For low-grade political theater, Monday in Washington was sadly typical: Richard Fuld, ex-CEO of the bankrupt Lehman Brothers, spent two hours under ritual excoriation by a panel of self-righteous legislators.
The play ran in several predictable acts:
• The outlandish and unseemly “fairness” of Fuld’s nine-figure compensation history, in context of the firm’s disintegration and the erasure of equity value for public shareholders and trapped employees alike.
• The absence of timely leadership responsibility and Fuld’s finger-pointing at exterior forces -- the rumor-mongers and the short sellers.
• The whining over Lehman’s solitary fate, while the government supported “rescues” – if such they can be called – of such fallen institutions as Bear Stearns, Fannie Mae, Merrill Lynch and AIG.
Melodramatic scenes of tearfully innocent ex-employees hauling off boxes of personal effects and the pathetic invocation of antagonistic government treatment invite comparison of Lehman’s downfall with Arthur Andersen’s speedy demise in 2002.
They’re equally unfortunate, especially in the personal and systemic disruptions caused by the disintegration of once-noble institutions, but neither fits well the classic model of tragic definition.
Just as with the failure of Fuld’s leadership to admit the mounting evidence of compelling weakness in Lehman’s business model, the belated calls for stabilizing steps at Andersen came too late to escape its death spiral of departing personnel, fleeing clients and global structural break-up.
Likewise, Fuld’s invocation of the influence of darker forces corresponds with the self-inflicted aspects of Andersen’s demise, despite the clinging among members of Andersen’s alumni and sympathizers to a sinister plot line driven by vengeful prosecutors.
That is, while Fuld is chargeable with denial and delayed recognition of reality and a lack of credibility in his case for last-minute rescue, Andersen was reportedly perceived by the government prosecutors as a firm of arrogant and unrepentant recidivists and repeat offenders – not a tactful attitude conducive to amiable treatment by agents holding the power of indictment.
Finally, while the enterprise value of Lehman and Andersen alike rested critically on the continued repose of trust and confidence by both clients and personnel alike, neither management saw on a timely basis the fraying of the fragile fabric of reputation which -- once torn -- was damaged beyond repair.
The Lehman / Andersen comparison should not be pushed too far – Lehman became its own house of cards, for one thing, while Enron as a business fiction served that role for Andersen.
More to the point are differences as to the treatment of successor institutions. Last week’s US bail-out legislation and the programs emerging daily from other governments around the world amply demonstrate that “too big to fail” has broad resonance for the world’s trading and financial systems – for the benefit of troubled enterprises trailing in the wreckage of Lehman.
But for the surviving large accounting firms, confidence in their assured future viability remains a goal that has eluded the limits of their political and lobbying skills.
And in any event, the break-up and migration of the bankers’ brands, corporate structures and business teams – whether Lehman or any of the others – has no correspondence in the ability to preserve the Big Four’s private partnership organizations or their requirement for global presence to serve their large-company clients.
Richard Fuld may be the least appealing villain of that name since Shakespeare’s king – who at his end at least had the consistency of character to go down in battle, crying, “My kingdom for a horse!” rather than “I’ll keep my millions – now where was my bail-out?”
But he was not redeemed either by the windy pontifications of the likes of Congressmen Henry Waxman or Dennis Kucinich – whose own troubled constituents might well have watched Monday’s posturings while wondering about their public guardians soundly asleep at the switches.
Meanwhile, the fates of both Lehman and Andersen make clear that vitality based on trust and loyalty will not survive the evaporation of either – in which case, it’s curtains.
Special thanks on this one for the advice and support of Charlie Green – whose general wisdom on these matters is at Trust Matters.
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