Managerial hubris is developed rather than an essential character. It results from overconfidence and excessive pride that is influenced by power and leadership in addition to culture and motivation. The corporate culture in Farrow’s bank was such that it was morally hazardous (Hollow, 2014).
To begin with, the legal status of the bank was a credit bank unlike the conventional bank registered under the Companies Act. It implied that the requirements for the bank were less strict. For example, it had relaxed restrictions on the bookkeeping requirement compared to common bank stock. Moreover, it meant that the directors of the bank were less accountable to the shareholders in comparison to their competitors. More so, the accounts of Farrow’s bank were not subjected to external auditing from experts.
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Additionally, Farrow’s bank had weak leadership. Supervisory deficiencies allowed Farrow to run the bank’s operations in the best way he saw it fit. The board of directors was less responsible for their responsibilities. To an extent, they neglected their duties thus paving the way for Farrow to take complete leadership. Furthermore, personal interests were put before professional consideration when appointing directors. For example, the appointment of F.C Janvrin who was a broker to take on bank matters was based on the close intimacy between him and Farrow. Such arrangements were some of the reasons to why there were no board discussions on issues relating to assets. What followed is that the directors could not identify any mischief activities in the financial reports.
In addition, Farrow felt more powerful to run the bank. He overestimated his abilities to run Farrow’s bank even though he lacked formal training on matters relating to economics and banking sector. Consequently, he depended on the training he had received from his father. However, he acted as an expert in this field. The discretion to make decisions on behalf of the bank added to his power and motivation. It allowed him to feel above the community of humans and far beyond the law. What it meant is that he was neither questionable nor answerable to anyone. Therefore, it triggered his power to the extent of referring to the bank as ‘we’ to the activities of the bank. All this combined, gave way for the birth of Thomas’ managerial hubris as he felt powerful and the management was less supervisory. Eventually, Farrow lost interest and contact in the daily operations of the bank and its management.
Managerial Hubris and Ethical Decision Making
Managerial hubris is significant in decision making. When led by hubris syndrome, one tends to make decisions without consultation as the feel above the law. Farrow was not in any way afraid to air his view and opinions. He was a stout critic of the British banking sector. Farrow felt dissatisfied with the financial protection that was extended to small debit and credit banks. His ambition and self-confidence continued to develop as the bank increasingly grew in profits and branches.
Thomas used some pages of the bank’s publications to air matters of national concern which were outside the bank’s interest. It was an indication of Farrow’s ambition and power. As a result, it changed the Farrows perspective. He viewed the bank as less of a business and more of a living entity meaningless of commercial purpose. The decision made was not in line with the profit purpose of the company and the maximization of the shareholders’ wealth. “One of the publications reflected his words that the bank was not a money-making grinding machine” (Hollow, 2014).
Pressures Associated With Ethical Decision Making
Ethical decision making is critical to an organization’s success. Decisions made must comply with the rules and regulations guiding the organization. Moreover, the decision should consider the community at large because they cannot operate in isolation. Ethical choices result in better performance. Hence, the fact that the bank ended up in a crisis proofs that the decisions were unethical. Pressures to determine the cause of the failure showed that the bank lacked external controls and the existing systems were inefficiently applied. Therefore, ethical decision making requires external control and monitoring.
Minimizing Managerial Hubris and Final Outcome
Managerial hubris could have been decreased using an ethical business culture to avoid Farrow’s bank failure. Farrow and his fellow staff did not observe the required bookkeeping practice and did not maintain the accounting books. Also, external checks to evaluate the proceeding of the bank were not performed. It was discovered after the transfer of shares to Head. If there were regular internal checks on all the books of accounts like the trial balance, discrepancies would have been identified earlier before the failure.
Similarly, if the senior management like the directors showed concern in the daily operations of the bank, it would have prevented its collapse. Monitoring is essential to ensure that business moves in the anticipated direction (Eckerson, 2010). Hence, implementing the measures to reduce managerial hubris would have prevented the collapse of the Farrow Bank.
References
Eckerson, W. W. (2010). Performance Dashboards: Measuring, monitoring, and managing your business .
Hollow, M. (2014). The 1920 farrow's bank failure: A case of managerial hubris? Journal of Management History, 20(2), 164178.
