Lehman Leadership Negotiation Rivalry
This case study shows what happens when management fails to use group consensus in their negotiations to resolve their competing interests.
Many people like to believe that the people in charge of the organizations that employ them are always working as a skillful trained negotiation team, united in working towards achieving unified goals and objectives. We like to believe that our management team has our company’s best interests at heart. Well, sorry to stick a pin in this balloon, this case study illustrates a contrasting example.
Situations such as the one shared in this case study occurs more often than many think. Department heads and executive management sometimes succumb to the ‘empire building’ delusion or ‘Napoleon complex’. Leaders can believe that their department is more important to the success of the company than other departments.
This attitude can seep into the mentality of larger corporations like a mold silently spreads behind the drywall of your house. One day your family seems fine and healthy, and the next day, everyone is feeling ill and out of sorts without knowing why. The unseen corruption has spread and infected your entire household, and the only way to fix your once happy little home is to literally gut the entire insides.
Back in the 1850’s, Lehman Brothers was formed and became an affluent trading house on Wall Street. Unfortunately, some 134 years later, the company fell afoul of misfortune and had to be sold to avoid bankruptcy. Part of the downfall occurred because of the intense enmity between Peter Peterson, chairperson of the banking department, and Lewis Gluckman who was the head of the trading department. This rivalry between the two departments had become deeply rooted over time and is said to permeate many other trading houses on Wall Street. It is quipped that traders are often described by the investment bankers as ‘poorly educated drones…thinking of the moment, not the long term’. On the other hand, it is said that the traders describe the bankers as ‘elitist Ivy League preppies who rise late [and] take leisurely lunches.’
One can now foresee some of the basis for the hostile rivalry that was taking place in Lehman Brothers. Interestingly enough, the bankers and the traders worked in different buildings as well. Generally speaking, it was an unspoken belief in the firm that the traders were considered subordinate to the bankers, but it was the traders who were generating the greater amount of income at Lehman Brothers.
As the rivalry intensified, both Gluckman and Peterson struggled for supremacy within the company. They both began to seek out negotiation alliances to enhance their respective positions. As the power coalitions built, Gluckman and his coalition prevailed and won the turf war. The trading department under Gluckman’s control began to act unilaterally. They bypassed the board of directors and made their decisions by majority rule, refusing to negotiate their decisions with Peterson and the banking department.
When market conditions deteriorated, Lehman Brothers was sucked into the whirlpool because the traders were making decisions that were in their best interests and not other stakeholders.