As Allan Sloan and Roddy Boyd smartly pointed out last July in The Washington Post, the firm is more accurately only 14 years old. Here is the explanation. We’ll quote it at length, because it is important:
How did Lehman, which had a reputation for prudence and sound management, end up in this pickle? Because, irony of ironies, Fuld, who prevailed in a decades-long battle for Lehman’s soul, adopted the policies of the people that he and his trading floor allies fought so bitterly in Wall Street’s most famous civil war of the 1980s. The trading faction, which included Fuld and was led by his then-boss, Lewis Glucksman, wanted the firm to stick to its traditional knitting of trading and underwriting securities. The banking faction, led by Steve Schwarzman and Pete Peterson, wanted to use the firm’s capital aggressively to do risky deals. The traders prevailed then—but Fuld ultimately adopted large elements of the [banking] faction’s proposed strategy. Fuld’s reversal isn’t just some tactical change. It’s huge. It’s as if Jack Welch had decided during his General Electric days that the touchy-feely school of management was right after all and began walking the halls to ensure that people were happy. Lehman resolved its various internal disputes by selling itself to American Express in 1984. Schwarzman and Peterson left to start Blackstone Group and become multibillionaires. Fuld stayed at Lehman. After 10 mediocre-to-awful years as part of American Express’s failed financial supermarket strategy, an undercapitalized, independent company called Lehman Brothers emerged in 1994. This Lehman Brothers bore little resemblance to Old Lehman Brothers, other than carrying a name dating back to 1850. Distinguishing between the Lehman of legend and the Lehman of today is key to understanding Lehman’s problem. This isn’t an old-line firm molded by storied Wall Street patricians. It’s a 14-year-old firm that’s been molded by 14-year chief executive Fuld.
Sloan and Boyd are not the only ones to mention this history—and, in case you are interested, many who do reference Ken Auletta’s Greed and Glory on Wall Street:The Fall of the House of Lehman—but they stand out for clearly outlining its significance.
This current problem of insufficient, or even incorrect, historical context is compounded by earlier stories, from the days of soaring earnings, that praised Fuld for raking in the money. Here is a Fortune piece from 2006:
Lehman Brothers, a 156-year-old firm that has had numerous brushes with death is now enjoying its greatest run ever. Richard S. Fuld Jr., 59, took over the notoriously fractious Lehman Brothers 13 years ago, when it was a forgotten subsidiary within the rat’s nest that was Shearson/American Express. Driven partly by those who dismissed him and his firm as second- or even third-rate, Fuld transformed Lehman from Wall Street weakling to global powerhouse.
Considering that we got such articles while the crisis was building, it is not a shock that we now get articles that tell us Lehman’s disaster started in the past several months or in the past few years.
So now let’s go back to the latest coverage of Fuld. Our purpose in doubling back is to make an important point clear: Yes, Fuld deserves criticism, but excessive focus on Fuld is still a problem because it obscures the larger picture.
Take, for example, the early October segment on Fuld that came as a part of Anderson Cooper 360’s “Culprits of the Collapse” feature. CNN correspondent Joe Johns didn’t mince words:
Fuld is the guy who ramped up Lehman’s business in mortgage-related securities, at least until the bubble burst. But unlike many other firms, when the subprime market went south, he didn’t pull back. Instead he got in deeper.
This is true. And it is important—one of the shards of context we mentioned earlier—but “culprits of the collapse” is the wrong framework for this kind of examination, because it doesn’t address the problem as systemic. To start and stop with Fuld, or any other CEO, is to make a variant of the same mistake New York did.
We got more-sophisticated examples of that same mistake in late December, from the WSJ (subscription) and Bloomberg. These articles offer a variety of details on Lehman’s fall, but their focus is misleadingly narrow: negotiations inside Lehman and between Lehman executives and the rest of the financial establishment.
The inclusion of visual details (e.g. “Mr. Fuld, his suit jacket now off, leaned back in his chair”) is a time-honored business-press device, and we have no problem with it, but it’s no substitute for context.