Unit VI-Farrow Bank and Hubris-MBA 6301-15K-7-C. Austiin

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Feb 20, 2024

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Running head: FARROW BANK AND HUBRIS 1 Farrow Bank and Hubris Caroline A. Austin Columbia Southern University

FARROW BANK AND HUBRIS 2 Farrow Bank and Ethical Hubris Hubris syndrome, an ancient word that originated in ancient Greece, the word hubris is first used to describe those individuals that are insolent or arrogant that indicate an over excessive pride or an overly feeling of self confidence, which also is an indication of lost connection with reality (Hollow, 2014). Hubris syndrome or managerial hubris is also the condition for which those in position of leadership are full of arrogance; or are conceded or so self-centered that they start to lose contact with reality or an overall sense of realism (Hollow, 2014). The hubris syndrome has been applied to those who have over rated their company or over estimated their power by CEOs. Farrow Bank Ethical Crisis In the case of the 1920 Farrow bank case, Mr. Thomas Farrow was suffering from managerial hubris and this was the main cause for the bank fail (Hollow, 2014). Mr. Farrow’s personality changed after being in a position of great power and importance. The managerial positions that empowered him caused Mr. Farrow to consider himself above the law, and this made him an out spoken man. This made him a strong opinionative person and quite intimidating. Mr. Farrow became corrupted and started to commit financial fraud with investor’s money. The Farrow bank failure came at a time when British banking sector was at an increase level of professionalism and was not plagued by financial mismanagement (Hollow, 2014). Mr. Farrow is not the only one that had suffered from such problems. The situation of hubris may be a case of management misreporting which is a reflection of themselves and their relationship with others (Cormier, 2015). Thomas Farrow willfully caused the bank failure that clearly ruined his reputation and his downfall. The issue of top management fraud that surrounds information that reflects the broad range of what is considers as management fraud is willful

FARROW BANK AND HUBRIS 3 undertaking actions of embezzlement, fraudulent dealings, insider trading, lying, failing to disclose information, failing to disclose important events, corruption, cover-ups, and misleading others can be exhausting in the research of the deterioration of top management officials (Cormier, 2015). Not adhering to ethical standards It becomes a problem when top management decides to engage in unethical behavior or it can be financial fraud or misreporting (Cormier, 2015). As people work in any kind of financial organization, there is a tendency for them to commit fraud or become over indulgent. Managerial hubris has been associated with several business phenomena and events over several years (Cormier, 2015). Many other financial businesses have suffered from financial ruins due to either managerial hubris or financial misreporting or in other words fraud. In according to Cormier (2015), identified managerial hubris as a the primary culprit that causes organizations to act in disastrous behavior such as fraud, manipulating the laws and a disregard for anybody. Managers or CEOs develop social blindness and block out knowledge and creativity. Eventually people in management positions become power hungry and lose their sense of value (Investors Chronicle, 2018). They tend to not follow their ethical value or follow the code of standards. In the case of Thomas Farrow, because he was in a position of power, he became overly indulgent. He lost his ability to strategize and he became delusional over the situations of the financial problems the bank was having. Others around him were not influencing him but he just became self centered that he deceived himself from reality. Overwhelming stress and loss of reputation is a cost that follows such behavior. Mr. Farrow was unapologetic for his actions and refused to accept any wrong doing on his part (Hollow, 2014). Mr. Farrow firmly believed that his hard work in being successful entitled him to special treatment above the law. He was conceited in

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FARROW BANK AND HUBRIS 4 believing that he was the only one to get the bank out of trouble (Hollow, 2014). The illegal situation of the bank not only affected the employees but the ethical standards and the morale thing to do right was lost. Many readers who read about the Farrow bank case can wonder if this managerial hubris still exists to this day. Comparing ethical behavior from past to present. Upon researching other stories of financial crisis that has accured the most resent in comparison to the Farrow bank case is the case of the Countrywide Mortgage case. An example of managerial hubris was CEO and co-founder Angelo Mozilo of the countrywide mortgage fraud case, saw a subprime mortgage crisis coming for everyone except his own company. The company countrywide mishandled home mortgages and as a result millions of people lost their homes. Mr. Mozilo after being charged of bank fraud went to trial along with his president Mr. David Sambol and their CFO; Mr. Eric Sieracki had to pay back 67.5 million. Mr. Mozilo was permanently banned from ever serving as an officer or director of a public company. Mr. Sambol and Mr. Sieracki agreed to a far lesser penalty (Rexrode, 2016). In this case the men did not tell investors the truth about Countrywide’s exposure to risky mortgages. The government did not have a really rock-solid case against Mr. Mozilo. Both Mr. Farrow and Mr. Mozilo did not see their failures or the fact that they were both felt they were not at fault or admit anything. Even though there was a wide public outrage, along with damning e-mails meant that the former executives didn’t want to risk trial. Mr. Mozila’s fatal flaws included callousness about homeownership. Countrywide was Mr. Mozila’s baby as he often referred his company as and his desperate hunger to be number one which led countrywide into a race to the bottom as the mortgage market spiraled out of control (Cormier, 2015). Managerial hubris comparison of leadership. Mr. Mozilo had an unwillingness to relinquish

FARROW BANK AND HUBRIS 5 control over his company which led to the upheaval of its executive ranks at the worst possible time. Mr. Mozilo had a Dr, Jekyll and Mr. Hyde quality about him and was fraudulent as well as callous towards being truthful. Mr. Mozilo was clearly obsessed in winning the market share battle that he didn’t see ultimate cost of bad loans that Countrywide was making (Rexrode, 2016). This is a classic business case of self-delusion, betrayal and ambition gone awry or is a classic case of managerial hubris. Mr. Mozilo remains the truest of true believers in both his company and in the transcendent virtue of the subprime loans Countrywide was making. He really was convinced that he was impregnable like his company (Rexrode, 2016). When you look at the symptoms of managerial hubris and other pathological personality disorders such as NPD or APD, hubris is clearly different. In speculating the different between Mr. Farrow and Mr. Mozilo they clearly both suffered from managerial hubris. In either case both men suffered from a trait that many financial managers must never suffer from. In any case, the employees followed the unethical standards that they had set. Those that were involved in the unethical behavior lost their jobs. The Farrow bank suffered tremendous loss as well as Countrywide Mortgage company. Mr. Farrow served four years in prison (Farrow, 1920) where Mr. Mozilo case was dropped and lost his business. Many victims of Country wide had their debts settled as well in order to help those affected by this. The Farrow bank case the victims lost their money. Never the less both men were ever a manager of a bank ever again. The Bank’s directors and senior staff failed in their supervisory responsibilities (Farrow, 1920). Power in any position can be abused. Changes in a person can be gradual and over time can cause them to act unethical. This unethical behavior in the working environment can affect employees as well. They follow the norm of the rules and policies established in the organization. The code of ethical must be a clear and concise outline of what can and cannot be tolerated.

FARROW BANK AND HUBRIS 6 References Cormier, D. (2015), CEO power and CEO hubris: a prelude to financial misreporting? Management Decision , 54(2), 522-554, Retrieved from AB/Inform Collection database Hollow, M. (2014), The 1920 Farrow’s bank failure: a case of managerial hubris? Journal of Management History , 20(2), 164-178, Retrieved from AB/Inform Collection database Investors Chronicle (2018), The cost of overconfidence, Trade Journal [news], The financial Times Limited , London, United Kingdom, Retrieved from AB/Inform Collection database Rexrode, C. (2016), Ex-Countrywide COE case is Dropped, Wall Street Journal, Eastern edition, New York, N.Y., Retrieved from AB/Inform Collection database

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Unit VI-Farrow Bank and Hubris-MBA 6301-15K-7-C. Austiin

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