Embedding Values in Corporate Culture: Applying Schein’s Organizational Theory to Lehman Brothers

Abstract

Numerous questions were left unanswered when Lehman Brothers Holdings, Inc., the fourthlargest U.S. investment bank, sought Chapter 11 bankruptcy protection on September 15, 2008 and became the largest bankruptcy in U.S. history. This article examines two such questions: (1) How did its bellicose CEO, Richard Fuld, transmit his cultural values to Lehman staff; (2) did the accounting loophole, “Repo 105” or the firm’s aggressive, high risk culture play the greater role in the firm’s downfall. This paper draws on insights from Schein’s (2010) organizational culture framework to explore these questions. We suggest that the intentional misuse of “Repo 105” was not the main contributor to the collapse, which was instead, in the context of the financial crisis, an almost inevitable product of the aggressive, risk embracing culture that its CEO both embodied and built. The use of the Schein framework allows for an analysis that focuses on the systematic rather than idiosyncratic aspects of Lehman culture that contributed to the failure. By providing fresh insights into the Lehman implosion, this study may be useful to managers and other stakeholders seeking to identify and mitigate similar negative cultural attributes.