Lessons Learned from Bear Stearns (and others)
Leadership and the significant role of leaders in for-profit and non-profit organizations are much discussed. There is also a good deal of discussion about corporate and organizational culture. But rarely are the two discussed together, particularly the effect of leadership on culture. In this brief article I will discuss the ways leaders affect culture, using a classic case to understand the connections.
Who are LEADERS?
Anyone who affects CULTURE.
What is CULTURE?
Deep, persistent, and consistent patterns of values, beliefs, traditions, and behaviors that have been formed over the course of the organization’s history.
Culture provides critical benefits on two levels:
Externally:
- Culture defines how the institution relates to the environment
- The message it conveys to the world.
Internally
- Culture maintains relationships among employees based on common values and beliefs.
Importance of Culture:
In a famous quote, Peter Drucker said “Culture Eats Strategy for Breakfast.” What he is suggesting is that corporate strategies will fail if they are not connected to and supported by an appropriate corporate culture.
How to Find an Organization’s Culture:
- Mission Statement
- Artifacts
- Publications
- Multi-Cultural Demographics and Values
- Gender Issues
- Religion and/or spiritual, ethical, and moral presence
- Rituals, ceremonies, symbols. and documents
- Calendar/Schedule/Holidays/Work from Home
- Architecture
- Dress Behavior
- Decision-Making.
How leaders interact with culture:
A Leader exercises Leadership both by projecting ‘who you are’ and also by adapting to and assuming roles that the organization requires. Leaders need to be sure that the fit between their personal values, styles, and preferred roles and the organization’s needs and goals is strong.
It is the role of the leader to instill core values and purpose as the principles which will guide decisions and inspire people throughout the organization.
Leaders embody and transmit culture. They are the creators as well as the perpetuators, managers, and guardians of their institutions’ culture.
If the fit is strong between the leader’s style and the organization’s culture, the organization is more likely to thrive. And more powerfully, the fit between the leader’s personality, values, and strengths must match the future needs of the organization as it grows and changes. Changing and shaping the culture will be a critical part of the leader’s transformation of an organization.
The leader must also stimulate change, improvement, innovation, and renewal — preserving some aspects of the culture while changing other aspects that have led to poor operating practices, unsuccessful goals and weak strategies.
Culture and leadership are two sides of the same coin because leadership and culture are conceptually intertwined.
Neither culture nor leadership, when one examines each closely, can really be understood by itself. In fact, one could argue that the only thing of real importance that leaders do is to create and manage culture and that the unique talent of great leaders is their ability to understand, create and implement organizational culture.
“If one wishes to distinguish leadership from management or administration, one can argue that leaders create and change cultures, while managers and administrators live within them.” (Schein, E.H. Organizational Culture and Leadership)
Legendary former CEO and Board Chair of Bear Stearns, Alan ‘Ace’ Greenberg, known for his memos to his staff (collected in the 1996 book, “Memos from the Chairman”, is an exemplary way to learn about leadership and culture. Bear Stearns was a New York-based global investment bank, securities trading and brokerage firm that failed in 2008 as part of the global financial crisis and recession.
(Ace Greenberg is not to be confused with another Greenberg, Maurice, former Chair of AIG, from whom we could learn similar lessons.)
Here are some of Ace’s Memos from the Chairman:
- “Make decisions based on common sense ….”
- Avoid the herd mentality
- Being contrarian has worked for us before and it will work again
- Free your motivated, intelligent people from the chain of command. If you think somebody is going off the wall or his/her decision-making stinks, go around the person – and that includes me
- Hire PSDs (Poor, Smart, and with a deep Desire to become rich)
- Stay humble, humble, humble. Conceit and complacency are dangerous, particularly in our line of work.
The central values he propounds are to foster individualism, independence, iconoclasm; to avoid hierarchies, oppose existing norms, seek out the new and the different. His values became the culture of Bear Stearns and show the importance of leaders in creating and perpetuating the culture of their institutions.
Bear Stearns was defined by Greenberg’s style, attitudes, beliefs, convictions, and exhortations.
Culture and leadership: Greenberg understood that connection and understood his role in the shaping and maintaining of that culture.
Bear Stearns Culture:
- It prided itself in its scrappy, brazen, brass-knuckle disposition and tight-knit
culture, which led to a large percentage of employees owning shares in the company. It developed a ‘we versus them’ culture. - In 2003, Fortune magazine ranked Bear Stearns as the best financial firm for which
to work.
“A throwback to a bygone era, Bear Stearns still operated as a cigar-chomping,
suspender-wearing culture where taking risks was rewarded. It was a firm that was
never considered truly white-shoe, an outsider that defied its mainstream rivals.” (New York Times).
This description of the Bear Stearns culture clearly reflects the personal values and the influence of Ace Greenberg, articulated so forcefully in his “Memos from the Chairman.”
(The next time you send a memo or write a letter, remember that you are actually transmitting your values which reinforce or change the culture.)
The culture of Bear Stearns:
- Scrappy
- Unconventional
- Outsider
- Contrarian
- Aggressive
- Independent
- Driven
- Ignoring the Rules.
That culture helped propel the firm to great success. But it also contributed to its collapse in the financial crisis of 2008 as it was highly exposed to toxic assets acquired with a high degree of leverage. Too many of Ace Greenbeerg’s PDSs trying to make a fast buck; too much aggressive, contrarian, insular, and risky thinking and behaving,
Greenberg’s style of leadership created a particular culture at Bear that encouraged or even demanded bold, aggressive, reckless, and combative behavior. Bear’s investing boldly in sub-prime mortgages and other high-risk-high-return vehicles was the inevitable outcome to Ace’s style and culture,
James Cayne, who took over from Greenberg in 1993, was asked by the New York Times about challenges facing the company. He denied any concern, pointing to the firm’s powerful culture, a legacy of Greenberg’s tenure.
“Our culture has saved us,” he said.
Cayne’s claim that Bear’s culture saved them is ironic. It was the culture that, in the end, did the firm in.
I have focused here on the negative consequences of one firm’s culture, as an exemplar of the role of leadership influencing and creating culture.
Conclusion
Ace Greenberg is a prime example of the role of a leader creating and enforcing a culture that had long-term disastrous results. Greenberg illustrates the tremendous power and potential that a leader has to change and transform the culture of an organization.
The caveat, of course, is beware of what you wish for.
Dr. Gessner has been a teacher, administrator, and researcher at the University of Chicago, Swarthmore College, Haverford College, Bennington College, and the George School. He was also the founding Senior Program Officer of the Goldman Sachs Foundation, a funder of educational innovation. He has worked as a clinical psychologist in clinics, hospitals, schools, and private practice.