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Would Lehman Brothers have been better off if it had been Lehman Sisters?
In a recent Wall Street Journal article titled, Banks Run by Women Might Be Less Vulnerable in a Crisis , Toddi Gutner mentions a quote from Christine Lagarde, Managing Director of the International Monetary Fund. In 2008, Lagarde quipped, “If Lehman Brothers had been Lehman Sisters, today’s economic crisis clearly would look quite different.”
Beyond finding Lagarde’s comment interesting because I was a Managing Director at Lehman Brothers back in the day (more on this later), I found the article to be timely based on a recent experience.
This past weekend, I was honored to be a speaker at the 25th Dynamic Women In Business Conference at Harvard Business School . The event is run by the Women’s Student Association, which is a Harvard Business School Club.
Keynote speakers this year included the following:
I became associated with the Harvard Women’s Student Association due to my work with another Harvard organization, Smart Woman Securities (SWS) . SWS was founded by Tracy Britt Cool when she was an undergraduate at Harvard College. I was fortunate enough to be one of SWS’s first speakers and have remained involved most every year since 2006.
Among studies that I keep coming back to when prepping for events with SWS is one by Terry Odean, the Rudd Family Foundation Professor and Chair of the Finance Group at the Haas School of Business, University of California, Berkeley. The research paper is titled “ Boys Will Be Boys: Gender Overconfidence and Common Stock Investment . ”
Odean’s study was recently mentioned in a U.S. News article, Are Women Better Investors Than Men? , which answers its own question by stating that, “[w]omen outperform relative to men” in investing.
The article goes on to quote Abigial Sussman, assistant professor at The University of Chicago Booth School of Business and member of the Morningstar Behavioral Science Advisory Board as saying that “men trade more excessively than women [attributable to overconfidence]… and this hurts portfolio returns relative to a lower level of active trading.”
Other quotes in U.S News piece, some of which might not feel good to some male egos, include the following:
“Women tend to be calmer, possess a longer-term outlook, do more research on their investments and remain steady under pressure.”
“Men can view trading and investing as a game rather than as a business. They are more likely to seek out and trade the hot stock tip and take poorly planned trades.”
“Women are more likely to give their investments time to grow. This is important because checking returns and acting on short-term fluctuations in stock performance leads to negative outcomes.”
Research from Vanguard that looked at the trading of 2.7 million IRA investors seems to back this all up. It found that “men were more likely to trade than women during the 2008-2009 financial crisis, and they did so at the wrong times.” The study also found that “men were much more likely to sell stock at market lows.”
The “Boys Will Be Boys” paper that I mentioned above, also analyzed investor returns by looking at the performance of over 35,000 brokerage accounts.
What did it find?
“Men trade more than women…” which “reduces men’s net returns by 2.65% a year…”
And that:
“Overconfidence can lead men to take on too much risk and… tend to believe their interpretation of news and market movement is sound… [even when] this isn’t as true as they may think.”
Are these sorts of findings at the root of Christine Lagarde’s “Lehman Sisters” quote?
I don’t know specifically, but I am reminded of the culture at Lehman Brothers heading into the financial crisis. I still keep on my desk a cube that was handed out to all Lehman employees to remind everyone of Lehman’s “operating principles” (see below).
In my time at Lehman, including at a few meetings I attended with Lehman CEO Dick Fuld, I found that “the culture” in parts of the firm was “lead with your chin” and boys’ clubby.
Was that male-dominated environment prone to taking on too much dangerous risk and in contravention of the “smart risk management” goal on the Lehman cube?
The fall of Lehman suggests maybe so.
At a minimum, the cube reminds me daily about the dangers of overconfidence that are highlighted in Odean’s “Boys Will Be Boys” research findings.
So, do I think Lagarde was correct in suggesting that Wall Street banks would have been in better shape in 2008 with more women in leadership positions?
Yes.
Do I think Wall Street banks would be better now with more women in leadership positions?
Yes.
And, do I think we men could be better investors by following the lead of more women?
Yes.
When I spoke at Harvard’s Dynamic Women in Business Conference, I ended my remarks by saying, “we need more women in finance and on Wall Street.”
I will end this piece by adding only a few points to that