Review of Criteria for Accepting Investment Banking Clients

WHEREAS,

Lehman Brothers is a leading investment banker, raising capital for businesses worldwide.

Lehman is a leading source of capital for the private prison industry and for subprime lending, two industries that have been the subject of growing public controversy. 

The subprime lending industry has faced scrutiny for predatory lending practices that take advantage of low-income people, people of color and the elderly. 

Private prisons have been marred by violence, abuse, escapes, and other errors that compromise public safety. The industry has failed to live up to its promise of providing governments with substantial cost savings.

Lehman has provided both investment banking services and direct lending to Corrections Corporation of America, the largest private prison operator. CCA has been the subject of numerous lawsuits brought by prisoners and shareholders and nearly went bankrupt several years ago.

In today’s changing legal environment, investment bankers face potential liability for the activities of their clients. In June 2003, a federal jury held Lehman responsible for 10% of a $51 million damage award against Lehman client First Alliance for fraudulent lending to subprime borrowers, thus establishing an important precedent affecting our company.

Members of the public are making the link between investment banking and corporate responsibility. For example, Lehman provides financial services to universities, yet student groups are beginning to ask their institutions to replace Lehman as bond underwriter because of its involvement in private prisons.

Religious institutions are taking moral stands against private prisons.  In a pastoral statement entitled “Wardens from Wall Street,” the Roman Catholic Bishops of the South write: “We note with apprehension the rise of for-profit private prisons…We are concerned about the rise in for-profit private prisons because previous attempts to introduce the profit motive into prisons have failed to respect the fundamental human dignity of every prisoner.” 

RESOLVED:

Shareholders request that the Board conduct a special review and update of Lehman’s policies for accepting investment banking clients covering the following questions:

• How should Lehman’s due diligence of clients change in light of the liabilities incurred in the First Alliance judgment?

• How would Lehman shareholders benefit from stricter criteria for the selection of clients, including evaluations of the legal compliance, social responsibility and human rights performance of potential clients?

• What is the exact extent of Lehman’s direct lending to the prison industry and to subprime lenders?

• What risks does Lehman incur if it continues to finance controversial industries such as private prisons and subprime lending and how do these factor into company decisions?

This review shall be summarized in a report, prepared at reasonable cost and omitting proprietary information, and made available to shareholders by September 1, 2004.

SUPPORTING STATEMENT:

The risks facing investment bankers are changing.  Those raising capital are being held legally and morally responsible for how that capital is used.  In light of this changing climate, we believe Lehman would benefit from making certain its due diligence standards protect shareholders from these risks.

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