Richard S. Fuld
Richard “Dick” Severin Fuld, Jr. (born April 26, 1946) is an American banker best known as the final Chairman and Chief Executive Officer of Lehman Brothers. Fuld had held this position since the firm’s 1994 spinoff from American Express until 2008. Lehman Brothers filed for bankruptcy protection under Chapter 11 on September 15, 2008, and subsequently announced a sale of major operations to parties including Barclays Bank and Nomura Securities.
Fuld was nicknamed the “Gorilla” on Wall Street for his competitiveness.Condé Nast Portfolio ranked Fuld number one on their Worst American CEOs of All Time list, stating he was “belligerent and unrepentant”.Fuld was also named in Time magazine’s list of “25 People to Blame for the Financial Crisis”.
He then began his career with Lehman Brothers in 1969, the year the firm’s senior partner Robert Lehman died, and stayed at the company until its bankruptcy. He began as a commercial paper trader and rose rapidly.
Fuld worked for Lehman for nearly 40 years. During this time, Fuld witnessed and participated in the numerous changes which the organization endured, including its merger with Kuhn, Loeb & Co, its acquisition by American Express, its merger with E.F. Hutton, and its ultimate spin-off from American Express in 1994, once again as Lehman Brothers.
Chief Executive Officer:
Having served as CEO from 1994 through the firm’s collapse in 2008, Fuld was the longest-tenured CEO on Wall Street at the time of the financial crisis of 2008. Fuld had steered Lehman through the 1997 Asian Financial Crisis, a period where the firm’s share price dropped to $22 in 1998. Lehman had a yearly loss of $102 million in 1993, but after Fuld became CEO the firm had fourteen straight years of profits, including one of $4.2 billion in 2007, although in 2008 it reported a Q2 loss of $2.8 billion and filed for bankruptcy later that year. Similar to the fall of Barings Bank this was accomplished by driving up company earnings through excessive leverage and risk.
Fuld had a succession of “number twos” under him, usually titled as President and Chief Operating Officer. T. Christopher Pettit served until November 26, 1996, when he lost a power struggle with his deputies, likely brought about after Pettit had a mistress, which violated Fuld’s unwritten rules on marriage and social etiquette. Bradley Jack and Joseph M. Gregory were appointed co-COOs in 2002, however Jack was demoted to the Office of the Chairman in May 2004 and departed in June 2005 with a severance package of $80 million, making Gregory the sole COO and President. Along with CFO Erin Callan, Gregory was demoted on June 12, 2008, and replaced by Bart McDade, who would see Lehman through bankruptcy.
In 2006, Institutional Investor magazine named Fuld America’s top chief executive in the private sector. That same year in December, Fuld told The Wall Street Journal, “as long as I am alive this firm will never be sold.” In March 2008, Fuld appeared in Barron’s list of the 30 best CEOs and was dubbed “Mr. Wall Street”.
Overall, Fuld received nearly half a billion dollars in total compensation from 1993 to 2007.In 2007, he was paid a total of $22,030,534, which included a base salary of $750,000, a cash bonus of $4,250,000, and stock grants of $16,877,365. According to Bloomberg Businessweek, Fuld “famously demanded loyalty of everyone around him and demonstrated his own by keeping much of his wealth tied up in the firm”, even buying Lehman shares on margin, according to a friend.
Bankruptcy and aftermath:
Fuld was initially praised for handling the initial subprime mortgage crisis well, better than any of the other bulge bracket firms, behind Goldman Sachs.
Fuld was said to have underestimated the downturn in the US housing market and its effect on Lehman’s mortgage bond underwriting business.Fuld was already the longest tenured CEO on Wall Street and kept his job as the subprime mortgage crisis took hold, while CEOs of rivals like Bear Stearns, Merrill Lynch, and Citigroup were forced to resign.In addition, Lehman’s board of directors, which includes retired CEOs like Vodafone’s Christopher Gent and IBM’s John Akers were reluctant to challenge Fuld as the firm’s share price spiraled lower.
Fuld would be criticized for not completing several proposed deals, either a capital injection or a merger, that would have saved Lehman Brothers from bankruptcy. Interested parties had included Warren Buffett and the Korea Development Bank.Fuld was said to have played a game of brinkmanship, refusing to accept offers that could have rescued the firm because they didn’t reflect the value he saw in the bank.
However, New York magazine had a different view on Fuld’s last three months as CEO before the firm’s bankruptcy. Hugh “Skip” McGee III, then-head of the Investment Banking Division, had earlier disagreed with COO Joseph M. Gregory’s appointment of one of his subordinates, Erin Callan, as CFO. On June 11, 2008, McGee organized a meeting of the firm’s senior bankers, who forced Fuld to demote Callan and Gregory. Gregory’s replacement as president and COO was Bart McDade. While Fuld remained CEO in title, it has been said that a management coup had taken place and that the one guy in charge was now McDade. New York magazine’s account also stated that Fuld was desperately searching for a buyer during the summer and even offering to step aside as CEO to facilitate the sale of the firm, being quoted as saying “We have two priorities, that the Lehman name and brand survive and that as many employees as possible be saved, and you’ll notice our priority isn’t price”.
In his 2009 book A Colossal Failure Of Common Sense, Larry McDonald—a senior Lehman Brothers trader in the years leading up to the crash wrote that Fuld’s “smoldering envy” of Goldman Sachs and other Wall Street rivals led him to ignore warnings from Lehman executives about the impending crash, and that Fuld insisted the firm’s chief risk officer left the boardroom during key discussions.
In October 2008, Fuld was among twelve Lehman Brothers executives who received grand jury subpoenas in connection to three criminal investigations led by the United States Attorney’s offices in the Eastern and Southern Districts of New York as well as the District of New Jersey, related to the alleged securities fraud associated with the collapse of the firm.
On October 6, 2008, Fuld testified before the United States House Committee on Oversight and Government Reform regarding the causes and effects of the bankruptcy of Lehman Brothers.During the testimony, Fuld was asked if he wondered why Lehman Brothers was the only firm that was allowed to fail, to which he responded: “Until the day they put me in the ground, I will wonder.”
Soon after Lehman filed for bankruptcy, there was a well circulated rumor – promulgated initially by the satirical financial blog “Dealbreaker” and overly excited reporters – that Fuld was “punched in the face” and/or “knocked out cold” by someone while working out in the company gym. According to the man who was gym manager at the time, this never happened.