The Challenges And Failure Of The Board Of Lehman Brothers

As Canadian Coalition for Good Corporate Governance indicates that the good governance of a corporation is essential to creating long-term sustainable value and reducing investment risk. In other words, the high quality performance of board directors plays a key role in the success of a corporation. We evaluate it based

As details of the Enron scandal surfaced public outrage grew, calling for action, accountability and consequences. Corporate governance began receiving renewed interest. Corporate governance is a multi-faceted subject that sets forth the rules and responsibilities of the relationship between the corporation and its stakeholders (Cross & Miller, 2012). This includes the company’s officers and management team, the board of directors, and the organizations shareholders.

People often question whether corporate boards matter because their day-today impact is difficult to observe. But, when things go wrong, they can become the center of attention. Certainly this was true of the Enron, Worldcom, and Parmalat scandals. The directors of Enron and Worldcom, in particular, were held liable for the fraud that occurred: Enron directors had to pay $168 million to investor plaintiffs, of which $13 million was out of pocket (not covered by insurance); and Worldcom directors had to pay $36 million, of which $18 million was out of pocket. As a consequence of these scandals and ongoing concerns about corporate governance, boards have been at the center of the policy

The ASX Corporate Governance Council defines the ‘corporate governance’ as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations (Corporate Governance Principles and Recommendations, 2014). The term “failure” of a corporate can be described as “Insolvency” in Australia (Michaela Rankin, 2012). And the reasons for corporate failure can be grouped into six categories: 1. Poor strategic decisions. 2. Greed and the desire for power. 3. Overexpansion and ill-judged acquisitions. 4. Dominant CEOs. 5. Failure of internal controls 6. Ineffective boards(Michaela Rankin, 2012).

This led to the Sarbanes Oxley Act (SOX) of 2002. SOX focused on corporate governance issues within a firm and led to rules of practice for boards of directors. Although SOX does not have mandates for executive compensation it does address how the compensation committee should be independent and how they should govern themselves. This has become very critical legislation to aid in ethical practices in public corporation executive compensation (Bruvik & Whitney Gibson, 2011).

Corporate governance explains the official rule and regulative parameters for controlling and overseeing the entity (Cascarino, 2012, pg. 131). Responsibilities following the audit committee include keeping up to date safe guards and flow of communication with the auditors (Dogas, C., 2015). Corporate governance clearly explains the “rules, processes, and laws under which entities are operated, regulated, and controlled and includes such the board of directors and the audit” (Cascarino, 2012, pg. 131). After the effects were felt of the first large fraudulent crime of Enron and WorldCom, “the United States enacted the Sarbanes-Oxley Act (SOX) with the plan to widen the duties of auditors, management, audit committees, and boards of directors” (Cascarino, 2012, pg.

Many companies around the world are affected by bankruptcy at a certain time in their financial year. When a company is declared bankrupt, it can no longer invest in the stock exchange. The government declares the company insolvent. An example of such company is the Lehman Brothers, a housing and real estate company that went into bankruptcy in 2008. Below is a visual aid of the event that impacted the company to bankruptcy.

On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619 billion in debt, Lehman 's bankruptcy filing was the largest in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and Enron. Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000 employees worldwide. The consequences for the world economy were extreme. Lehman’s ' fall contributed to a loss of confidence in other banks, a worldwide financial crisis and a deep recession in many countries. Lehman 's collapse roiled global financial markets for weeks, given the size of the company and its status as a major player in the U.S. and internationally. Many questioned the U.S. government 's decision to let Lehman fail, as compared to its tacit support for Bear Stearns, which was acquired by JPMorgan Chase & Co. (JPM) in March 2008. Lehman 's bankruptcy led to more than $46 billion of its market value being wiped out. Its collapse also served as the catalyst for the purchase of Merrill Lynch by Bank of America in an emergency deal that was also announced on September 15.

In light of recent global business scandals, corporate governance has become a significant topic. It can be understood as a dichotomy between the shareholders and the management of a company. Navigating this relationship is often problematic as the shareholders provide oversight while management makes daily executive decisions on their behalf. When managed appropriately, this balance between shareholders and management can result in improved efficiency, conflict resolution and a contribution to improving the standards and efficiency of the entire operation. This paper will examine the nature of both roles, how they often are in conflict and discuss the corporate ethics of this relationship. For a student of business organization, understanding how varying elements of a company resolve their issues is critical and can serve as a lesson that can be applied in other endeavors.

Many financial entities experienced financial trouble as the housing bubble burst and mortgage-backed securities lost significant value, specifically the investment bank Lehman Brothers. The Lehman Brothers filed for Bankruptcy in September 2008. Before filing for bankruptcy and years prior to the housing bubble burst, the Lehman Brothers’ balance sheet was growing rapidly during the beginning of 2006. This was mainly due to the many long-term investments financed through short-term borrowing. These assets included a significant amount of residential and commercial mortgage-backed securities, the same type of securities that precipitated the 2008 financial crisis. Although the market for mortgage-backed securities was showing signs of trouble during 2007, Lehman continued its aggressive growth expecting to benefit from the countercyclical crisis (Hines, Kreuze, and Langsam 2011). During this time, Lehman took on more risk, ignoring its own risk models, while also excluding some assets from their risk analyses. These assets became a lot more difficult to sell without incurring significant losses. Lehman was able to maintain acceptable leverage ratios through questionable accounting methods, which allowed Lehman to paint a perfect picture of its leverage ratios and to allegedly mislead investors.

The corporate governance debate has been a global phenomenon, attributed to the increasing deregulation of worldwide capital markets and the expansion of the shareholder class . Such changes have increased awareness of the importance of corporate governance practices,

On September 15, 2008, the infamous investment bank Lehman Brothers was forced to file for Chapter 11 bankruptcy by the federal court. The firm was entangled in risky business that ultimately led to its demise because they did not take reasonable care to avoid acts that were foreseeably damaging to the United States economy.

The rise and fall of the Royal Bank of Scotland is characterized by poor corporate governance which allowed for the complete dominance of the executive management over the board of directors and a massive principal-agent problem. Positive social dynamics and the power of weak ties allowed for compliance while intimidation and bullying tactics silenced questions, concerns and opposition. The board’s utter compliancy and borderline negligence enabled rampant, unchecked empire-building at the cost of shareholder value and led to a spiral of unaccountability and gross incompetence. Stakeholders’ loss of confidence from misinformation and misdirection was an inevitability that sealed

Lehman Brothers Holdings Inc was a worldwide firm, that provided financial service to clients globally. It was established in 1844 by a German immigrant named Henry Lehman in Montgomery, Alabama; as a shop that sold groceries and goods. Emanuel and Mayer were his younger brothers and they joined the business in 1850 (library.hbs.edu). After Henry’s death in 1855, his younger brother started to run the company. Over the decades, only family members were allowed to become partners, this practice continued until the 1920’s. The first New York office opened in 1858. After the Civil War, their headquarters moved from Alabama to New York.

Lehman Brother Holdings, Inc. was the largest corporate bankruptcy in U.S. history. The court appointed bankruptcy examiner released a 2,200-page report which found Lehman’s executives and their auditing firm Ernst & Young (E&Y) liable.