For one hundred and fifty eight years, the investment bank Lehman Brothers survived multiple business cycles and even the Great Depression. However, critical miscalculations in its last few years of life ultimately proved catastrophic for not only Lehman Brothers, but the global economy as well. A post-mortem examination of mistakes made by Lehman executives provides ample lessons for marketing executives of all stripes.
Started in the 1850s by three German immigrant brothers (Henry, Emanuel and Mayer) the Lehman’s founded the New York Cotton Exchange and eventually became huge players in the trading of equities and debt instruments. At the time, the Lehman Brothers probably could not have imagined the firm would become one of the largest investment banks in the world, with over $46B of revenues in 2008. Also inconceivable was mistakes the company made that ultimately led to its destruction.
In the book, “A Colossal Failure of Common Sense; the Inside Story of the Collapse of Lehman Brothers,” former Lehman Brothers vice president, Larry McDonald, chronicles the rise and fall of his company. Taking readers from the nascent beginnings of Lehman Brothers to the eventual bankruptcy of the firm, McDonald weaves a tale of good advice ignored, political snubs, and gross mismanagement of the world’s fourth largest investment bank.
This bestseller has abundant lessons learned for those seeking to understand best and worst practices in corporate governance and politics, financial management and business strategy. There are also cautionary tales for marketing professionals. Let’s start with the first:
Sometimes innovation isn’t a good thing
Innovation, for the simple sake of producing something new sometimes doesn’t increase value, and in fact may end up destroying value. A compelling example in the financial services sphere is the exotic (and sometimes toxic) derivative products produced and sold by Wall Street in the past decade.
Simply stated, derivatives are securities whose value is “derived” from an underlying asset or security. A polluted medley of derivatives during McDonald’s tenure at Lehman Brothers came to be known by names such as credit default swaps (CDS), collateralized debt obligations (CDOs) and derivatives of derivatives (CDOs squared) among others.
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