Lehman Brothers Case Questions Essay
I think that the firm would not be blew to function and that they needed to file for bankruptcy. In order for the firm to open up for business, they would need a government bailout plus the banks that Were bidding on them to take out there bad assets. Question 2 The fiduciary obligations and responsibilities of Lehman brothers board of directors is to make sure that the firm does not take certain risks to put them in a bad financial position.
The board of directors should do anything that they can in order to make the firm profitable. They need to make sure that management should act responsibly. The board was acting kind of like management instead of acting like an independent board. Question 3 do not think that the board fulfilled their fiduciary obligations and responsibilities because they should not have put that much risk on the firm. The amount of risk that the board put on the firm put the firm in a bad position essentially leading it to its bankruptcy.
Lehman Brothers at the time had approximately $650 billion to $700 billion of assets on its balance sheet, most of it tied to the supreme market. With this being said, Lehman Brothers strategy focused on the supreme and commercial real estate markets. Their tragedy was fully endorsed by the board of directors, which involved heavily borrowing to make increasingly risky loans. These loans took its leverage ratio up to 30 times its underlying stockholder’s equity.
By Lehman Brothers Board of directors fully endorsing such a risky strategy, this was not fulfilling their fiduciary obligations. Question 4 Because Dick Full was part of management and the board of directors, find this to be an agency problem which was hurtful to the firm itself. Because of this, Dick Full was able to make decisions big decisions in his management role and also big decisions in his board member role. These two types of decisions can conflict at times and cause bad judgment for the firm leading it to its bankruptcy.
In his board member role, Dick might be thinking more about the shareholders. Since he was also on the management side of things, he was probably still thinking in terms of his shareholders instead of what might be better for the company in the long run. Question 5 In my opinion, the board of directors should have waited to file for bankruptcy. The Barfly’s deal was so close to happening that if they delayed their decision and tried to work out a better deal since clearly Barclay was a attention prospect then they could have possibly figured out a solution.
The board should have been looking out for their shareholders and not have given in so easily to the government. Question 6 The implication that Dick Full was both the CEO and COB. One major theoretical perspective is the duality literature of the situation. Board independence is one of the most important aspects for decision effectiveness. This implication also causes an agency problem which is another theoretical perspective. This is the root cause to corporate governance failures. By monitoring this problem the firm could have avoided their unfortunate outcome.