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The 1920 Farrow's Bank failure: a case of managerial hubris? Hollow, Matthew . Journal of Management History ; Bradford 20.2 (2014): 164-178.

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ABSTRACT

Purpose - The aim of this paper is to evaluate the extent to which hubristic behaviour on the part of Thomas

Farrow contributed to the downfall of Farrow's Bank in 1920. Design/methodology/approach - The article traces

the way in which Thomas Farrow's behaviour changed over the course of his managerial career using primary

sources obtained from various British archives, including: court records, witness statements, auditors' reports,

newspapers, journals, and personal letters. The article then evaluates Farrow's actions in relation to the criteria

outlined in Petit and Bollaert's "Framework for diagnosing CEO hubris" so as to assess how far he can be said to

have become afflicted by managerial hubris. Findings - All the collected evidence points to the conclusion that

Thomas Farrow had, by the time of the Bank's collapse in 1920, become afflicted by managerial hubris. This was

reflected most clearly in the fact that he increasingly came to view himself as being somehow above and beyond

the laws of the wider community. As a result, he felt little compunction about fraudulently writing-up the Bank's

assets so as to cover the huge losses that his reckless investments had produced. Practical implications - The

Farrow's Bank episode confirms that the probability of management hubris materialising is enhanced when

external control mechanisms are either lacking or inefficiently applied. On top of this, the amateurish

organizational set-up of the Bank also suggests that the likelihood of hubris syndrome developing is enhanced

when organizations themselves grant too much discretion to their leaders. Originality/value - The paper breaks

new ground by applying the latest management and psychology theories on the subject of leadership hubris to the

field of financial management. Its value lies in the fact that it provides scholars and practitioners with an in-depth

insight into how hubris syndrome can develop in organizational settings. FULL TEXT

Introduction

Since being re-introduced back into academic debate by Ian Kershaw in 1998 with the publication of part one of his

two-part biography of Hitler ([23] Kershaw, 1998), the concept of leadership hubris - or "hubris syndrome", as it is

sometimes known - has enjoyed something of a resurgence amongst both historians and management academics.

Used to describe the process by which those in positions of great power become so overwhelmingly self-confident

that they start to lose contact with reality (often with disastrous consequences), it has been applied to everything

from the over-evaluation of companies by CEOs in corporate mergers ([21] Hiller and Hambrick, 2005) to the

arrogance displayed by diplomats during international peace-building missions ([32] Owen, 2006; [40] Richmond

and Franks, 2007). More recently, a growing body of literature has built-up looking at the extent to which the

current post-2007 financial crises was brought about by the hubristic behaviour of bankers and technocratic elites

in the financial sector ([14] Engelen et al. , 2012; [36] Petit and Bollaert, 2012). This paper contributes to these

debates by providing an in-depth analysis of a past UK banking failure - the 1920 Farrow's Bank failure - with a

particular focus on the extent to which hubristic behaviour on the part of the Bank's manager contributed to its

downfall.

Although the literature on past bank failures and financial panics in Britain has increased enormously in the wake

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of the 2007 financial crises ([6] Cassis, 2011; [39] Reinhart and Rogoff, 2009), there has up until now been virtually

nothing written about the origins and growth of Farrow's Bank nor any real attempt to analyse the factors involved

in its failure in 1920. Such neglect is all the more remarkable given the fact that the Farrow's Bank failure came at

a time when the British banking sector had, thanks chiefly to increased levels of professionalisation and regulation,

largely divested itself from the sort of amateurish mismanagement that had been such a feature of the Victorian

era ([29] Michie, 2003; [41] Robb, 2002). This article begins to address some of these issues, looking both at the

growth of the Bank and the factors involved in its failure. Evidence is taken from a range of sources, including

personal letters, minute books, personal testimonies and company reports. Particular attention is given to looking

at the behaviour of the Bank's manager - Thomas Farrow - in both the day-to-day running of the Bank and in the

aftermath of its failure, with the chief concern being to diagnose the extent to which he can be said to have been

afflicted by hubris syndrome.

The article unfolds in stages. In the first section, the current body of literature and research on leadership hubris is

analysed in more detail and a working model of the condition is outlined, complete with a list of standard

symptoms. This working model forms the checklist against which the behaviour and actions of the Thomas

Farrow's are analysed and assessed. The article then moves on to look at Farrow's early career as a campaigner

against usury and considers how this work inspired him to subsequently establish Farrow's Bank. Also analysed

are the grandiose methods and language used by Farrow to present himself and his Bank to the world. The next

section then focuses on Farrow's (mis)management of the Bank, outlining how he covered-up the Bank's huge

trading losses by fraudulently over-evaluating assets and drawing-up false balance sheets as well as looking at

how it was that a fraud of such scale was able to go undetected for so long. Indeed, in this section the concept of

managerial hubris is particularly useful as it helps to make sense of how someone who, publicly at least, was so

critical of unscrupulous banking behaviour could himself orchestrate a fraud of such magnitude. Finally, in the last

section the focus switches to the trial of Farrow and the Bank's management. Making use of both the evidence

presented in court and the testimonies of those involved in the trial, it shows how, even after his fraudulent

activities had been uncovered, Farrow remained unapologetic for his actions and refused to accept that he had

done anything wrong. Moreover, it also shows how Farrow continued to believe that his past sacrifices and

personal successes not only entitled him to some sort of special dispensation from the law, but also uniquely

qualified him as the man most able to lead the Bank out of trouble.

Hubris syndrome

Originating in ancient Greece, the term "hubris" was first used to describe those who displayed "wanton insolence"

or "arrogance" resulting from excessive pride or self-confidence ([4] Bergman, 1986). Typically used to indicate a

loss of contact with reality, the descent into hubris was often thought to invite disaster (usually in the form of the

Goddess Nemesis) and was considered one of the greatest crimes in ancient Greek society ([18] Fisher, 2003).

More recently, the term has been used to analyse and make sense of the actions of contemporary heads of

government, notably by Ian [23] Kershaw (1998), Peter [3] Beinart (2010) and, in a much more physiological

manner, by David [34] Owen (2012). In this context, the term has been used to describe how certain leaders, when

put in positions of immense power, seem to become irrationally self-confident in their own abilities, increasingly

reluctant to listen to the advice of others and progressively more impulsive in their actions (see the following list).

According to [33] Owen (2008), such behavioural traits have been displayed by a number of dictators and

democratically-elected heads of state over the past 100 years[1] , often with harmful results for the wider

population. [35] Owen and Davies's (2009) criteria for diagnosing hubris syndrome are as follows:

A narcissistic propensity to see their world primarily as an arena in which to exercise power and seek glory.

A predisposition to take actions which seem likely to cast the individual in a good light.

A disproportionate concern with image and presentation.

A messianic manner of talking about current activities and a tendency to exaltation.

An identification with the nation, or organization, to the extent that the individual regards his/her outlook and

interests as identical.

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A tendency to speak in the third person or use the royal "we".

Excessive confidence in the individual's own judgement and contempt for the advice or criticism of others.

Exaggerated self-belief, bordering on a sense of omnipotence, in what they personally can achieve.

A belief that rather than being accountable to the mundane court of colleagues or public opinion, the court to

which they answer is: History or God.

An unshakeable belief that in that court they will be vindicated.

Loss of contact with reality; often associated with progressive isolation.

Restlessness, recklessness and impulsiveness.

A tendency to allow their "broad vision", about the moral rectitude of a proposed course, to obviate the need to

consider practicality, cost or outcomes.

Hubristic incompetence, where things go wrong because too much self-confidence has led the leader not to worry

about the nuts-and-bolts of policy.

Similarly, the term "hubris" has also been used in recent years by a growing number of business and management

academics. The pioneer in this respect was Richard [42] Roll (1986), who first used the term to describe how

hubris-infected acquiring CEOs were, as a result of their tendency to over-valuate assets, often responsible for the

losses incurred by shareholders during mergers. In a similar vein, [19] Haywood and Hambrick (1997) have argued

that the post-acquisition performance of firms purchased by hubristically-inclined CEOs tends to be worse than

that of the firms purchased by non-hubristically-inclined CEOs. More recently, [20] Hayward et al. (2006) have

developed a "hubris theory of entrepreneurship" to explain why, despite the high incidence of new venture failures,

so many entrepreneurs continue to want to establish new business ventures. Likewise, [26] Li and Tang (2010)

have shown that hubristic tendencies on the part of CEOs are likely to lead to higher levels of risk-taking amongst

manufacturing firms.

Yet, despite this increase in interest, the literature on leadership hubris has remained somewhat splintered. One of

the main problems is that often the concept of hubris is poorly defined. This is especially true for much of the

literature on hubris in the business and finance sectors. In particular, there is often a tendency to switch between

different terms and a general lack of clarity about what exactly different academics mean when they refer to

leadership hubris ([28] Maccoby, 2000). For instance, in many studies on management decisions in the corporate

finance sector there has been a failure to differentiate between the concept of "overconfidence" - defined in the

social and cognitive psychology literature as "an overestimation of one's own abilities and outcomes relating to

one's own personal situation" ([25] Langer, 1975) - and that of "hubris". Likewise, there has been relatively little

attempt in the management and corporate finance literature to differentiate leadership hubris from what

psychologists have termed "narcissistic personality disorder" (NPD) - defined in the 2000 Diagnostic and Statistical

Manual of Mental Disorders as "a pervasive pattern of grandiosity (in fantasy or behaviour), need for admiration,

and lack of empathy" ([5] Bollaert and Petit, 2010)[2] .

In a bid to overcome these issues, [36] Petit and Bollaert (2012) have recently constructed a generic model that

provides a framework for diagnosing levels of hubris amongst CEOs and business leaders (see Table I [Figure

omitted. See Article Image.]). This is the model that will be adopted in this article and used as the checklist against

which Thomas Farrow's actions will be assessed. The model itself is heavily based on the one drawn-up by Owen

and Davies in 2009 and identifies many of the same symptoms and behavioural traits. Indeed, like [35] Owen and

Davies's (2009) model, Bollaert and Petit's framework is based on the premise that hubris syndrome is an acquired

condition, in that it can only be triggered by accession to a position of power. In this way, the condition of hubris

syndrome is clearly differentiated from other individual pathological personality disorders such as NPD or APD

which are the result of personal character traits. Where Bollaert and Petit's framework differs from Owen and

Davies's, however, is in its separation of attitudes and behaviours (both of which are important factors in cases of

leadership hubris). On top of this, Bollaert and Petit's framework has also been explicitly produced in order to

diagnose hubris syndrome in the business environment, whereas Owen and Davies's is very much more centred on

the political sphere. As such, it provides a concise and workable model against which to diagnose the extent to

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which individual business leaders can be identified as suffering from hubris syndrome.

Thomas Farrow and the emergence of Farrow's bank

By the standards of the time, Thomas Farrow had a fairly comfortable and unremarkable middle-class upbringing.

Born just outside of Norwich in 1862, he moved to London in 1881 to take up the role of confidential secretary to

the Rt. Hon W.H. Smith, Leader of the House of Commons ([31] Ogan, 1937). This was a role that he held until 1891

when, following Smith's death, he became political secretary to Mr Robert Yerburgh, the President of the

Agricultural Banks Association and an MP for Chester [45] ( The Times , 1921a). Whilst it would be overstating

things to try and suggest that, even at this stage of his life, Thomas Farrow had some sort of innate predisposition

to viewing himself as being somehow above the laws of the land, it is clear that he was not afraid to voice his

opinions. Indeed, despite lacking any formal training in economics or finance, Farrow rapidly established himself

as one of the more outspoken critics of the British banking sector in and around Whitehall. Of particular concern to

him was the problem of usury and, what he perceived to be, the unwillingness of the banking sector to provide for

those of limited means. In 1895, he published his first book - The Moneylender Unmasked - and he was later asked

to give evidence before a government select committee on the subject of usury ([43] Russell, 1897)[3] .

Yet, despite these relative successes, Farrow remained dissatisfied with the levels of financial protection offered

to those of small means and in 1901 he formed the Mutual Credit and Deposit Bank in Croydon. This small-scale

experiment proved successful and in 1904 he founded Farrow's Bank (PRO, DPP 1/55). Designed specifically for

small savers, Farrow's Bank differentiated itself from its competitors on the market by offering 1.5 per cent interest

(this later rose to 2.5 per cent) on current accounts which maintained a minimum balance of £10 for at least six

months (LRO, Misc. 1015). Generous repayment terms were also offered to those looking to borrow small amounts

of money, with Farrow claiming, in somewhat extravagant terms, that his new institution represented "a death blow

to usury" (PRO, DPP 1/55). Whether or not this was the case, Farrow's Bank certainly proved popular and on 16

May 1907 it was officially registered as a listed company with Farrow fulfilling the role of Chairman and Managing

Director.

Both in terms of its structure and the way in which it marketed itself, Farrow's Bank was very much following in the

tradition of organisations such as the Birkbeck Bank and the Charing Cross Bank in that it specifically sought to fill

a gap in the market by catering to those who found it difficult to obtain reasonable credit facilities from the large

joint-stock clearing banks but still wanted an alternative to the overtly-philanthropic, state-backed Post Office

Savings Banks ([22] Johnson, 1985). Deposit accounts with a guaranteed interest rate of at least 3 per cent could

be opened from as little as 1 s. upwards and facilities were available for the buying and selling of stocks and

shares. On top of this, Farrow was also highly innovative in terms of how he marketed his Bank. Specially produced

Hebrew adverts were produced for circulation in Jewish periodicals, whilst from 1907 onwards an in-house journal

- the Farrow's Bank Gazette (hereafter FBG ) - was also produced and circulated to all customers ([2] Bankers'

Magazine, 1914, July, p. 88). Another innovative tactic introduced by Farrow was the establishment of a specially

designated "Bank for Women" at 263 Knightsbridge Road, London, which was "managed by women for women"

and featured "special banking facilities for lady clients" ([16] FBG, 1915 , July , p. 82).

On the surface, at least, Farrow's Bank was an overwhelming success. By 1913, the Bank's nominal capital had

been increased to £1,000,000 and shareholders were receiving regular dividends of upwards of 6 per cent ([16]

FBG, 1913 , August, pp. 115-7). Geographically too the Bank rapidly extended its reach and by 1915 it had a

network of 72 branches, including offices in Scotland, Wales and Ireland ([16] FBG, 1915 , July, p. 82). Similarly,

Farrow was keen to point to the fact that, according to the figures published in official banking returns, Farrow's

Bank was ranked at the top of the table for all London and Provincial Banks with respect to the proportion of

capital and reserves to liabilities (claimed to be 32 per cent in 1914). Even the outbreak and subsequent turmoil of

the First World War failed to disrupt the Bank's growth, with the amount of money deposited increasing from

£166,304 in 1908 to £2,033,419 by 1917 ([16] FBG, 1915 , July, p. 66). Indeed, right up to 1920 the Bank's Annual

Reports continued to present hugely impressive figures, with the recorded assets swelling to £4,657,786 by

September 1920 (see Table II [Figure omitted. See Article Image.]).

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Significantly, as the size and prominence of the Bank increased so too did Farrow's self-confidence and ambition.

Envisaging himself as being more than just a mere banker, he began to devote more and more time to airing his

views on matters of national policy and industrial legislation, using the pages of his Bank's in-house publications

to sketch-out his ideas for how the government could stimulate job growth and make the British economy more

competitive ([16] FBG, 1916 , August, pp. 99-102). An even more comprehensive political treatise followed in 1916

with the publication of The Coming Trade War , in which he outlined his views on how Britain could retain her

dominant position in the world's markets. Publications such as these were indicative not only of the increasing

scope of Farrow's ambition, but also of the disproportionate concern that he devoted to questions of image and

presentation[4] . Indeed, Farrow even hoped that, through such publicity, he might be able to foster a dynamic

sense of community amongst the Bank's shareholders and customers, stating at the 1916 Annual meeting how he

hoped to develop a "spirit of camaraderie amongst shareholders and customers alike ... wield[ing] into one

common fellowship a vast body of men and women known as "Farrovians"" ([13] ( The ) Economist, 1916 , 5

August, p. 244).

The language used by Farrow in these sorts of publications also became more and more grandiose as the Bank

continued to expand, with the organisation increasingly presented less as a business and more as some sort of

living, organic entity. Indeed, as Farrow put it in his speech to the shareholders gathered at the sixteenth Annual

General Meeting: "you have here a Bank with a soul - not a mere money-making machine grinding out currency

notes for the benefit of a hungry horde of speculative individuals wanting to get rich quickly" ([16] FBG, 1920 ,

October, p. 38). Farrow seemingly also began to identify himself more and more with the Bank and its customers

(as the "Farrovian" tag so aptly demonstrates), seeing them as being somehow symbiotically attached to him and

treating their interests and outlook as being synonymous with his own. Likewise, he also began to talk about the

Bank's future in increasingly messianic terms, painting its potential development less as a commercial matter and

more as some sort of divine mission - a "mission" which, he claimed, was the Bank's "undoubted heritage and

destiny" ([16] FBG, 1920 , October, p. 38). Moreover, he also became increasingly prone to using the royal "we"

when referring to the Bank's activities and progress - another frequently identified symptom amongst those who

are overcome by hubris syndrome ([33] Owen, 2008).

Fraud and failure

Both in terms of its amateurishness and its sheer scale, the Farrow's Bank scandal was very much evocative of the

sorts of frauds and deceptions that had been such a common feature of the mid-nineteenth century British

banking system ([41] Robb, 2002; [44] Taylor, 2007). The fraud itself was only revealed in May 1920 when an

approach to buy a controlling interest in the company was made by Norton, Read &Co., a New York-based

investment firm. As William Albert Read - the partner charged with negotiating the deal - later explained, he had

been attracted to the Bank based on the strength of its annual published reports and its extensive branch network

(PRO DPP 55/1). Negotiations took place between Farrow and Read throughout the summer of 1920 and in early

August a provisional deal for Norton, Read &Co. to purchase 300,000 unissued shares at a net cost of 8/- per-share

was agreed. Before assuming the role of Managing Director, however, Read insisted on bringing in two

accountants - Arthur Horace Richie and Henry Morgan - to look over the accounts of his new acquisition. Despite

Farrow's best attempts to prevent them in their work, the two accountants were able to garner more than enough

information to expose the fact that the figures presented in the Bank's annual balance sheets were hugely

unreflective of the Bank's true financial position. Indeed, even after taking into account the money that had already

been deposited in the Bank by Norton, Read &Co., Morgan still estimated that there was a deficiency in the Bank's

accounts of approximately £2,685,757 (see Table III [Figure omitted. See Article Image.]).

Whilst these figures were clearly alarming, perhaps the most shocking thing to emerge from the accountants'

initial investigation was the extent to which Farrow and his staff had, over so many years, shown such utter

disregard towards the norms and conventions of standard bookkeeping practice. The most striking example in this

respect was the revelation that, from 1908 up until 1917, Farrow had left the job of auditing the balance sheets

solely in the hands of the Bank's own Chief Accountant, George Hart (PRO, DPP 1/55). This arrangement not only

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made a mockery of the notion of an "independent audit", it also meant that throughout this period the account

books of Farrow's Bank were never subjected to any form of external inspection[5] . To further compound matters,

it also emerged that, following George Hart's retirement in 1917, the responsibility for both drawing-up and auditing

the Bank's account books had been left to Frederick Hart (George Hart's son), despite the fact that he was

unqualified and had had no training other than that provided by his father (PRO, DPP 1/55).

Unsurprisingly, given this unprofessional setup, the manner in which the account books of Farrow's Bank were

kept was decidedly substandard. In total, the Bank employed four full-time clerks to check the monthly trial

balances sent up by the different departments, with notes made in investment ledgers as to the buying and selling

of stocks and shares, as well as dividends received (PRO, DPP 1/55). Alongside these investment ledgers, however,

were a number of account books marked "private ledger", each with its own lock and key. According to the

subsequent testimonies of the Bank's former employees, no other employees of the Bank were allowed access to

these account books (PRO, DPP 1/55). Indeed, the only people with keys to these ledgers were George Hart and,

then later, Frederick Hart. Moreover, it was also observed that although the Bank's clerks contributed to the writing

up of the provisional investment ledgers, they never had any involvement in the drawing-up of the annual balance

sheets - a task which was carried out solely by George Hart, and then later Frederick Hart, either in their private

office or in the seclusion of their family home (PRO, DPP 1/55).

One of the main reasons why this unprofessional and morally hazardous setup had been allowed to remain in

place for so long was because, in terms of its legal status, Farrow's Bank was actually registered as a "credit bank"

under the Friendly Societies Act of 1904, rather than as a conventional joint-stock bank under the 1900 Companies

Act. The significance of this was that it meant that the bookkeeping requirements placed on it were far less strict

than those imposed on other joint-stock banks at the time ([1] Anderson et al. , 1996)[6] . Likewise, it also meant

Farrow and his fellow Directors were, legaly, far less accountable to those who held shares in their Bank than their

competitors and did not have to have their accounts checked-over by an external auditor ([7] Collins and Baker,

2003; [30] Nobes and Parker, 1979).

Internally too, there were also a number of supervisory deficiencies in the organisational setup of Farrow's Bank.

Indeed, judging from the testimonies of those employed by the Bank in these years, it appears as if Farrow was

essentially granted the freedom to run the Bank as he saw fit. The main culprit in this respect was undoubtedly

William Walter Crotch, the Bank's Assistant Managing Director, who very much filled the role of Farrow's loyal and

unquestioning understudy. Well-read and artistic, Crotch was, by his own admission, woefully inexperienced when

it came to financial matters and was generally far more interested in literature than banking - as his string of

publications on Charles Dickens during this period so clearly illustrate[7] . As a result, he was wholly ineffective in

terms of overseeing the business of the Bank, freely admitting during the trial to never having looked over the

auditor's reports or inquired as to what the earnings or spendings of the Bank were (PRO, DPP 1/55). Similarly, it is

clear that the Bank's Board of Directors were just as negligent in terms of their supervisory duties. Indeed, judging

from the surviving evidence, it appears as if personal intimacy rather than professional expertise was the

overriding factor in Board appointments, with figures such as F.C. Janvrin - a stockbroker who, by his own

admission, was a "novice" when it came to matters of banking ([16] FBG, 1918 , August, p. 5) - seemingly elected

based on the fact that they enjoyed a close relationship with Farrow[8] . Likewise, according to one of the Bank's

former Directors, at no point during the Bank's existence had matters relating to the Bank's assets ever been

discussed at a board meeting (PRO, DPP 1/55).

From the perspective of this article, the most significant thing about these many regulatory and organisational

failings was that they enabled a situation to develop within which Farrow was free to pursue his own grandiose

visions for the Bank. Indeed, according to one of the Bank's former employees, Farrow tended to communicate

very little with the rest of the Bank's staff and would typically just lock himself away in the Bank's boardroom

whenever he came into work (PRO, DPP 1/55). This isolation from the rest of the Bank's staff also seems to have

been accompanied by a progressive loss of interest in the practical, day-to-day operations of the Bank. For

instance, according to Hart, Farrow never actually asked to see the balance sheets drawn-up for the Bank's

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monthly income and expenditure (PRO, DPP 1/55)[9] . This apparent lack of concern with the Bank's finances

reveals much about the extent to which Farrow lost contact with the day-to-day reality of bank management. It

also emphasises just how far the Bank's Directors and senior staff failed in their supervisory responsibilities.

Indeed, had more efficient checks been in place, it is highly unlikely that Farrow would have been able to have

become so detached or have overseen a fraud of such magnitude.

Trial and conviction

In terms of cooperating with the subsequent criminal investigation, Farrow was by some distance the least

obliging of the suspects taken into custody by the police on 20 December 1920. Indeed, whereas as both Crotch

and Hart Jnr. were utterly compliant during their actual arrests, Farrow - who had decamped to a hotel in St

Leonards-on-Sea, Hastings - informed the Detective sent to arrest him that he was terribly ill and refused to

accompany the police to London (PRO, DPP 1/55). Likewise, after his commitment for trial at the Central Criminal

Court on 22 December 1920 and subsequent remandment in Brixton Prison, Farrow continued to complain about

the degrading treatment he had received from the police. He also protested that his bail - set at £14,000, with

additional sureties of £14,000 - was too high, objected to the fact that he was not able to look over any of his

private papers whilst in prison, and complained that he was being underfed (PRO, DPP 1/55). Moreover, throughout

his time in police custody, Farrow seemed completely unwilling to either recognise the charges being brought

against him or accept the fact that he had done anything wrong. Indeed, in one letter to the Director of Public

Prosecutions he (delusionally) tried to claim that, had the police not intervened, he would have been able to have

successfully negotiated a deal with the government to keep Farrow's Bank afloat (PRO, DPP 1/55).

Protestations of this sort reveal not only the extent to which Farrow refused to come to terms with the

consequences of his actions, but also the degree to which he remained convinced that he alone was somehow

above and beyond the conventional jurisdiction of the state. This dismissive attitude towards the law became

especially apparent during the subsequent trial, which began on 6 June 1921 at the Old Bailey. The trial itself was

very much a one-sided affair, with the prosecution - led by Sir Richard Muir - able to call upon an extensive list of

witnesses willing to testify against Farrow. Yet, even when confronted with such damming evidence, Farrow still

refused to accept that he had done anything wrong. For instance, when questioned about the misleading figures

published in the Bank's promotional material, Farrow simply claimed that "there is much in a balance sheet which

is not informative, and, which, if you like to take a very severe view, is calculated to mislead the public" [46] ( The

Times , 1921b). Likewise, he also suggested that what he had done was no worse than what any of the other major

banks did on a regular basis and refused to accept that the Bank's huge trading losses were of any concern,

pointing out that all new businesses tended to struggle in their early days (PRO, DPP 1/55).

Indeed, throughout the trial Farrow actually sought to present himself as the real victim in the whole affair,

claiming that all he had ever wanted to do was protect the poorer classes from unscrupulous moneylenders and

encourage thrift amongst those of small means [47] ( The Times , 1921c). Moreover, he maintained that

throughout his time as Director of Farrow's Bank he had only ever been concerned with protecting the interests of

the Bank's shareholders, pointing out to the jury that he had not had a holiday in seventeen years[10] . Likewise, he

also refused to accept that the deal that he had struck with Read had been in any way underhand. Indeed,

according to Farrow, had he and Read been given the time, they would have been able to turn the Bank around and

would have "defied the banking world together" (PRO, DPP 1/55). This almost farcically defiant attitude must have

appeared even more delusional given the overtly contrite and apologetic stances adopted by Farrow's co-

defendants, with Crotch, in particular, stressing time and again just how sorry he was for having been so

"neglectful and careless" in his duties [48] ( The Times , 1921d).

Further evidence for the extent of Farrow's self-delusion can be seen from the fact that, even after he had been

found guilty of conspiracy to defraud and sentenced to four years of penal servitude, he still refused to accept that

he was guilty of any crime. In an emotional closing speech to the courtroom, he declared that he had never

knowingly or willingly done anything he thought was wrong and stated that "the failure of the bank had been

brought about through no fault of his" [49] ( The Times , 1921e). He also continued to argue that had he been given

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another "seven to ten years" he would have been able to make the Bank profitable (PRO, DPP 1/55). These

continued protestations of innocence in the face of such overwhelming evidence to the contrary can be seen as

proof of just how far removed from reality Farrow had become by this point. Indeed, throughout the trial Farrow

seemed to act as if his past personal successes and sacrifices somehow entitled him to special dispensation,

reflecting the extent to which he had come to view himself and his work as being somehow above and beyond the

jurisdiction of the state.

Conclusion

If one takes Petit and Bollaert's framework as the barometer against which to assess levels of hubristic behaviour,

then it is clear that, during his time as Director of Farrow's Bank, Thomas Farrow was very much afflicted by hubris

syndrome. Amongst the more obvious cognitive symptoms which he displayed in this respect were: 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. In practical

terms, this overtly hubristic outlook had a profound impact upon Farrow's decision making abilities. It also meant

that he increasingly treated his banking work less as a business venture and more as a personal moral crusade. As

a result, he proceeded to make a series of increasingly poor business decisions, overlooking the extent to which

his profit margins were falling in favour of providing ever higher returns and promoting continued expansion.

Perhaps the most obvious indication of the extent of Farrow's hubris, however, can be seen from the fact that,

rather than face-up to the reality of his Bank's financial position, he instead decided to cover his losses through the

drawing-up and publishing of false balance sheets. Such total disregard for rules and regulations marks out

Farrow's behaviour as distinctly hubristic, rather than just merely negligent or stubborn. Moreover, the fact that he

still refused to publicly recognise that he had done anything improper even after he had been charged and

convicted also demonstrates the lengths he was prepared to go to in order to preserve his self-image. Likewise, it

can also be taken as evidence for the fact that he inherently viewed himself as being somehow above and beyond

the laws of the wider community.

Finally, in terms of what this investigation into the, 1920 Farrow's Bank failure can tell us about how to go about

mitigating against the worst effects of managerial hubris in the future, two key points emerge. First, and perhaps

most obviously, the Farrow's Bank failure clearly seems to indicate that the probability of management hubris

materialising is enhanced when external control mechanisms are either lacking or inefficiently applied ([24] Kroll

et al. , 2000; [37] Porta et al. , 2000). In this particular case, a regulatory vacuum was able to develop because,

unlike almost all other joint-stock banks of the period, Farrow's Bank was registered under the Friendly Societies

Act of 1904 and was, thus, subject to far less strict auditing regulations than its competitors. As a result, Farrow

was able to keep the scale of his fraudulent bookkeeping hidden for far longer than would have been the case at

any other joint-stock bank. Second, the Farrow's Bank example also indicates that the likelihood of hubris

syndrome developing is enhanced when organisations themselves grant too much discretion to their leaders

(especially if those leaders already have certain narcissistic and ego-centric tendencies) ([26] Li and Tang, 2010).

In this particular case, the most culpable figures in this sense were the Bank's Board of Directors and its senior

management (notably, Crotch and Hart), who all showed a highly irresponsible and neglectful attitude towards the

day-to-day running of the Bank. Indeed, had either the staff or the Directors of Farrow's Bank been more vigilant in

their regulatory duties it is highly unlikely that Farrow would have been able to have acted as recklessly as he did

([17] Finkelstein and D'Aveni, 1994). From an organisational perspective, therefore, the example of the Farrow's

Bank failure clearly supports the notion that, in order to mitigate against the worst potential effects of managerial

hubris, it is desirable for businesses to ensure that their leaders are subject to some sort of effective monitoring.

Proceedings of the Committee, Minutes of Evidence, Appendix and Index, House of Commons 364 (XI.405), HMSO,

London

Footnote

1. Owen identifies Lloyd George, Margaret Thatcher, George W. Bush and Tony Blair as the four most obvious

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examples ([33] Owen, 2008).

2. Other related personality disorders include: Anti-Social Personality Disorder (APD) and Histrionic Personality

Disorder (HPD).

3. The findings of this committee were subsequently adopted in the 1900 Moneylenders Act.

4. According to the Bank's publisher, the Bank spent upwards of £9,000 per-annum on advertising in the London

and provincial daily newspapers and in religious periodicals (PRO, DPP 1/55).

5. Frederick Hart did actually try to suggest to Morgan that this method of auditing was more reliable than using

external auditors as "a man keeping the books was better able to audit and verify their correctness than an outside

auditor" (PRO, DPP 1/55).

6. The 1900 Act not only stipulated that the auditor could not be an employee of the company, but also stated that

the appointed auditor had to be granted access to all recorded accounts and balance sheets.

7. His list of publications on Dickens include: Charles Dickens, Social Reformer: The Teachings of England's Great

Novelist ([8] Crotch, 1913); The Soul of Dickens ([9] Crotch, 1916a); The Pageant Of Dickens ([10] Crotch, 1916b);

The Secret of Dickens ([11] Crotch, 1919); The Touchstone of Dickens ([12] Crotch, 1920). He was also instrumental

in setting-up and running the Dickens Fellowship.

8. Farrow also unsuccessfully attempted to have his brother, George Farrow, appointed to the Board of Directors,

despite the fact that he had no experience in banking or financial matters ([16] FBG, August 1918 , p. 4).

9. This lack of interest in the day-to-day running of the Bank can be seen by the fact that the Bank's salaries and

wages were vastly in excess of its regular income (amounting to five times the Bank's total earnings in 1914 alone)

(PRO, DPP 1/55).

10. This in itself was a violation of one the simplest early control measures and was something that should have

been noted and acted upon by the Bank's Board of Directors.

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