What Can Be Learned from the Lehman Brothers Case Through the Lens of Principal Agent and Stewardship Theory?

Master's Thesis from the year 2024 in the subject Business economics - Business Management, Corporate Governance, School of Oriental and African Studies, University of London, language: English, abstract: This thesis employs the lenses of principal-agency theory and stewardship theory to examine the case of Lehman Brothers. It is based on a comprehensive examination of the theoretical foundations of principal-agency theory and stewardship theory, as well as an in-depth analysis of the business practices of Lehman Brothers. One of the key findings of this thesis is that the self-interest postulated by the Principal Agency Theory is arguably too short-sighted. However, given that the firm failed to fulfil the principles of the Stewardship Theory, it can also be argued that this theory is similarly untenable. The application of principal-agency theory to the firm's actors demonstrates the complex nature of the crisis and the extent to which almost every actor was involved in its ultimate outcome. A multiplicity of actors, including the board, management, employees, auditors, and state actors, were involved, rendering it inappropriate to ascribe culpability to any single entity. The primary causes of the demise of Lehman Brothers can be attributed to a combination of greed and deficiencies in corporate governance structures, compounded by an unfavourable macroeconomic environment. A confluence of macroeconomic factors, an organisational culture of excessive risk-taking and an inadequately constituted board of directors, all linked by a CEO who had been rewarded for excessive risk-taking in the past, resulted in the collapse of Lehman Brothers.