"Corporate governance is a joke," says Lehman turnaround chief.

Bryan Marsal was in his living room watching a Giants football game the night of September 14, 2008 when the phone rang. On the other end of the line was the board of directors at Lehman Brothers. The reason for the call: would the co-head of turnaround firm Alvarez & Marsal would be willing to take on the job of taking the firm through bankruptcy? The Federal Reserve had already refused to bail out the bank as it had done for Bear Stearns and the end was near.


“My first question was ‘how much planning have you done?'” Marsal told a crowd in Houston earlier this week. “‘You’re it,’ they told me.”
The next question: “How much cash do you have?” “None.”
“How much time do I have?” “Two hours.”
Despite the ugly situation (or maybe because of it) Marsal said he’d take the job as chief restructuring officer of Lehman Brothers Holdings Inc, and just a few hours later, at about 2 a.m. on Sept. 15 Lehman Brothers filed for bankruptcy.
Marsal told the story to several hundred participants at a conference the company sponsored here this week. Alvarez & Marsal has had a presence here for a few years, but we recently wrote about local energy veteran Victor Burk joining the firm to help expand its energy business.
Since that evening in September 2008 more than a year ago Marsal has continued to guide the firm through its massive unraveling.
As most of us know, the next day was chaos in the markets as the world came to grips with the collapse of a firm that many assumed was simply too big to fail. JP Morgan Chase’s Jamie Dimon predicted within that four or five other major banks would fail within the week, Marsal said, but by noon Monday the Fed had realized its colossal mistake in letting Lehman collapse and assured markets it wouldn’t happen that way again.
In retrospect Marsal said he’s not sure Lehman should have been saved — he’s a big believer in the role fear plays in the capitalist system of tempering the greed that also drives innovation. But the collapse could have been allowed to happen in a much more controlled way. Lehman had some $39 trillion in derivatives worldwide at the time of its collapse, which almost immediately became $39 trillion in question marks as everyone began to question their possible ties to such assets and their true value.
“I’m not saying we could have avoided the recession,” Marsal said. “But it could have mitigated it significantly.”
Now, about that quote in the title of this entry:
A member of the audience at this week’s event asked if there was some way Lehman’s board of directors could have headed this off, or if there weren’t other signals that this was going to occur.
“Corporate governance is a joke,” Marsal said. “To spend four or five days a year at a company [as board members often do] …. and really believe you can know what is going on with that company is suspect.”
Boards of directors are more useful at giving advice to executives and guidance, but the notion they can really serve as watch dogs and know the workings of a firm and its risks is unrealistic.
But once there is a problem good board act decisively and aggressively. Despite the awful start to Lehman’s bankruptcy Marsal said the board has since “really earned their money.”
Here are some other perspectives on those scary days last year, a recent article on the process at Lehman, and a Financial Times video on the global impact of the Lehman bankruptcy.
Here’s Marsal talking to CNBC about his work with Lehman this summer: