Managerial Hubris: Case Study of Farrow Bank
Instances of leaders and managers portraying overconfidence as far as their managerial behavior is concerned are not rare. This excessive overconfidence is referred to as managerial hubris (Brown, 2006). The individual overwhelmingly believes they cannot wrong. In most part, this behavior emanates from a sustained period of success, which makes the individual unrealistically perceive themselves as somewhat prone to error. Hubristic behavior can be costly to an organization, sometimes even leading to downfall (Hollow, 2014). This was particularly true for Farrow Bank, a booming bank in the early 20th century. The bank collapsed in 1920, with managerial hubris on the part of its founder and CEO, Thomas Farrow, being the major contributing factor. Focusing on the failure, this case study explores the implications of managerial hubris on organizational success. The case study particularly pays attention to four issues: how corporate culture, leadership, power, and motivation drove Thomas' hubristic behavior; the relationship between managerial hubris and ethical decision-making; the pressures associated with ethical decision-making at the bank; as well as the extent to which managerial hubris may have been avoided.
As depicted in the case study, four factors contributed to Thomas' hubristic behavior: power, leadership, corporate culture, and motivation. As early as the age of 19, Thomas was already close to power (Hollow, 2014). He served as a confidential and political secretary to powerful politicians in the British government, notably Rt. Hon W.H. Smith (head of the lower legislature)...
Thomas' position gave him the
authority to criticize the UK
banking sector despite not even having any background in
economics or
finance.
With widespread dissatisfaction with the prevailing banks, Thomas established Farrow Bank in 1904 with a view to providing a cheaper alternative for low income consumers (Hollow, 2014). The bank drastically became a success, and had established 72 branches across England, Wales, Scotland and
Ireland. The bank became the top bank in the UK in terms of not only geographical presence, but also banking innovation, deposits, and assets. The phenomenal success of the bank added to Thomas' overconfidence. He became more ambitious and envisioned himself as not only a leader in banking, but also an influential voice in issues of national policy. In his speeches and publications, Thomas exhibited arrogance, often
painting the bank as a divine as opposed to a commercial entity (Hollow, 2014).
By losing touch with reality, Thomas permitted a dangerous culture to flourish in the bank. In 1920, following an acquisition deal, it emerged that the bank's financial figures were misleading (Hollow, 2014). The bank had over the years disregarded standard accounting practices. More unfortunately, with his excessive confidence and concern for self-image, Thomas had long abandoned auditing the bank's financial statements, leaving the job exclusively to the chief accountant,…
