Quick update from the bankruptcy courts vis-a-vis Lehman Brothers. The report turned in by the examiner appointed by the court covers 3 broad areas-
1.Why did Lehman Fail?
2.Are there valid claims for preferences or voidable transfers?
3. Are there valid claims arising out of the Barclays transaction?
The most relevant aspect from a Governance standpoint was the section that tried to understand the role (or lack thereof) that Lehman directors played in the entire Lehman failure.
According to the report,
" The Examiner Does Not Find Colorable Claims That Lehman’s Directors Breached Their Fiduciary Duty by Failing to Monitor Lehman’s Risk‐Taking Activities "
Lets take a step back, in fact, lets take several steps back to 2008 when Lehman filed its proxy statement.
Here is a list of Lehman directors who made up their Board Finance and Risk Committee and their corresponding 'relevant' experience.
1. JOHN F. AKERS- Retired chairman of IBM (retired in 1993), also formerly on the board of the Metropolitan Museum of Art.
2. ROGER S. BERLIND- Theatrical Producer
3. MARSHA JOHNSON EVANS-Former CEO American Red Cross and former executive director of Girls Scouts as well as a retired naval admiral.
4. ROLAND A. HERNANDEZ-Former CEO of Spanish Language Television Station
5. HENRY KAUFMAN- President of Henry Kaufman & Company, Inc., an investment management and economic and financial consulting firm.
According to Lehman's Finance and Risk committee charter, members were required to "review(s) and advise(s) the Board of Directors on the financial policies and practices of the Company, including risk management. The Finance Committee also periodically reviews, among other things, budget, capital and funding plans and recommends a dividend policy and Common Stock repurchase plan to the Board of Directors."
Which of these 5 directors you think would be able to provide oversight over Lehman Brothers' Risk Management practices? The 'girl scout' perhaps or maybe even the 'theatrical producer'?
I think even for the most basic and junior level job, most hiring managers will ensure that incumbents have relevant experience....and these were senior oversight positions with a company that were filled in by persons with great but irrelevant experience.
Now that we know that Lehman had such 'illustrious' and highly 'accomplished' directors on their Board Finance and Risk Committee, was Lehman's failure just a matter of time?
The clean chit given by the Court appointed examiner to Lehman's Directors is a slap in the face for corporate governance.
Anyway, for those interested, InvesGuard regularly tracks this data for all companies. We have put a few reports out there that outline this and many other non financial metrics.