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March 2018
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Delegation or Dereliction?

Today’s Wall Street Journal carried an article entitled “Bear CEO’s Handling of Crisis Raises Issues” that details James Cayne’s golf and bridge tournament attendance during the meltdown of two of Bear Stearn’s investment vehicles. Is James Cayne a master delegator or is he guilty of gross dereliction of duty?

Cayne is characterized as a blunt, hard-charging former scrap iron salesman that came through the ranks of the company’s brokerage division, taking control of Bear Stearns as the CEO in 1993. For 14 years he caucused with small groups to set corporate strategy, seeking consensus from his associates. The article indicates that he doesn’t travel for business (implying that he delegates that function to others).

However, the article casts aspersion on the character of Mr. Cayne as it describes his trips to Nashville, TN to play in bridge tournaments smack in the middle of the meltdown of two hedge funds that were severely overexposed to the CDO market in June & July of this year. During the summer, he regularly left work on Thursday and flew to N.J. and played golf Friday, Saturday, and Sunday. On Sunday he would also engage in several hours of online poker and bridge and spend play time with his grandchildren, according to the article.

Bear’s President, Alan Schwartz, claims, “Anyone who thinks that Jimmy Cayne isn’t fired up every day and ready to get to work hasn’t been living in my world.”

While some may measure wealth by the amount of money you have in your investments, the true measure of wealth is the amount of discretionary time you have. By all accounts, Mr. Cayne had both—a salary of $34M and lieutenants who would watch over the business during his long weekends

But, where does the enjoyment of discretionary time cross into dereliction of duty? It may not be fair to compare Mr. Cayne to his peers such as James Dimon of J.P. Morgan Chase, Richard Fuld of Lehman Brothers, or Lloyd Blankfein of Goldman Sachs, who have all cancelled personal plans to deal with crises at work, because they most likely have different measures of wealth and possibly a more hands-on management style. However, the answer may be found in Mr. Cayne’s own actions. After the fund meltdown, he fired his co-president, Warren Spector, for being away from the office during the crisis. Where was Mr. Spector? In Nashville with his other co-president, Mr. Cayne, playing bridge.

Delegation of responsibility is critical at the CEO level. However, the CEO has three choices in this situation: allow others the same latitude to delegate as they see fit and accept the consequences, step in and change the rules by becoming personally involved in times of crisis, or be very clear that the rules followed by the CEO do not extend to anyone else.

In this case, Mr. Cayne appears to have failed in his leadership responsibility by choosing to escape the mounting pressure of failing funds and increasing investor unrest by leaving the City and gratifying himself rather than staying at the helm to weather a storm.

May we all learn from this example and lead by our own examples—and allow others to do the same.