Tuesday, October 07, 2008

Dick Fuld's Miserable Performance On Capitol Hill

I happened to see/hear the first twenty or so minutes of former Lehman CEO Dick Fuld's appearance before a House Committee yesterday morning.

It wasn't pretty.

What's worse, it was entirely preventable.

Think about it. Dick Fuld had been Lehman's CEO since 1994. He possesses a hulking, intimidating physique, along with the reputation for being a fairly demanding taskmaster. You just don't see him as a soft, cuddly, sensitive type of CEO.

In appearing before Henry Waxman's (D-CA) House committee, Fuld must have known he was to be the sacrificial offering from the capital markets to the US voting populace.

Despite losing a large percentage of his personal fortune as Lehman's stock declined in value, and, ultimately, became worthless, Fuld has enough assets to hire a public relations firm.

Didn't Fuld know, as everyone else did, that the lead questions would be about Fuld's multi-hundred-million dollar compensation, relative to wrecking the US capital markets and banking system?

An old friend of mine with some Army training once told me about how soldiers are trained to respond to an ambush.


The reasoning is, ambushed soldiers are probably going to die anyway. So they may as well immediately counter-attack the enemy, hoping for surprise, disorganized resistance, and confusion.

Fuld should have realized he was walking into an ambush. And, thus, attacked immediately.

Since Fuld had the initiative, because of his opening statement, he was in a perfect position to begin with something like these hypothetical remarks,

'Good morning Members.

I'm Richard Fuld, former CEO, since 1994, of now-defunct Lehman Brothers Holdings.

Rather than go into detail about my firm's role in the current financial markets turmoil, I want to address the issue which, I am quite sure, is on everyone's mind. And one with which you will, no doubt, wish to paint me as the lead villain in this drama.

"How can I justify my total compensation, while CEO of Lehman for 14 years, of nearly $500MM?"

I'm sure that to many Americans watching this hearing, I seem to be a prime example of what many call 'greed' and 'excess' in the US financial services sector. They, and you, will ask,

"How can anyone possibly be worth that much money? How could anyone do something that merits him earning nearly half a billion dollars over 14 years?"

Well, Members, and fellow Americans, let me start by saying I am not ashamed of earning that money. And I emphasize EARNING that compensation. I EARNED every penny of it.

I worked as CEO for Lehman Brothers Holdings. Not the Federal government, the Red Cross, or a small local retail shop in a neighborhood shopping mall.

Lehman Brothers was a publicly-traded company with many shareholders. A board of directors- not me- determined my level of compensation. The shareholders elected that board.

Over my term as CEO, I increased the value of Lehman shareholders' investment in my firm from $3/share in 1994 to, at its peak, $80/share last year. The market value of Lehman Brothers rose from $__B to $____B during that time.

The team I built at Lehman created that value for our shareholders. Much of my personal wealth was either paid in, and/or remained in Lehman stock.

On a percentage basis, of the $__B in shareholder value we created at Lehman, the total pool of bonuses over 14 years was $__MM. My own share of compensation, as a percentage of the increase in Lehman's market value, was __%.

In short, Lehman was in a business which allowed us to borrow money from banks and make a lot of money for people- institutions, pension funds of union workers, teachers, municipal workers, and others- who owned our stock. As such, our board of directors saw fit to pay us a small percentage, but, in actual dollar terms, large amounts of money, for doing so.

We, my team and I, and I, personally, were paid a small share of the value we created.

I feel very strongly that I, and my executive team and all the employees of Lehman Brothers, are a fine example of the American economic system. We were well-paid when we created value. We made money for those who invested in our company.

Does anyone begrudge a Hollywood director for making millions of dollars from a movie? Is Steven Spielberg here being cross-examined for making a huge fortune while directing and producing movies for which millions of people pay to see?

How about Steve Jobs, the CEO of Apple? Are you going to bring him in to face scrutiny for being a highly-paid CEO who created massive wealth for his shareholders?

I represent the successful pursuit of the American dream. I worked hard, built a good team, made money for my firm's owners, and was highly-paid for doing that.

That's supposed to be what a person with ambition, skill and luck can do in America.

I won't apologize for that.

Members, I made nearly half a billion dollars over 14 years because I worked hard and created value for others.

That is, I submit, much more than any of you have ever done in your jobs. I made more money than you do because I worked hard making money for others.

Who are you to judge, let alone ask, whether I made too much money? You are members of an institution- Congress- with an approval rating so low- 10%- as to be embarrassing to even BE a member.

Now, I will take your questions....."

In addition to this, were I Dick Fuld, I would have had my public relations consultant obtain whatever embarrassing and incriminating information available on Waxman and the other Democratic House members on the Committee. Republicans, too, for that matter.

Sadly, pathetically, Fuld began by reading from a dry, uninteresting history of his career with Lehman. He approached the Committee almost apologetically, meekly, and timidly.

Predictably, after his meandering opening statement, Waxman launched his first salvo in the form of a slide with Fuld's annual compensation, a recounting of the current situation, and the question,

"Is this fair?"

The video of this appears below.

What was Fuld thinking? He reduced himself to tentatively acquiesing to the correctness of the numbers, and argued that he had to exercise options. It looked bad. Really bad.

Granted, he made some of the points I make in my hypothetical speech. But it would have been so much more forceful had Fuld gotten there first with his own framework.

I don't particularly like Fuld. From yesterday's Wall Street Journal article detailing Lehman's summer activities- both public and hidden- it sure looks like Fuld and his team misled the investing public about Lehman's true health.

If it were up to me, Fuld and his senior managers would be charged with fraud, because they privately doubted their firm could survive, but publicly made statements otherwise.

But Dick Fuld's day in court is a different matter than his being lynched by innuendo in a televised House Committee hearing.

Fuld's performance- if you can call it that- was an embarrassment to himself, his firm and CEOs in general.

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