Final answer:
The fall of Lehman Brothers exemplifies the errors at the core of corporate leadership: inadequate oversight, emphasis on short-term profits, and limited financial expertise within the Board of Directors.
Step-by-step explanation:
Error in Corporate Leadership: The Lehman Brothers Case
The Lehman Brothers' failure in 2008 highlights a crucial issue at the heart of corporate governance: the lack of proper oversight by institutions supposed to regulate top executives. In the case of Lehman Brothers, a significant cause of the collapse was the Board of Directors' failure to monitor and prevent managers from taking excessive risks. As Tim Geithner emphasized in his testimony to Congress, the Executive Compensation Committee focused too much on short-term gains without considering long-term risks. Moreover, the court examiner's report pointed out that the Lehman Brothers' Board had limited knowledge in financial services, which likely contributed to their ineffectiveness in overseeing the firm's operations.
SUMUP of Key Points:
- Lack of oversight and risk management by the Board of Directors
- Emphasis on short-term gains over long-term stability
- Inadequate financial expertise within the Board of Directors
Additional key factors in the failure context include intertwining relationships between corporate and political leaders and the misconception that markets are independently powerful without need for governance. However, governments and voters have a profound impact on economic conditions, and markets do not function without rule of law and proper governance structures.