Lehman Brothers (b): Decline of the Equity Research Department

LEHMAN BROTHERS (B): DECLINE OF THE EQUITY RESEARCH DEPARTMENT

The Problem

The most important problem on Lehman Brothers is the slow disappearance of Lehman’s Equity Research Department. The downfall of the department began when the company replaced the equity’s division head Jack Rivkin by Paul William. Jack Rivkin was a well-respected among his team, and Paul William was a hard and loyal worker, but he was not head of trading, nor was he head of sales, in summary, he was totally unfamiliar and unqualified to head the department. To almost all team members of the department, William’s appointment was a slap in their face.

On the other hand, Lehman independence from American Express brought pressures for cutting costs and personnel. For that reason, Lehman had to lay off thousands of employees within a 5-year timespan. Within the staff farewells, Lehman fired some of the company’s best analysts, others chose to leave the company and worked for competing firms.

In addition of lay-offs, the equity research department suffered a large reduction of funding, as a result it decreased its productivity and performance. Although the organization made a numerous attempt to regain traction in equities, such as the restructuring of management and re-hiring star analysts who had left the firm, those attempts were not enough to bring Lehman to where they once were.

Key Issues

Inside of the equity research department of Lehman, employees' motivation and morale were tied to their affective commitments because they had an emotional attachment with their leaders, Jack Rivkin, Fred Fraenkel, and Stephen Balog, and their department were a truly family. During their leadership, the department had the focus of commitment of being a team and ranking at the top of the Institutional Investors. This commitment and work-team impacted