Learning from Lehman: The Peril of Chasing Others

This article was originally published on LinkedIn. 

Today marks the seventh anniversary of the fall of Lehman Brothers. I had the good fortune of joining Lehman just weeks before it went under. I was fresh out of college and thought I was launching my career at a highly reputable investment bank. Instead, I got a front row seat to the largest bankruptcy in history.

I watched the Lehman Brothers collapse with both fascination and terror—fascination that I was watching a historic event unfold, and terror that my colleagues and I would soon be out of jobs. While the economy was already in turmoil, Lehman’s bankruptcy triggered a stock market sell-off, sending global equities into a tailspin and destroying the financial lives of many.

Why Lehman fell

Much has been said of Dick Fuld, the Lehman Brothers’ CEO. During the 2000s, Fuld insisted on growing Lehman into an investment banking powerhouse. Goldman Sachs and Morgan Stanley were the most dominant firms, and Fuld was obsessed with trying to beat them. Since Lehman didn’t have the asset base of Goldman or Morgan, it achieved outsized revenue growth by pursuing increasingly riskier strategies.

The firm placed huge bets on mortgage-related securities and financed those investments by taking on massive amounts of debt. At its peak, Lehman had a debt-to-equity ratio in the neighborhood of 60 to 1, which meant that over 98% of the firm’s assets were funded through debt.

In good times, being overleveraged hadn’t been a problem. But when the markets turned south, Lehman got hammered. On September 15, 2008, a day I’ll never forget, Lehman Brothers was forced to file for Chapter 11 bankruptcy.

Know thyself

Lehman got into trouble by chasing its competitors when it should have done what was right for the firm. Like Lehman, we sometimes make a similar mistake in our careers. We spend our time worrying about others when we should be focused on ourselves. We look outward rather than turning inward.

Socrates’ admonition to “know thyself” may sound straight forward, but this is no easy task. In Poor Richard’s Almanac, Benjamin Franklin wrote:

There are three things extremely hard: steel, a diamond, and to know one’s self.

Knowing yourself requires a deep sense of awareness that is not easily attained. It requires honesty and introspection. It requires years of experimenting, failing, pivoting, and hopefully on occasion, succeeding.

Avoiding the comparison trap

As I watched Lehman go under and pondered my career decisions, I stepped back and asked myself several questions. Was my pursuit of investment banking any different from Fuld’s pursuit of Goldman Sachs and Morgan Stanley? Had I selected a career in finance because it was right for me, or did other factors (prestige, compensation, future career options, etc.) drive my decision?

I quickly realized that I didn’t have concrete answers to these questions. This lack of clarity was unsettling and forced me to reevaluate my career path. Since that moment of introspection, I’ve made career decisions that confused my friends and colleagues, but made perfect sense to me. This hasn’t always been easy, but it’s always been worth it.

We live in a world of constant comparison and the temptation to use others as a benchmark for success is hard to avoid. But if we understand ourselves well enough to know what we are good at and what makes us happy, we can stop chasing others and start pursuing the path that’s right for us.

Lehman Brothers got into trouble by trying to be something it wasn’t. It focused externally when it should have focused internally. If you’ve fallen into the same trap that Lehman did, consider taking a step back to redefine what success means to you. It’s not about finding the next hot company or seeking the biggest paycheck. It’s about doing what’s right for you.

Looking internally and establishing your own definition of professional success will focus your efforts on what really matters. It creates a game where you’re the only player. And when you stop competing against others and start competing with yourself, only you decide whether you’re a winner.

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