The 1920 Farrow’s Bank failure: a case of managerial hubris? (2014)

“Thomas Farrow had …. 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.

Matthew Hollow, Department of History, Durham University, UK
Journal of Management History, Vol. 20 Iss: 2, pp.164 – 178

On the morning of 20 December 1920 at Farrow’s Bank head office on Cheapside, London, and on the doors of the bank’s 73 branches, a notice headed ‘Payments Suspended’ was posted.

Thousands of ordinary people found that they had lost every penny they had. Public outcry was loud, and the then Chancellor of the Exchequer, Mr Chamberlain, was asked in the House of Commons if the Government was aware of the disaster? “Yes”, was his reply; they had been aware of its imminence for some little time.

Hollow finds that “Thomas Farrow had …. 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.

“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.”

Access the full research paper here: The 1920 Farrow’s Bank failure