Lehman Brothers Forgot About You

Alan Watts, the pop-culture philosopher from the late 60s, once told a story of how a construction foreman arrived at a job site one morning to tell the workman that the company was closing and that the job site was to be closed. In the middle of this sad address, a workman interrupted and said, ”What do you mean we have to close the site and lose our jobs? We are all still here. We have manpower. We have nails. We have tools. We have lumber.” To which the foreman quipped, “Yes, but we have run out of inches.”

In the last week, Lehman Brothers ran out of inches and investment bankers are left staring at an imaginary yardstick that represents, not a measure of real distance, but a symbol of reality.

What Lehman really ran out of was brand.

Loss of Shareholder Confidence
I don’t mean that statement to be dismissive of the fundamental issues that led to the venerable investment bank’s demise. Certainly, the all-encompassing service to greed and the blindness to risk that always accompanies it set the process in motion. But what really sped up the process was a loss of shareholder confidence that could have been kept if Lehman Brothers had been about more than just being an investment bank.

Brand is not the Lehman Brothers logo or word mark. It is not the consistency of their message or the power of their now useless mission statement. Brand is a careful and polished reflection of the shareholders visage — a description of whom those shareholders believe they are when they choose to invest in Lehman Brothers. Brand is the elusive “inches” that Alan Watts once referenced.

As such, the swagger and confidence of the Lehman Brothers investor was shaken when the brand did not have the underpinnings to hold up the lessening confidence. In fact, this is a common among many financial institutions and the aftershocks of it will not stop at the Lehman Brothers front door. It will be felt all over Wall Street and will topple many companies that confuse what they do with why people believe in them.

The Connection Between Customers and the Company
Brand is the emotional connection between customers and a company. It forms often organically, without planning or strategy because in the arrogance of success, many companies believe their own press and think that customers choose or prefer them because of what they do. In other words, Lehman Brothers chose to base their value on quarterly earnings and unchecked greed. They began to believe, as General Robert E. Lee once did at Gettysburg, that their people could do anything asked of them, that tremendous risk was acceptable and that prudence was the providence of the “other guys.” The result of this egocentric thinking was Picket’s charge into the mouth of death and Lehman Brothers deadly embrace of risky – and, at times, profitable - investment decisions, and believing that was enough brand meaning in which investors could see themselves. Who was the Lehman Brothers investor? Hindsight leaves historians scratching their heads and wondering how anyone could have miscalculated to any greater degree.

Hopefully, investment banks will stop falling down the rabbit hole where they confuse product with brand, believing that is why they are preferred over others. Smart investment banks will look carefully at their brand and find a place in it for the customer, understanding that, while we certainly buy into a category because of the benefits the category promises, we chose our preference based on a search for our own individual values and beliefs. In short, we choose our own individual brand, something the financial industry has forgotten.

Understanding the Power of Brand
Had Lehman Brothers understood this from the start, it would not have run out of inches. Instead, it would have stood on the rock-solid foundation of their most loyal shareholders. Bank of America scooped up Merrill Lynch in a fire sale because Merrill had a brand and the employees still have a job. Merrill Lynch has a brand built on power and stability and investing America. (That describes who the Merrill Lynch investor is.) BofA passed on Lehman Brothers because Lehman, while once was a thriving business, had no brand in which investors could become loyal.

Once the measurable results declined, prospective customers no longer cared about Lehman Brothers. They had no confidence Lehman Brothers could find a way out of the economic conundrum.

When you base your entire business model and brand promise on performance from the last quarter, what is left for you but to chase the latest financial scheme? That’s exactly what Lehman Brothers did and that did it in because it hadn’t bothered to build emotional equity that had value. They took huge stakes in an iffy mortgage market because it was paying heady returns on a network of smoke and mirrors. Lehman Brothers was holding paper about as valuable as anything Mr. Whipple once peddled when huge portions of its portfolio were tied up in Fannie Mac and Freddie Mae.

To the greediest of the Street, Lehman Brothers’ value became nil and its future was a reflection of that lack of value. Did Merrill Lynch make similar investments? You bet it did. But from the self-definition of its brand value, Merrill has been and always will be “Bullish on America” and seem deeply rooted and strong. For its customers, those are reasons to remain confident in Merrill even as the quarterly statements were less than uplifting. Lehman Brothers is now simply irrelevant and that irrelevance had been coming for a long time.

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