Business ethics refers to the study of recommended business practices and policies that have been developed to handle potentially controversial issues such as bribery, corporate social responsibility, corporate governance, fiduciary responsibilities, and insider trading. It is the responsibility of managers to oversee issues related to business decision making. Such issues may be related to investments and mergers. As such, the issue of managerial hubris is an important concept in the modern business environment. The purpose of this assignment is to read and analyze the case study ‘The 1920 Farrow’s Bank failure: a case of managerial hubris’.
The 1920 Farrow’s Bank Failure: A Case of Managerial Hubris
Corporate Culture, Power and Motivation
Based on the culture of this bank, there was a high level of negligence and lax. The senior management, as well as, the board of directors of the bank demonstrated neglectfulness and irresponsibility towards all activities concerning daily management of the bank. Ideally, such negligence and irresponsibility, especially by Crotch and Hart provided strong bases for Thomas’ managerial hubris (Hollow, 2014). It is evident that Thomas was guided by leadership hubris. He sought to safeguard his self-image whilst using grandiose and moralistic worldview. Therefore, he failed to adhere to the set rules and regulations, a move which led to a detachment from reality. To hide his misdeeds (losses), Thomas drew and published false balance sheets. The culture of the bank made him commit such heinous business crimes. It explains the reasons as to why he adamantly declined doing anything wrong despite been convicted and charged in a court of law.
Thomas had been accorded a lot of power in the daily management of the bank. A resurgence of his egocentric and narcissistic character further enhanced his power. Such powers were ideally due to the absence of an external control mechanism. Either way, Thomas was under no control from any external power. Even if there was an external control mechanism, it was ineffective and lacking, making it easy for Thomas to go against business ethics. According to this case, the bank was registered under the Friendly Societies Act of 1904. The Friendly Societies Act allows, through legal means, the trustees to own property and land, as well as, acquisition of any legal proceedings as a favor for registration. However, companies and organizations registered under this Act face less strict regulations relative to their competitors. It explains why Farrow managed to hide its fraudulent bookkeeping for a substantial period of time. Such a corporate culture, coupled with power motivated Thomas to commit managerial and leadership hubris during his tenure in Farrow Bank.
Overall Impact of Managerial Hubris
Managerial hubris have a tendency of influencing personal decisions and thus, the end result of the decision-making process is usually skewed. Under such circumstances, an individual fails to take into consideration the external factors that would otherwise raise individual awareness (Singer, 2018). Therefore, an individual fails to recognize personal biases leading to poor decision-making and poor ethics in a business environment. The code of ethics in business demands for moral awareness, as far as the decision-making process is concerned. An external input, preferably from an outsider or even an executive team, is essential in decision making. Such an inclusive leadership impacts greatly the business environment. The impact is usually twofold; positive and negative. According to this case study, a negative impact was due to Thomas, who, due to his managerial hubris lost a lot of money belonging to the bank’s customers. Research holds that impairment on ethical and moral awareness decisions results in a failure to take into account external factors, a situation which raises significant awareness of ethical issues.
Pressures associated with ethical decision making at Farrow’s Bank
Farrow Bank was under pressure from banking acts and regulations concerning ethical issues. According to these acts and regulations, there is a certain framework under which Farrow Bank ought to strictly adhere to with respect to its financial statements and books of accounts. Such records should be correct and provide the true value of the financial estimates. Banking rules demand that all banks observe strictly ethical issues such as honesty and transparency. Ironically, Farrow Bank kept on engaging in fraudulent activities by providing false financial information. Generally, the bank is under pressure due to such decisions.
Based on this case study, it is evident that Thomas had the sole responsibility for making decisions. Accordingly, Thomas was completely detached from reality making it a challenge for the employees. The prevailing managerial hubris led to ignorance of employee’s views and complaints prompting employees to mount significant pressure towards the Furrow Bank.
Impact of Truthful Culture on Managerial Hubris and Final Outcome of Farrow Bank
It is essential to note that ethical practices are a part and parcel of a successful business entity. Ethical practices have the capacity to create respect and mutual trust in a workplace environment. It is, therefore, evident that a firm whose activities are founded on ethical corporate culture will have minimal or no managerial hubris (Tang, Qian, Chen, & Shen, 2015). In this case, Thomas would be in a position to engage individual stakeholders and the executive team of the bank in decision making. Such a move would have led to total avoidance of the hubris syndrome. Prioritization of challenging decisions would be based on ethical grounds. A viable workplace environment would be created leading to improved productivity and success for the bank.
Hollow, M. (2014). The 1920 Farrow’s Bank failure: a case of managerial hubris?. Journal of Management History, 20(2), 164-178.
Singer, A. (2018). Justice failure: Efficiency and equality in business ethics. Journal of Business Ethics, 149(1), 97-115.Tang, Y., Qian, C., Chen, G., & Shen, R. (2015). How CEO hubris affects corporate social (ir) responsibility. Strategic Management Journal, 36(9), 1338-1357.
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