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The case of the Farrow’s Bank is a vivid example of managerial hubris executed by the head of the company. Nonetheless, Thomas Farrow employed such a conduct due to a number of reasons that lie both in the inside and outside bank environment. The purpose of this paper is to review the case and analyze the strategy applied by Thomas Farrow.
Corporate Culture, Leadership, and Motivation
It should be noted that various factors have influenced and contributed to the emerging managerial hubris exhibited by Farrow. In general, the bank lacked effective corporate culture. The senior leadership disregarded the daily supervision and adherence to the essential practices, which gave latitude to the emergence of hubris. Apart from that, Farrow was overly conscious about the way others perceived him and was incapable of outlining the company performance with the business setting (Hollow, 2014).
However, most importantly, he did not abide by the existing policies and regulations, which resulted in non-compliance with the law. For instance, he tried to conceal his losses by preparing misleading balance sheets that did not correlate with the reality. When accused of fraud, he would refuse having committed anything wrong, which evidenced his arrogance as both a manager and a person.
As stated by Hollow (2014), Farrow had “an overwhelming concern with his own self-image; a pronounced tendency view the world in heavily moralistic and grandiose terms; a total disregard for rules and regulations; and an increasing detachment from reality” (p. 174). The underlying cause for such conduct was the desire of this individual to maintain a particular image he could not lose under any circumstances, which led him to conviction. Another significant factor was the weak or insufficient external control mechanisms over the company, which had given him an immense power over the bank and its affairs. For example, the bank had more loose auditing regulations than its rivals did (Hollow, 2014). Many years of unfair competition resulted in his strong belief that he was above the law.
Importantly, ethical decision-making and managerial hubris are two mutually exclusive domains. Ethical decision-making implies that the company leadership outlines the behavior and company performance with the postulates promoted by such corporate culture that is based on the common human values. In addition, it enables all the key stakeholders to become active participants in decision-making, which, in return, provides the leadership with the variety of different ideas and options (Shaw, 2013).
Managerial hubris disregards the opinions of others and centers on the manager’s conduct and solutions. In the case of Farrow, he did not consider the opinions of the co-workers due to existing vacuum. Apart from that that, his decisions were unethical since he provided misleading information and based the further course of action in accordance with the initially false data. Therefore, it can be assumed that managerial hubris employed by Farrow gradually led to disruptive business practices, inefficient corporate culture, and undermining of the corporate social responsibility (Hollow, 2014). It resulted in the formation of such business environment in which the bank could no longer remain competitive and trustworthy.
It should be stressed that, initially, the company was filed as a “credit bank”, which implied less strict and rigid regulations regarding the accounting practices (Hollow, 2014, p. 172). Notably, it also meant that the company leadership was less liable to their shareholders. For these reasons, the accounts of the bank were not subjected to external auditing, which gave latitude to unethical measures. Therefore, such setting did not pose any harsh pressures at Farrow’s Bank.
The governmental regulation was rather weak, and the bank did not have to sustain responsibility to the customers as its competitors did. In fact, the absence of external pressure resulted in losing the ethical safeguards (Shaw, 2013). The real pressure that Farrow was experiencing was the need to continue exhibiting unethical decision-making to proceed to cover the misleading practices.
It can be stated that the level of managerial hubris would be decreased if the bank had ethical business culture. At present, the USA have a particular governmental policy (ethical protocol) that ensures the banks meet and follow ethical guidelines in their practices. This regulator could serve as an external force of ensuring ethical business culture with which Farrow’s Bank would be obliged to comply and execute decision-making within certain boundaries (Shaw, 2013).
Moreover, ethical operations of a company provide an opportunity to establish a business setting, which is characterized by integrity and credit. Having a highly ethical corporate culture, the bank would be able to prevent the emergence of hubris. Notably, such a setting would provide Farrow with the awareness and comprehension of the importance of including stakeholders in shared decision-making (Shaw, 2013). In its turn, ethical business culture would drive the leadership towards cooperation and prioritization. Such awareness of the senior management would allow the company to become self-sustaining. Thus, high business ethics would prevent the emergence of managerial hubris in Farrow and lead to sustainability.
Therefore, it can be concluded that Thomas Farrow did exhibit managerial hubris. The absence of strict external pressures and insufficient corporate culture have resulted in managerial vacuum in which the course of action depended on the leader solely, and the key stakeholders were unable to share the responsibility of decision-making. If the bank had strong ethical business culture, the outcome would be different since the company would become self-sustainable and preserve its integrity.
Hollow, M. (2014). The 1920 Farrow’s bank failure: A case of managerial hubris? Journal of Management History, 20(2), 164-178.
Shaw, W. (2013). Business ethics (8th ed.). Boston, MA: Cengage Learning.