Marketing the Vision to the Shareholders
SHORT-TERMISM HURTS THE ECONOMY
In September 2008, Lehman Brothers collapsed.1
The company lasted for 158 years and survived the Great Depression in the 1930s. But it did not survive the first 13 months of the modern financial crisis. It finally filed the biggest bankruptcy of all time and aggravated the worst financial crisis since the Great Depression. The fall of Lehman was just one in a series in one of the most devastating months in the history of the U.S. financial sector.2
Fannie Mae and Freddie Mac were taken over by the government. AIG was bailed out. Washington Mutual was seized by the FDIC and Wachovia was sold.
James Collins’ How the Mighty Fall
explained this phenomenon of falling companies. It described the stages that a company experiences as it falls. Collins argued that successful companies often get arrogant and think they can do many things (stage 1), and therefore pursue aggressively wild growth (stage 2). When they find early warning signs of failure, they ignore them (stage 3), until their failure becomes very public (stage 4), and if they don’t reform, they finally go bankrupt (stage 5).3
The stages show that aggressiveness and a lack of realistic goal setting triggers the fall of companies. Companies are often blind-sided by their eagerness to build short-term growth and ignore the risks.
In September 2009, a year after the fall of Lehman Brothers, 28 prominent figures that included Warren Buffett ...