Organizational crisis: lessons from Lehman Brothers and Paulson & Company

Abstract

PurposeThe purpose of this paper is to provide a comprehensive review of organizational crisis and organizational change management and to provide a guide to crisis prevention, management and recovery by highlighting critical actions to be taken during each stage of an organizational crisis. A second aim is to compare the crisis management of two financial firms during the 2007 financial crisis: Lehman Brothers and Paulson & Company.Design/methodology/approachThe methodology involved a review of the literature and a case analysis related to organizational crisis and organizational change management. The synthesis of these two approaches is a conceptual paper. Furthermore, the article is supplemented by comparing the management of the 2007 financial crisis by both Lehman Brothers and Paulson & Company in an attempt to compare the literature findings to a global organizational crisis.FindingsThe literature suggests that organizations with early crisis detection methods and crisis management plans already in place before the onset of a crisis are significantly better prepared to manage and survive a crisis event. In addition, these better prepared organizations have the opportunity to reposition themselves and turn a crisis event into a strategic opportunity. This is evident in the authors' comparisons of both Lehman Brothers' and Paulson & Company's different management of the 2007 financial crisis.Practical implicationsThe demand for crisis management is on the rise as the 2007 financial crisis exposed the lack of preparedness among financial institutions, challenged the assumptions crisis management plans were based on and required a regulatory transformation of financial markets. Surviving firms are recovering and learning from the crisis as their crisis management proved to be ineffective.Originality/valueThe scope of this paper offers readers a guide to organizational crisis management, supplemented with examples from a financial crisis that affected almost every organization in the world and from which many organizations are still recovering. Any organization, regardless of industry, can benefit from the guide presented in this research. Moreover, the framework of this paper can enable practitioners to formulate and improve their organization's crisis management plans and capabilities.