. With holdings of over $600 billion in assets it was the fourth largest investment bank in the US and it remains the largest bankruptcy filing in history, many seeing it as having played a major role in precipitating the global financial meltdown that we are facing today. Major Banks across the globewho dealt with Lehman Brothers lost billions, bankrupting millions of small investors and what followed has been called “the perfect storm” of economic distress factors, which we are still struggling with today.
(Note that I hesitate to call it a “crisis” as traditionally a crisis has a beginning and an end, and I believe that this is not so much a crisis as a dramatic shift in the economic environment and in business fundamentals that will necessitate rethinking of many business principles that we have taken for granted as “truisms” over the last 200 years, such as the ready availability of loans to fund growth.)
Chairman and CEO Richard S. Fuld Jr had been with Lehman Brothers for over 30 years and was the longest serving CEO on Wall Street (1994-2008), which should have already been a red flag (see “Hero to Zero” posted October 29, 2012), and he also had a history of long serving underlings such as Chris Pettit his second in command for 20 years finallyserving as President and COO (Second warning sign see “How do you know when you should step aside” posted April 2, 2012). In 2008, even as Lehman Brothers was disintegrating Fuld’s annual salary was $22 million and he is estimated to have earned in the vicinity of $500 million during his tenure at Lehman Brothers.The bankruptcy examiners found that he had also been involved in “cosmetic accounting practices” in his quarterly reporting to make Lehman Brother’s finances appear less shaky than they really were.
I have long speculated on whether women are better managers than men (see “Do women make better managers” posted November 22, 2010), despite the fact that today they fill so few board seats, estimated at 10% in the western world in 2012 (16% UK, 13% US), but the question now is whether women would have made the same insane gambles and been driven by greed as much as did the leaders at Lehman brothers.
I believe from personal observation within my own family, friends and colleagues over the last 40 years, and supported by numerous studies over the decades (example “Men, Women and Risk Aversion” paper) that women are definitely more risk averse than are men, which may explain the low number of IT company start-ups by women entrepreneurs, Arianna Huffington being one rare example. Couple this with women generally possessing a greater social conscience and sense of responsibility for the longer term than do men, and it brings me to the belief that the world would currently be in a calmer and safer state had it been Lehman Sisters rather than Lehman Brothers that had had control of the $600 billion. It is not that business women are totally risk averse, it is just that they are more risk cautious than men, and are therefore unlikely to bet everything on the throw of a single die.
I believe that the difference between men and women in their attitudes to risk can be summed up in the following quotes:
If it’s a good idea with calculated risk, go ahead and do it. It’s much easier to apologize than it is to get permission.–Rear Admiral Grace Hopper, computer scientist and pioneer (1906-1992).
Life isn’t worth living unless you’re willing to take some big chances and go for broke.–Eliot Wiggington, American historian and writer.
As Jonas Ridderstrale said during his presentation “Companies have been built by men, for men, but we will need to rely more heavily on women to find the talent needed to build companies for the future.”
A recent study by the Higher Education Policy Institute (HEPI), an independent university think-tank in the UK has found that women outperform men in almost every single aspect of higher education, and that the number of women at university began to exceed the number of men nearly 20 years ago. The study shows that not only are there more of them studying, but they are less likely to drop out and will most times end up with a better degree. It also found that about 50% of women now opt for higher education compared to about 37% of men. It is no different in the US where American women today are more likely to earn college degrees than men, with women receiving 57%of all bachelor’s and 60% of all master’s degrees.
Sadly however, a recent survey shows that when it comes to science, technology, engineering and maths (STEM) they’re still far behind men. In fact, in the US women receive only 21% of degrees in the field of computer and information science, and only 19% of engineering degrees. European numbers are similar but are rising steadily with support from EU initiatives like “Science. It’s a Girl Thing”, which despite being lauded for its intent, was criticised for its representation of young women (focussing on giggling, stilettos and makeup,so no doubt an initiative designed by men). It does however show a changing and growing commitment to attracting women into the STEM courses.
I have little doubt that this move to STEM courses by women will change dramatically over the coming decade, particularly as women realise that this will open higher paying opportunities for them, and I believe that as women take their rightful and equal place at the highest corporate levels, we will actually build a better and more sustainable business world.