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Oct 20
2009

Lehman failure shows CEOs shouldn't be dealmakers

Posted by Ron F in Risk, M&A;, DealsC-level executivesacquistion

Ron F

This take on the Lehman saga, as reported by Andrew Ross Sorkin, has implications for other dealmakers, and not just those out to keep their companies from failing.

According to Sorkin, Lehman CEO Dick Fuld ignored the nation's top banking lawyer when trying to do deals that would save the investment bank, choosing instead to negotiate an acquisition or investment himself.

And that's a big no-no, according to Yves Smith, who contends that Sullivan & Cromwell's Rodgin Cohen would surely have been more dispassionate about potential terms, and thus more likely to succeed. In a nutshell, Fuld was so blinded by his own ego and aggression that he made too little use of the smartest guy in the room, who was after all on his side.

The thing is, Smith says that based on her experience, Fuld is hardly alone in taking this I-know-best approach to M&A. And I wonder if it doesn't explain why so many deals are failures. In other words, might the incidence of CEOs leading the charge correlate to the fact that two-thirds of all acquisitions fail to add value?

True, I've heard explanations that range from the managerial, such as a failure to perform proper due diligence or integrate back-office systems, and behavioral, i.e., overconfidence, to the compensatory, as in perverse incentives that reward managers at the expense of shareholders. But in the end, they may all derive from the same problem, namely, the egotism of the guy or gal in charge.

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