Now you see it, now you don't...

By now, probably everyone has heard about JP Morgan buying Bear Stearns at a huge discount. Specifically, the deal closed at Bear being acquired at $2/share. This is a precipitous drop for the stock as it was trading at $77/share on March 3, 2008, at $30/share on March 14 and closed today at $4/share. Though I am still trying to understand the overall ramifications of this “unprecedented event”, I can’t help but wonder about Bear’s employees. The possibility of losing your job is never comforting, but to see your employee stock options/stocks go from one extreme to another in a matter of days must be unsettling, to say the least. I’m sure everyone at Bear has been negatively impacted by this, but for the “average” employee who does not receive 5 figure bonuses, it must be especially difficult.

There are many factors that created this problem for Bear, from external market events that were out of their control to the direct decisions made by management. Therefore, I found it particularly interesting to read that last summer, when Bear was experiencing “10 days of a critical crisis”, the then CEO, James Cayne was incommunicado at a bridge tournament. This is just one example of his unavailability during times his leadership was most required. I’m not sure that if he were available, that Bear could have prevented the current situation, but it could have possibly helped. Furthermore, when he stepped down as CEO, he received a $34 million dollar “golden parachute”. Granted, during his 14 years at Bear, he had many successes, but problems of this magnitude do not occur overnight.

Invariably, it seems that the employees are the ones who are thrown out of the planes with nothing on their backs. This is another case where employees see their savings just disappear as a result of managements actions (United Airlines, Enron, WorldCom, etc). Well, so much for stakeholder or shareholder theory…