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The current issue and full text archive of this journal is available at JMH 20,2 The 1920 Farrow's Bank failure:...

For this assignment, read the case study, "The 1920 Farrow’s Bank Failure: A Case of Managerial Hubris."

Reference: Hollow, M. (2014). The 1920 Farrow's bank failure: A case of managerial hubris? Journal of Management History, 20(2), 164-178.

Regulators evaluated Thomas Farrow as being inflicted by managerial hubris at the time of the bank’s collapse in 1920. With this scenario in mind, address the following questions, with thorough explanations and well-supported rationale.

1. How did corporate culture, leadership, power, and motivation affect Thomas’ level of managerial hubris?

2. Relate managerial hubris to ethical decision making and the overall impact on the business environment.

3. Explain the pressures associated with ethical decision making at Farrow’s Bank.

4. Do you think that if Farrow’s Bank had a truly ethical business culture, the level of managerial hubris would have been decreased? Could this have affected the final outcome of Farrow’s Bank? Explain your position.

Your response must be a minimum of three double-spaced pages. References should include the case study and a minimum of one additional credible reference. All sources used must be referenced; paraphrased and quoted material must have accompanying citations, and be cited per APA guidelines.

* The case study is attached.

The 1920 Farrow’s Bank failure: a case of managerial hubris? Matthew Hollow Department of History, Durham University, Durham, UK Abstract Purpose – The aim of this paper is to evaluate the extent to which hubristic behaviour on the part of Thomas Farrow contributed to the downfall of Farrow’s Bank in 1920. Design/methodology/approach – The article traces the way in which Thomas Farrow’s behaviour changed over the course of his managerial career using primary sources obtained from various British archives, including: court records, witness statements, auditors’ reports, newspapers, journals, and personal letters. The article then evaluates Farrow’s actions in relation to the criteria outlined in Petit and Bollaert’s “Framework for diagnosing CEO hubris” so as to assess how far he can be said to have become af±icted by managerial hubris. Findings – All the collected evidence points to the conclusion that Thomas Farrow had, by the time of the Bank’s collapse in 1920, become af±icted by managerial hubris. This was re±ected most clearly in the fact that he increasingly came to view himself as being somehow above and beyond the laws of the wider community. As a result, he felt little compunction about fraudulently writing-up the Bank’s assets so as to cover the huge losses that his reckless investments had produced. Practical implications – The Farrow’s Bank episode con²rms that the probability of management hubris materialising is enhanced when external control mechanisms are either lacking or inef²ciently applied. On top of this, the amateurish organizational set-up of the Bank also suggests that the likelihood of hubris syndrome developing is enhanced when organizations themselves grant too much discretion to their leaders. Originality/value – The paper breaks new ground by applying the latest management and psychology theories on the subject of leadership hubris to the ²eld of ²nancial management. Its value lies in the fact that it provides scholars and practitioners with an in-depth insight into how hubris syndrome can develop in organizational settings. Keywords United Kingdom, Corporate governance, Fraud, Business failures, Hubris, Moral responsibilty Paper type Research paper Introduction Since being re-introduced back into academic debate by Ian Kershaw in 1998 with the publication of part one of his two-part biography of Hitler (Kershaw, 1998), the concept of leadership hubris – or “hubris syndrome”, as it is sometimes known – has enjoyed something of a resurgence amongst both historians and management academics. Used to describe the process by which those in positions of great power become so overwhelmingly self-con²dent that they start to lose contact with reality (often with disastrous consequences), it has been applied to everything from the over-evaluation of companies by CEOs in corporate mergers (Hiller and Hambrick, 2005) to the arrogance displayed by diplomats during international peace-building missions (Owen, 2006; Richmond and Franks, 2007). More recently, a growing body of literature has built-up looking at the extent to which the current post-2007 ²nancial crises was brought about by the hubristic behaviour of bankers and technocratic elites in the ²nancial sector (Engelen et al. , 2012; Petit and Bollaert, 2012). This paper contributes to these debates The current issue and full text archive of this journal is available at JMH 20,2 164 Journal of Management History Vol. 20 No. 2, 2014 pp. 164-178 q Emerald Group Publishing Limited 1751-1348 DOI 10.1108/JMH-11-2012-0071
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by providing an in-depth analysis of a past UK banking failure – the 1920 Farrow’s Bank failure – with a particular focus on the extent to which hubristic behaviour on the part of the Bank’s manager contributed to its downfall. Although the literature on past bank failures and ±nancial panics in Britain has increased enormously in the wake of the 2007 ±nancial crises (Cassis, 2011; Reinhart and Rogoff, 2009), there has up until now been virtually nothing written about the origins and growth of Farrow’s Bank nor any real attempt to analyse the factors involved in its failure in 1920. Such neglect is all the more remarkable given the fact that the Farrow’s Bank failure came at a time when the British banking sector had, thanks chie²y to increased levels of professionalisation and regulation, largely divested itself from the sort of amateurish mismanagement that had been such a feature of the Victorian era (Michie, 2003; Robb, 2002). This article begins to address some of these issues, looking both at the growth of the Bank and the factors involved in its failure. Evidence is taken from a range of sources, including personal letters, minute books, personal testimonies and company reports. Particular attention is given to looking at the behaviour of the Bank’s manager – Thomas Farrow – in both the day-to-day running of the Bank and in the aftermath of its failure, with the chief concern being to diagnose the extent to which he can be said to have been af²icted by hubris syndrome. The article unfolds in stages. In the ±rst section, the current body of literature and research on leadership hubris is analysed in more detail and a working model of the condition is outlined, complete with a list of standard symptoms. This working model forms the checklist against which the behaviour and actions of the Thomas Farrow’s are analysed and assessed. The article then moves on to look at Farrow’s early career as a campaigner against usury and considers how this work inspired him to subsequently establish Farrow’s Bank. Also analysed are the grandiose methods and language used by Farrow to present himself and his Bank to the world. The next section then focuses on Farrow’s (mis)management of the Bank, outlining how he covered-up the Bank’s huge trading losses by fraudulently over-evaluating assets and drawing-up false balance sheets as well as looking at how it was that a fraud of such scale was able to go undetected for so long. Indeed, in this section the concept of managerial hubris is particularly useful as it helps to make sense of how someone who, publicly at least, was so critical of unscrupulous banking behaviour could himself orchestrate a fraud of such magnitude. Finally, in the last section the focus switches to the trial of Farrow and the Bank’s management. Making use of both the evidence presented in court and the testimonies of those involved in the trial, it shows how, even after his fraudulent activities had been uncovered, Farrow remained unapologetic for his actions and refused to accept that he had done anything wrong. Moreover, it also shows how Farrow continued to believe that his past sacri±ces and personal successes not only entitled him to some sort of special dispensation from the law, but also uniquely quali±ed him as the man most able to lead the Bank out of trouble. Hubris syndrome Originating in ancient Greece, the term “hubris” was ±rst used to describe those who displayed “wanton insolence” or “arrogance” resulting from excessive pride or self-con±dence (Bergman, 1986). Typically used to indicate a loss of contact with reality, the descent into hubris was often thought to invite disaster (usually in the form The 1920 Farrow’s Bank failure 165
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Running head: MANAGERIAL HUBRIS 1 Managerial Hubris: Case Study
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