The 1920 Farrow’s Bank Failure: A Case of Managerial Hubris
In the case, as presented by Hollow (2014), Thomas Farrow had been evaluated as having been inflicted by managerial hubris at the time of the collapse of Farrow’s Bank in 1920. This work is based on the case and explores some pertinent issues related to the case: the effect of corporate culture, leadership, power, and motivation on Thomas’s level of managerial hubris, relating managerial hubris to ethical decision making and the overall impact on the business environment, the pressures associated with ethical decision making at Farrow’s Bank, and the level of managerial hubris in the context of a truly ethical business culture. The analysis suggests that Farrow’s Bank would have survived and continued to receive acceptance if it had a truly ethical business culture.
Managerial hubris was entrenched in the corporate culture of Farrow’s Bank and had a profound bearing on Thomas’s level of management hubris. Much like a strong unethical culture characterized the family business of the crime family of Don Vito Corleone in the film The Godfather, Farrow’s management operated in a culture that upheld managerial hubris as a norm. The success and growth of Farrow’s Bank reinforced Thomas’s self-confidence and cultivated a belief that the Bank’s role transcended conventional role boundaries in groundbreaking ways (Hollow, 2014, p. 169). Consequently, the Bank’s corporate culture embraced the “spirit of camaraderie” whereby the interests of customers were viewed to be identical to those of the Bank (Hollow, 2014, p. 169). This corporate culture suggests the Bank’s inclination towards managerial hubris as it came to view the interests of customers as identical to its own.
Thomas’s leadership role in Farrow’s Bank alongside his power also had a significant effect on his level of managerial hubris. As noted by Hollow (2014), Thomas, after founding the Bank and overseeing its initial success, fulfilled the role of Chairman and Managing Director upon the official listing of the company. This position of elevated leadership and power provided Thomas with the opportunity to continue imposing his views, as noted above, on the company. Leadership implies a position to influence followers to embrace one’s views. In this regard, Thomas’s leadership and power gave him favorable conditions to further hubristic ideals. Practices such as utter disregard towards the norms and conventions of standard financial reporting that prevailed in the Bank indicate that Thomas’s views and behavior permeated the Bank. Therefore, leadership and power enhanced his level of managerial hubris by enabling him to impose his views on his staff and entrench them further in the Bank’s corporate culture.
Thomas’s motivation increased his level of managerial hubris to a significant extent. With little in his way in terms of regulatory and organizational checks, he pursued his grandiose visions for Farrow’s Bank as denoted by his “Farrovian” tag (Hollow, 2014, p. 172). The resultant conflict of interest is likely to have only increased his level of managerial hubris. The earnest pursuit of his personal vision for the Bank implied that the interests of other stakeholders, most notably customers and investors, were secondary to his. According to Jamnik (2011), conflict of interest is a major source of unethical behavior by fiduciaries and agents (p. 156). Thomas’s motivation created a conflict of interest with the potential for increasing his level of managerial hubris.
The connection between managerial hubris and ethical decision making largely lies in the nature of the role of the business in providing services to customers. According to Jamnik (2011), uncertainty or misunderstandings about the nature of the role of a financial services provider is a source of many concerns over unethical decision making (p. 156). Such concerns are heightened by managerial hubris because of the associated blurred role of the provider. In the case of Farrow’s Bank, managerial hubris led to a more prominent role for management and a diminished role for customers, investors, and other stakeholders. The scenario created a conflict of interest as Thomas pursed his interests at the expense of those of other stakeholders.
Unethical decision making was bound to follow as it became increasingly difficult to reconcile the clashing interests. Accordingly, managerial hubris encourages unethical decision making and with a negative overall impact on the business environment American history assignment help. As in the case of Farrow’s Bank, managerial hubris encourages unethical financial reporting practices, including disregard for reporting standards (Hollow, 2014, p. 173). The resultant culture of unethical decisions detaches the business environment from the expectations of the general public because ethical decision making is largely tied to such expectations (Aminu & Oladipo, 2016, p. 226). Therefore, managerial hubris undermines ethical decision and this association has a negative overall impact on the business environment.
The pressures associated with ethical decision making at Farrow’s Bank include regulatory environment, general public expectations, employee expectations, investors, and customers. Farrow’s Bank had unethical financial reporting practices, but the company’s annual reporting endeavors suggest underlying pressures from the regulatory environment to adopt ethical decision making. Whereas the regulatory environment mainly deals with standards, it sets the bar for ethical businesses to go beyond just meeting such standards. The pressure from the general public is noteworthy for one main reason, namely, ethical decision making is tied to the expectations of the general public (Aminu & Oladipo, 2016, p. 226). At Farrow’s Bank, the pressure to make ethical decisions due to general public expectations is visible in Thomas’s approach to publicity. As noted by Hollow (2014), Thomas believed that depicting Farrow’s Bank and all its stakeholders as a family with shared values and mission would evoke a sense of community. The belief suggests the pressure of the expectations of the general public to act ethically.
Employee expectations at the Bank represented another pressure as Thomas felt the need to “just lock himself away” to sidestep employee engagement that would otherwise push him to adhere to norms (Hollow, 2014, p. 173). Investors and customers alike pressured Farrow’s Bank to embrace ethical decision making. Thomas, for instance, tried to hide his Bank’s unethical practices when William Read, a partner charged with negotiating an investment deal on behalf of his company, sought to cross-check Farrow’s Bank’s accounting records. These pressures are consistent with Leonidou et al.’s (2017) view that businesses face both internal and external pressures associated with ethical decision making. Farrow’s Bank’s employees represent internal pressure whereas the regulatory environment, the external public, investors, and customers represent external pressures.
For Farrow’s Bank, the level of managerial hubris would have been decreased if the Bank had a truly ethical culture for three main reasons. First, the Bank would have minimized conflict of interest due to misunderstandings about the role of the Bank in providing financial services. A misinformed decision led the Bank to merge the interests of customers with its own and in turn focusing on its interests at the expense of those of its customers.
Second, Farrow’s Bank would have adopted transparent practices with sufficient checks to decrease the level of managerial hubris. Thomas did not engage employees and other stakeholders in decision making and maintained an opaque decision making process that encouraged managerial hubris (Hollow, 2014). A truly ethical culture would have promoted collaboration and shared decision making in a manner that balanced the interests of different stakeholders.
Third, a truly ethical culture would have created long-term value for Farrow’s Bank and provided incentives for decreasing managerial hubris. Following the initial success of the Bank, Thomas believed that his grandiose vision for the Bank was the only path to success, a belief that increased managerial hubris (Hollow, 2014). In this history dissertation help, a truly ethical culture would have presented a viable alternative with the potential for contributing long-term value to the Bank.
The three reasons suggest that a truly ethical culture would have led to a positive final outcome for the Bank. As noted by Giannarakis (2014), ethical decision making is important for the long-term value of a firm as it contributes to the continued acceptance and existence of the business (p. 569). The Bank would have survived and continued to receive acceptance as its practices would not only create value but also balance the needs of various stakeholders.
The discussion indicates that Farrow’s Bank would have had a different final outcome and continued to exist and receive acceptance if it had a truly ethical business culture. The Bank’s corporate culture as well as Thomas’s leadership, power, and motivation reinforced his level of managerial hubris. Managerial hubris tends to encourage unethical behavior with negative implications for the overall business environment. The pressures associated with ethical decision making at Farrow’s Bank were diverse and included the regulatory environment, general public expectations, employee expectations, investors, and customers. A truly ethical business culture would have guided the Bank towards a sustainable path.
Aminu, A. A., & Oladipo, O. O. (2016). Application of Financial Ethics in Annual Financial Reporting of Banks. 10th International Scientific Conference on Economic and Social Development – Miami, 25th September 2015, 226-235.
Giannarakis, G. (2014). Corporate Governance and Financial Characteristic Effects on the Extent of Corporate Social Responsibility Disclosure. Social Responsibility Journal.
Hollow, M. (2014). The 1920 Farrow’s Bank Failure: A Case of Managerial Hubris? Journal of Management History, 20(2), 164-178.
Jamnik, A. (2011). Business Ethics in Financial Sector. Economic Research-Ekonomska Istraživanja, 24(4), 153-163.
Leonidou, L. C., Christodoulides, P., Kyrgidou, L. P., & Palihawadana, D. (2017). Internal Drivers and Performance Consequences of Small Firm Green Business Strategy: The Moderating Role of External Forces. Journal of business ethics, 140(3), 585-606.
Unsafe Working Conditions
The working environment has a major bearing on an organization’s operations and achievement if its strategic objectives. Unsafe working conditions suggest a working environment that is not optimal. The concept involves a working environment that does not allow employees to work freely and presents problems that might restrain them from performing upto the level of their full potential (Raziq & Maulabakhsh, 2015, p. 718). Unsafe working conditions can be related to two dimensions of the work environment: work and context. The work dimension refers to the characteristics of the job such as the tasks involved whereas context involves the physical and social working conditions of the work (Raziq & Maulabakhsh, 2015). A work task such as moving machinery with a poorly designed process that poses health risks for employee is an example of the work dimension of unsafe working conditions.
Unsafe working conditions undermine overall morale, relationships within the organization and ultimately overall productivity levels. A study by Muskita and Kazimoto (2017) found that pleasant working conditions bolster employee morale, enhance workplace relationships, and increase organizational productivity. High employee morale is reflected in employee performance because employees are more inclined to make greater efforts to improve. Unsafe working conditions create an environment where employees are not certain about factors such as their rights and wellbeing, which might render them uncooperative and undermine workplace relationships (Raziq & Maulabakhsh, 2015, p. 718). Whereas Muskita and Kazimoto (2017) observed a positive relationship between good physical working conditions and a healthy working environment, they noted that other factors related to working conditions influence the overall effect on a healthy working environment. Comfortable physical working conditions might enhance relationships within the organizations, but other factors such as poor leadership or culture of unethical practices in the organization might negate the effect of good physical working conditions. In this regard, unsafe working conditions involve both the work and context.
Unsafe working conditions can undermine overall productivity in various ways. According to Raziq and Maulabakhsh (2015), working conditions influence success factors such as efficiency, effectiveness, productivity, and job commitment of employees. Unsafe working conditions are likely to undermine these factors and ultimately hinder overall productivity. Employees working in unsafe conditions might feel detached from the organization, leading to lower morale. The situation is likely to cultivate unhealthy relationships within the organizations. The convergence of these factors ultimately undermines overall productivity levels.
McDonald’s is an example of a company that was caught up in the issue of unsafe working conditions. In 2015, some of the company’s employees claimed that they had been hurt on the job and organized protests against their working conditions (Lobosco, 2015). In 2019, the company’s workers filed complaints with OSHA urging the watchdog to investigate a pattern of violence against employees at the company (Eidelson, 2019). These incidences depict potentially damaging scenarios for the company in productivity, market success, and other costs such as lawsuits. In the 2015 incident, McDonald’s suggested that the allegations and protests were unfounded and were “part of a larger strategy orchestrated by activists” to damage the company’s brand (Lobosco, 2015; Religion and Theology Assignment Help). the reaction shows that McDonald’s tried to shift the problem away from the internal environment to external forces. The recurrence of the complaints suggests that McDonald’s failed to address the problem adequately.
Some best practices a company can implement to avoid negative behavior within their organization include encouraging the raising of issues and questioning from different perspectives on any topics, basing decisions as far as possible on fact, and embracing a risk-aware organizational culture. Negative behavior can occur if a company discourages other perspectives, denotes some topics or issues as taboo, adopts models that appear unquestionable, and makes decisions based on emotion rather than fact (Fraser & Simkins, 2010, p. 93). These elements are characteristic of a weak organization as it relates to avoiding negative behavior. According to Fraser and Simkins (2010), organizations with a strong capacity to avoid negative behavior cultivate a culture that leads to sound decision making and that is committed to encouraging and rewarding as opposed to stifling and penalizing. A wider organizational risk-aware culture with the elements above can help a company to implement a strong foundation to avoid negative behavior because the approach is responsive to workplace conditions that might lead to such behavior.
I would rate the ethical practices of McDonald’s as poor due to the lax in addressing the unsafe working conditions. As indicated above, in 2015, the company reacted to complaints about unsafe working conditions by denying the claims and attributing the complaints to activists seeking to damage the organization’s brand. The unsafe working conditions appear to have worsened as of 2019 when employees filed complaints with OSHA. Eidelson (2019) reported that about every 36 hours a new report on violence at a McDonald’s restaurant emerged. I believe that the company should have done more to improve working conditions and the wellbeing of employees. It is unethical for senior management to deny the existence of unsafe working conditions at the company whereas employees continue to experience violence and other effects of unsafe working conditions.
Eidelson, J. (2019, May 22). McDonald’s Workers Want OSHA to Investigate Pattern of Violence. Retrieved from https://onlyessayhelp.com/mgt-560-transactional-charismatic-and-transformational-approaches-to-leadership/
Fraser, J., & Simkins, B. (Eds.). (2010). Enterprise risk management: Today’s leading research and best practices for tomorrow’s executives (Vol. 3). New York: John Wiley & Sons.
Lobosco, K. (2015, March 15). McDonald’s workers allege unsafe working conditions. Retrieved from https://money.cnn.com/2015/03/16/news/companies/mcdonalds-working-conditions/index.html
Muskita, C., & Kazimoto, P. (2017). Workplace Environment and Employee Morale: A Study of Selected Organizations in Jakarta, Indonesia. CATALYST JOURNAL OF THE INSTITUTE FOR INTERDISCIPLINARY STUDIES, 108. https://onlyessayhelp.com/tag/language-and-culture-assignment-help/page/6/
Raziq, A., & Maulabakhsh, R. (2015). Impact of working environment on job satisfaction. Procedia Economics and Finance, 23, 717-725.
Tort Law – Negligence
According to Levmore (2019), a tort is a legal wrong committed by one party against another. Negligence is a type of tort that has evolved as a result of any damages or injuries occurring between parties with no contract in place; thus, there is nothing for one of them to sue the other over. In a tort lawsuit, the plaintiff or the injured party in a civil case sues for compensation, through an attorney, from the defendant for incurred loss or damages. The tort law decides on whether a party should be held legally responsible for any damage against another, and also the compensation to which the plaintiff is entitled to.
There exist four elements for any successful tort case and they include; duty, breach, injury, and causation. For a claim to be well-founded in tort, a breach must exist which is made by the defendant against the plaintiff, and which has resulted in damages or injuries. A party is held responsible for the duty of care when he or she avoids injuries to another party by exercising due care. This will depend on the relationship between the parties involved. When a party awes the other a duty of care, then the court will dictate the exact compulsions which are owed (Levmore, 2019).
For a legal negligence case to be successful there must be proof of conduct that caused the harm. The plaintiff must demonstrate that he or she sustained physical or emotional injuries resulting from the defendant’s breach of duty. Finally, there should be no overarching circumstances as the law would determine if the plaintiff suffered damage “but for” the conduct of the defendant.
Levmore, S. (2019). Richard Posner, the Decline of the Common Law, and the Negligence
Principle.The University of Chicago Law Review, 86, 1137-1156.
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