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Where Was Lehman's Board?

Posted by: Emily Thornton on September 12, 2008

As Lehman’s stock continued to spiral downward to close on Friday at $3.60 — a level the company has not seen for over a decade — more investors started to ask the question that always seems to pop up when a company is on the brink: Where is the board of directors who were supposed to be guarding our interests?

As usual, the answer appears to be: supporting the company’s CEO, instead of pushing him to make difficult decisions before the firm’s back is against the wall. That’s one reason why — unlike other financial firms like Merrill Lynch, Washington Mutual, and AIG that have tossed out their CEOs — Lehman’s CEO Dick Fuld remains four months after giving the firm’s president and chief financial officer the boot on June 12. On Sept. 10, Fuld said the board has been “wonderfully supportive” in a conference call.

The writing has been on the wall that the board would behave this way for some time now.

Veteran corporate governance researcher The Corporate Library gave Lehman a "D" and rated Lehman's governance risk "high" in March after examining its annual proxy statement. The research firm was especially concerned that Lehman's fossilic board of directors had just awarded Fuld a sum a that put him in the ranks of the top 2% of American CEOs: $71.9 million. "Our D rating on the company is unchanged due to concerns about executive compensation and board composition," The Corporate Library wrote.

The Corporate Library's main beef about the board was that about half of Lehman’s 11 directors are over the age of 70, according to the firm’s proxy. In declining order: John D. Macomber, principal of JDM Investment Group, is 80. So is economist Henry Kaufman. Roger S. Berlind, a theatrical producer, is 77. Thomas H. Cruikshank, retired chairman and CEO of Halliburton Company, is 76. And John F. Akers, retired chairman of IBM, is 73. Each of them has been a member of Lehman’s board for almost 15 years on average.

Of course, older directors can be assets. But a large proportion of elders "are statistically more likely to encounter governance-related difficulties," according to The Corporate Library's research. “Our board is a joke,” says one Lehman executive who asks not to be named.

One Lehman director was not available for comment. A call to another director by BusinessWeek was not returned.

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Reader Comments

Accident Waiting To Happen

September 13, 2008 12:36 PM

As you point out in the article, practically the entire Lehman board consists of has-beens and in certain cases, executives who were ousted from their former posts as CEOs due to ineffective leadership and performance.
Just look at those stale board members. For God sakes, John Akers almost ran IBM into the ground by missing the PC revolution. And Cruikshank? He hails from the highly ethical (yeah, right) Halliburton. This is the same company formerly run by our illustrious Vice President Dick Cheney, who doled out billions of dollars in no-bid Iraq infrastructure contracts to the company.

A little extra digging would probably reveal similar incompetence if not highly questionable behavior and decision making for the other board members, I'm sure. So, is the board's inability to hold Dick Fuld accountable really any surprise?


September 14, 2008 07:59 AM

No one has heard a peep from them this year. They must be feeble and weak.


September 14, 2008 10:20 AM

It's always been a "you scratch my back" i will scratch yours.

I do not see the need for any corporate boards at all as they are vehicles for making money, luxury living and incompetence.


September 14, 2008 11:11 AM

Truth is, the no-bid contracts with Haliburton started under the Clinton administration.

Francine McKenna

September 14, 2008 11:51 PM

Lehman Brothers also has a long-time auditor they inherited from American Express, Ernst & Young. EY let them get away with having incompetent CFOs, a major control weakness, amongst other things. The Board also wrote off criticism from shorts instead of wondering if there was a fire where so many saw so much smoke.


September 15, 2008 08:48 AM

The board is where many of the other corporate boards are -- and have been -- on the take.


September 15, 2008 10:25 AM

If governance is a real issue...would Sarbanes Oxley not give investors leverage to demand answers and money from executives, board members, and the auditors? Sarbanes Oxley not only was designed to hold people responsible for fraud but also not living up to what they are supposed to be doing.


September 15, 2008 12:48 PM

...about time Congress puts a rope around the high risk 'cowboys' (boards or no boards) and establishes appropriate oversight.


September 16, 2008 07:18 AM

Where were they? Napping!

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Businessweek’s Emily Thornton, Amy Feldman, Ben Levisohn, and Ben Steverman focus on matters great and small for investors, from the views of a hot fund manager to an explanation of the latest products devised by Wall Street’s rocket scientists. Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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