Lessons from dealing with the collapse of Lehman Brothers

2018 marked the tenth anniversary of the collapse of Lehman Brothers – the emblematic event of the global financial crisis, and one whose ramifications are still being felt across the world.

As legal adviser on the administration of Lehman Brothers, we have a unique insider’s view on not just the technical intricacies of the process, but also what it took for the people involved to manage the crisis successfully. The lessons we learned have relevance not just in managing insolvencies, but also crises and other complex situations in any field.

When Lehman went into administration, PwC acted as the administrators for Lehman Brothers’ UK and European operations, and Linklaters acted as legal advisor to the administrators. It was up to the administration team – not Lehman Brothers employees – to manage the business. This meant that a team of people from PwC, supported by Linklaters, had to go into the business on 15 September 2008 (the day the bank was placed into administration) in order to run it.

Between us, we mapped the organisational structure of Lehman Brothers and put together teams of specialists from all the appropriate areas of our firms (financial regulation, capital markets, employment, and so on) in order to run the various parts of Lehman.

Respect: reaping the benefits of relationships

Early on, an “executive committee” of senior team members at Linklaters and PwC was formed to deal with the overall management of the administration. Each Executive Committee member had already crossed paths with one another (as well as with many other law firms and professional services firms), working on the same side or at opposite sides of the table on many deals over decades. So there was already significant institutional knowledge of how each other’s organisations worked, and, crucially, huge personal respect for each other’s abilities.

This knowledge and respect was vital. It enabled us to hit the ground running rather than expending time and energy learning our working styles and characteristics. When managing a crisis, it is hard enough to get your heads around the situation (especially one as complex as Lehman Brothers), so working with people that you know and respect is incredibly helpful: and therefore, taking the time to build such relationships when times are good is an excellent investment.

Trust: let your team members rely on their expertise so you can focus on the biggest questions

Managing the Lehman administration required hundreds of decisions to be made every hour. There simply wasn’t time to put everything to discussion, so it was vital to trust the expertise of those who were designated as being responsible to make the right decisions.

We let people make many decisions based on the information they had to hand and the expertise that they had available to them – not just their own legal and accounting experience, but also key Lehman staff who had stayed in their role after the administration -- and then “joined the dots” on our team update calls the end of the day. This trust in our team members’ expertise streamlined the management process, freeing up the “executive committee” to focus on the most strategic and complex decisions.

Sustainability: keeping yourself “match fit”

After the initial period of getting our arms around the business, we realised that the Lehman administration would be both lengthy and complex. It would have been impossible to work 24/7 on it for long periods of time – this would have led to fatigue, poorer quality decisions and ultimately burnout. Instead, we tried to ensure everyone took at least one day off per week. Allowing some downtime during the week helped maintain energy and motivation, and kept us “match ready” through the many years of the administration.

We also kept the working days bounded with a clear start and finish as much as we could. At 8am we would have our daily briefing call where the day’s tasks would be allocated, and at 7pm we would have our daily wrap-up. Again, avoiding continuous all-nighters was vital to maintaining the quality of our work and the motivation of our team.

Conclusion

The administration of Lehman Brothers was one of the most complex business management tasks in history, and handling this crisis well was vital to maintaining the integrity of the world’s financial system.

The situation was certainly very technically complex. And of course subject matter expertise – knowledge of the law, of accounting, of the workings of the financial markets, and so on – was vital to managing this crisis successfully. But ten years on, it is striking that we feel that our decision-making throughout the crisis was based not only on technical expertise and deep experience, but also on more universal qualities – respect, trust, sustainability – that can be found in any organisation and can be applied to any crisis.