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Learning Team Reflection Week 6 Mgt/521

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Learning Team Reflection
MGT/521
September 14, 2015
Sandra Griffin

Learning Team Reflection
Stephanie Ledford - Introduction
Henry Lehman, a German immigrant, founded a small grocery store in Montgomery, Alabama in 1844. Then in 1850 along with his two brothers they founded Lehman Brothers. Lehman Brothers started as a general merchandising business and evolved into a commodities broker (Investopdeia Staff, 2009). The American Civil War would prove to be an early challenge, followed by the Great Depression in the early part of the 20th Century. The swift development of railroads across the United States was an advantage the Lehman Brothers were able to utilize and led the company to serve as financial advisors and underwriters for the railroad companies.
In 1920, Robert Lehman became a partner and moved into a leadership role. He centered his leadership role on the belief that consumption was the key versus production. Because of this firm belief, Lehman Brothers prospered with financing for airline and motion picture companies. The age of electric in the 1950’s, capital market growth in the 1960’s, the rise of international business in the 1970’s, and the focus of mergers and acquisitions in the 1980’s helped Lehman Brothers grow as a company. From the outside, it appeared that Lehman Brothers was performing well as a company. The bubble burst for the company in 2008 when the subprime mortgage lending crises hit the United States.
Lehman Brothers filed bankruptcy on September 15, 2008, and is the largest company to file for Chapter 11 protection in financial history (Robbins & Coulter, 2012). Issues including questionable deals, excessive corporate bonuses, improper executive conduct, poor decision making, and fraudulent reporting proved that the demise of Lehman Brothers was inevitable.
Unethical company practices, staff, and little accountability led Lehman Brothers to contribute to the collapse of the market capitalization of global markets. Anika Natson – Question 2
What was the culture at Lehman Brothers like? How did this culture contribute to the company’s downfall?
Lehman built a culture based on deceit and fear. Top management wanted to stay rich by any means necessary and if a subordinate didn’t agree the Lehman Brothers did what they wanted regardless. According to “Huffington Post” (2011), a former employer at Lehman Brothers, Vicky Ward, described the work culture ‘terrifying’… “Vicky Ward described a culture in which people would be fired for wearing the wrong clothes to a golf game, let alone disagreeing with the senior management's practices” (para. 1). The culture encouraged unethical standards under the guise of “no one will ever question or find out.” Greed and ego was the contributing factor to the downfall of the Lehman Brothers. The Lehman Brothers centralized the culture, so they had the majority of control and rewarded employees who went along with the deceit but punished any associate, lawyer or auditor for questioning their actions. Because of their actions, they attributed to one of the most historical economic collapses since the Great Depression. Many lost their life savings based on the actions of greed and selfishness.
While many played the blame game, the reality is Lehman Brothers used other people’s money like monopoly money and laughed all the way to the bank. The Lehman Brothers used the system to jump through loopholes and triple their profit for top executives only. “How did this happen? The answer is that the investment banks outmaneuvered the watchdogs ... As a result, with no one watching, the managements of the investment banks did exactly what they were incentivized to do: maximize employee compensation. Investment banks pay out 50% of revenues as compensation. More leverage means more revenues, which means more compensation” (Bowers, 2015, p.1.).
Kimberly Jones – Question 3
What role did Lehman’s executives play in the company’s collapse? Were they being responsible and ethical?
Lehman Brothers executives and advisors made unethical decisions that eventually lead to their demise. They repeatedly exceeded their own internal risk limits and controls (Robbins & Coulter, 2012). Executives and employees were rewarded for questionable deals. The executives demonstrated unethical behavior and therefore the employees demonstrated what they were witnessing. The company used an accounting device “Repo 105” (Robbins & Coulter, 2012), that removed undesirable assets from balance sheets. The ethical decision should have been to sell at a loss, “however the company wanted to make their financial documents appear stable. By manipulating this information they continued an unethical environment. In 2007, CEO Richard Fuld unlike the competitors continued to proceed with mortgage backed security investments. This continued to increase their asset portfolio. He did not take the opportunity to report wrongdoings. By not coming forth investors were not allowed to get the bank back on track. The federal government was not able to protect the public (Montgomery). Lehman’s executives were not acting responsible or ethical. Their management style guided employees to act unethical. They did not seem to have a code of ethics policy to adhere to for providing honest business to clients or stakeholders.

Brian Kluball – Question 5
After all the public uproar over Enron and then the passage of the Sarbanes-Oxley Act to protect shareholders, why do you think we still continue to see these types of situations? Is it unreasonable to expect that businesses can and should act ethically?

Negative information, as opposed to positive information, attracts more attention (Zhu & Chang, 2013). Most companies attempt to operate legally, morally, and ethically. Regardless of protective measures to shield shareholders, upholding the correct image often becomes a top priority. Experienced managers future-plan or predict the effects of events as they occur. The ethical line between right and wrong is easily blurred when attempting to avoid tarnishing a company’s image. Finding and abusing loopholes to maintain or enhance an image directly influences ethical decision-making of managers and employees.
Expecting a business to operate in an ethical manner is not unreasonable. Cutting corners and gaming the system only works for so long. Poor ethical standards, conduct, and decision-making are limited in their affectivity. Covering up unethical behavior or masking failure causes more harm than good and an average customer base is more likely to appreciate flawed honesty versus a perfect lie.

Lisa Longo - Conclusion
Team C concludes Lehman Brothers started small growing into a successful corporation through many challenges, including war and the Great Depression, finding ways to use them to their advantage. This act of boldness continued on throughout the 50s, 60s, 70s, and 80s, proving Lehman Brothers as leaders in their field. This went on until 2008 when they filled for Chapter 11. During this time ethical behaviors are revealed, there was no more hiding the truth in botched balance sheets, or poor executive conduct not being addressed because employees lived in fear of loosing their job. People started to talk about the ugly truth of working in such conditions. The lack of ethics in this culture is making history, not in a good way. This company is becoming "what not to do". Team C notes that if the Lehman Brothers could see the future back in 1844, would this be the image of the grand company they would want after humble beginnings in a small grocery store in Montgomery, Alabama? The answer would more than likely be no because to amount to that success is inconceivable for small town brothers, and the belief is they would want to do anything they could to preserve their name and efforts. Some believe the turning point was greed and ego. Management was never satisfied wanting more bonuses, and finding ways to get them at a far greater cost. They become on the brink of loosing everything, and Team C agrees the extra dollars fabricated in this story is not worth choosing the unethical way to conduct business. For this reason, Team C believes it is reasonable to expect that a business can and should act ethically. Ethics are a choice that if made properly, will protect the employees and preserve the image of the company.

References
Robbins, S. P., & Coulter, M. (2012). Management (11th ed.). Upper Saddle River, NJ: Prentice Hall.

“Case Study: The Collapse of Lehman Brothers.” Investopedia.com. 2 Apr. 2009. Web. 26 Nov. 2011. <http://investopedia.com/articles/economics/09/lehman-brothers-collapse.asp>.

Bowers, S. (2015, May 28). Lehman Brothers' former CEO blames bad regulations for bank's collapse. The Guardian, p. 1.

Huffington Post. (2011). Retrieved from http://www.huffingtonpost.com/2010/03/22/lehman-brothers- terrifyin_n_508594.html

Montgomery, A., The Death of Ethics and the Death of Lehman Brothers. Retrieved from http://sevenpillarsinstitute.org

Robbins, S. P., and Coulter, M., (2012). Management 11th ed., Prentice Hall, One Lake St.,
Upper Saddle River, NJ., 07458.

Zhu, D., & Chang, Y. c. (2013). Negative Publicity Effect of the Business Founder's Unethical Behavior on Corporate Image: Evidence from China. Journal Of Business Ethics, 117(1), 111-121. doi:10.1007/s10551-012-1512-2

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