The Farrow Managerial Hubris

The 1920 Farrow bank failure was just one of many financial institutional crises of the era.

Great Britain was just coming out of World War I with a massive amount of debt and a faltering economy. The Bank of England was diligently working to prevent panic in the London money markets Higgins (1949). Additionally, the Bank of England, to stimulate growth, had developed a strategy of liberal lending of marginal loans at best. Starting in 1914 and continuing past 1939, the British financial system had suffered from uncertainty and depression of varying degrees.

All of these elements combined set the stage for Farrow’s hubris, rapid rise and rapid fall from the financial industry.

There is considerable evidence that suggest exaggerated managerial overconfidence, (hubris), decreases organizations profitability due to over investment Jiang (2010). In the case of Farrow, his over confidence was able to flourish from a lax culture that contained behaviors such as limited accountability, inexperience and absolutely no code of conduct or ethics training.

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The motivation for Farrow’s hubris does not necessarily fit the classic hubris definition. His motivation was sincere as he truly wanted to help the average person. He did not profit from his misadventures and even denied himself vacations and personal time off as was reflected at his trial as the judge extended leniency to his sentence Hollow (2014).

Given the recent World war, national debt, and Britain’s recent return to the Gold standard, it is no wonder that Farrow mistrusted the current financial structure and those who decided the monetary policies of the era. These things combined, fueled the over confident entrepreneurial personality of Farrow. It would seem to be a natural progression for his ego to convince himself that his business model would be superior to those of differing views and policies. The lack of accountability and auditing was in reality his way of maintaining his delusional artificial environment in which he lived and conducted business.

At its most simplistic form and definition, hubris is defined as excessive self-confidence or pride and can lead to behavior that is focused on ego and not the organizations stakeholders Strategy and Business (2016). Interestingly, hubris can create extreme and fluctuating organizational performance that results in big wins or big loses Hambrick, Chatterjee (2007). However, the overall organizational performance is usually about average with organizations which do not suffer from hubris. This data would indicate that ethical compromise, detrimental employee performance and overall organizational inconsistency that results from hubris, are nothing more than the manifestation of symptoms of a narcissistic ego of managerial hubris. So nothing is gained other than self-gratification. There is another faction of hubris that is not so docile in its consequences and that is greed.

That form can cause far reaching financial trauma to the organization, their employees, shareholders and stakeholders such as what happened to Quest Telecom at the hands of a CEO suffering with severe hubris. The results were a stock plunge from $40 per share to $4 a share and the CEO ending up with a prison sentence Strategy + Business (2017). In the case of Farrow bank, Thomas Farrow had a skewed view of business ethics. Even though he was losing money from bad investments, he covered his mistakes with improper and unchecked accounting practices and all the while doing them because he believed he was doing the right thing for his customers and truly believed he could recover Hollow (2014). There is a question that remains and that question is if he acted with malice or incompetency.

The same can be said for those persons responsible for his accounting practices. In all probability, his ethical views are formed from incompetency in the fact that although he did not trust the current banking system, he did not have the training, education or experience to look at his self in the mirror and realize, he was wrong and his business model would not work. At its core, a firmly defined moral and ethical code at Farrow bank would have changed the banking history of Britain as we know it. Of course, Thomas Farrow would have had to be firmly grounded in this ethical model. As John Wooden once said “The true test of a man’s character is what he does when no one is watching”.

What Farrow was doing when no one was watching was participating in unethical behavior. If his character would have to such a degree have been to do what is right when no one was looking, it could have had monumental positive affects at the bank. He would have been known as a moral and ethical person. Usually, those who are subordinate to such a person will behave in a similar ethical manner. Again, if ethics and accountability were part of Farrow’s life, he could have nurtured a culture of ethics and accountability and most likely his delusional view of reality and the resulting hubris would have been kept in check. The 1920 Farrow bank failure was just one of many financial institution crises of the era. Great Britain was just coming out of World War I with a massive amount of debt and a faltering economy.

The Bank of England was also diligently working to prevent panic in the London money markets Higgins (1949). Additionally, the Bank of England, to stimulate growth, had developed a strategy of liberal lending of marginal loans at best. Starting in 1914 and continuing past 1939, the British financial system had suffered from uncertainty and depression of varying degrees. All of these elements combined to set the stage for and the necessary fuel for Farrow’s hubris. All of those factors additionally added the components for the lack of accountability and a general overall trust of the current banking and accounting system. In today’s system it would seem improbable for similar situations to occur but mankind is ever evolving and creative so these types of things will most likely certainly continue in the future.