Leadership, Pride and Investment Banking

This week’s financial upheaval on Wall Street gives us an opportune moment to discuss the leadership of executives at Merrill Lynch and Lehman Brothers. Have they been making good decisions over the past few months (and years)? Could they have possibly changed the outcome for their respective companies?

The effectiveness of leadership is determined by being able to recognize the appropriateness of actions relevant to the circumstances of the situation. As Henry Blodget explains in this article on Slate, Merrill Lynch’s CEO Peter Thain was brought in last year to ‘clean up the mess’ created by his predecessor. In the process he became aware of the growing problems posed by declining credit and real estate markets. He took responsibility bad debt and acted, taking big write-offs and swallowing his pride in the process. These actions helped Merrill Lynch stay strong enough to find a buyer in Bank of America.

On the other hand Richard Fuld, the CEO of Lehman Brothers, was less willing to adjust his strategy and “de-risk”–his aggressive strategies had led the firm to success during his 14 year tenure as CEO. He eventually began to make stabilizing moves similar to Thain’s, but he was too late, and in the end Lehman Brothers had too much debt and couldn’t find a buyer.

Being an effective leader sometimes means stepping back and doing what’s best for the company, even when the leader’s pride could be damaged in the process.