For this assignment, read the case study, The 1920 Farrow’s Bank failure: a case of managerial hubris. This case is located in the ABI/Inform Complete Database found in the CSU Online Library (see reference below).

Hollow, M. (2014). The 1920 farrow’s bank failure: A case of managerial hubris? Journal of Management History, 20(2), 164-178.

Thomas Farrow had been evaluated as having been inflicted by managerial hubris at the time of the bank’s collapse in 1920. With this in mind, address the following questions, with thorough explanations and well-supported rationale.

1. How did corporate culture, leadership, power and motivation affect Thomas’ level of managerial hubris?
2. Relate managerial hubris to ethical decision making and the overall impact on the business environment.
3. Explain the pressures associated with ethical decision making at Farrows Bank.
4. Evaluate whether the level of managerial hubris would have been decreased if Farrow Bank had a truly ethical business culture. Could this have affected the final outcome of Farrow Bank? Explain your position.

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

Matthew Hollow
Department of History, Durham University, Durham, UK

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.

Keywords United Kingdom, Corporate governance, Fraud, Business failures, Hubris,
Moral responsibilty

Paper type Research paper

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 (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 (Hiller and Hambrick, 2005) to the arrogance
displayed by diplomats during international peace-building missions (Owen, 2006;
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
(Engelen et al., 2012; Petit and Bollaert, 2012). This paper contributes to these debates

The current issue and full text archive of this journal is available at

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Journal of Management History
Vol. 20 No. 2, 2014
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q Emerald Group Publishing Limited
1751-1348
DOI 10.1108/JMH-11-2012-0071

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 of the 2007 financial crises (Cassis, 2011; 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 (Michie, 2003; 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 (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

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of the Goddess Nemesis) and was considered one of the greatest crimes in ancient
Greek society (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
Kershaw (1998), Peter Beinart (2010) and, in a much more physiological manner, by
David 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 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. Owen and Davies’s (2009) criteria for
diagnosing hubris syndrome are as follows:

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

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

(3) A disproportionate concern with image and presentation.

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

(5) An identification with the nation, or organization, to the extent that the
individual regards his/her outlook and interests as identical.

(6) A tendency to speak in the third person or use the royal “we”.

(7) Excessive confidence in the individual’s own judgement and contempt for the
advice or criticism of others.

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

(9) 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.

(10) An unshakeable belief that in that court they will be vindicated.

(11) Loss of contact with reality; often associated with progressive isolation.

(12) Restlessness, recklessness and impulsiveness.

(13) 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.

(14) 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 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, 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

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non-hubristically-inclined CEOs. More recently, 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, 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 (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” (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” (Bollaert and Petit,
2010)[2].

In a bid to overcome these issues, 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). 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

Context Scope Cognitive aspects Behavioural aspects

Power Relation with
the self

Has a grandiose sense of self Grandiose communication style
(use of the royal “we”; use of
superlatives; expression of
overarching ambition)

Overestimates his/her abilities,
power and likelihood of success

Unjustifiably grandiose projects
Poor decisions

Considers him/herself uniquely and
eternally qualified to run the
company

Entrenchment strategies
(accumulation of power; failure to
accept removal from position; tardy
resignation when circumstances
would seem to dictate it)

Relation with
others

Considers him/herself above the
community of humans

Management by fear
Violence or intimidation
Refusal of advice or criticism

Relation with
the World

Considers him/herself above the law
or the gods

Fraud
Manipulation of rules and laws
Contempt towards authorities

Source: Petit and Bollaert (2012)

Table I.
Petit and Bollaert’s

Framework for
Diagnosing CEO Hubris

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in 2009 and identifies many of the same symptoms and behavioural traits. Indeed, like
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 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 (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 (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 (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
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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 ( 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 (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” (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 (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 (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 (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).

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 (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”” ((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

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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” (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” (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 (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 (Robb, 2002;
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

Liabilities £ Assets £

Capital paid up 361,423 Cash in hand at bankers 207,793
Reserve fund (invested as per
contra)

138,500 Reserve fund invested in 5 per cent;
War Loan; National War Bonds; 53

4
per cent; Exchequer Bonds; Consols;
and India 31

2
per cent stock

138,500

Current and other accounts 1,458,317 Investments: War Loan; Exchequer
Bonds; Consols; Government
guaranteed stocks; British, foreign
and Colonial railway debenture and
preference stocks and other Stock
Exchange securities; freehold
properties and other properties, less
depreciation

1,665,

172

Deposit accounts 2,678,726 Advances and loans to customers,
including loans to take up
Government War Issues, bills
discounted and other accounts, after
deducting provision for doubtful
debts

2,473,012

Net profit, including balances
from last account, £53,450;
reserve fund, interim dividend,
and £32,630

20,820 Bank premises and fittings, less
depreciation

73,309

Total: 4,657,786 Total: 4,657,786

Table II.
Farrow’s Bank published
balance sheet, 30 June
1920

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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).

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 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

Estimated deficiency £
Credit balance not
representing liabilities £

Appreciation added to cost 1,875,098 Reserve fund 138,500
Estimated depreciation of investments and
other assets

709,370 Investment reserve 281,914

Loans and debts estimated bad wholly or in
part

381,533 Bad and doubtful debt reserve 427,165

Loss on foreign bank balance and exchanges 96,784 Foreign exchange reserve 41,485
Amount wrongly shown as due by Mr Read
and others

500,000 Insurance and repairs sinking
funds

4,715

Expenditure and expenses not written off but
treated as assets

40,736 Share premium account 3,165

Profit and loss account 20,820
Total: 3,603,521 917,764
Net deficiency: 2,685,757

Table III.
Henry Morgan’s initial

estimate of the deficiency
in the accounts of

Farrow’s Bank,
20 November 1920

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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 (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 (Collins and Baker, 2003; 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 (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

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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 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” (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).

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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 (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 (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” (The Times, 1921e). He also continued
to argue that had he been given 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

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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 (Kroll et al., 2000; 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) (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
(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.

Notes

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

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7. His list of publications on Dickens include: Charles Dickens, Social Reformer: The Teachings
of England’s Great Novelist (Crotch, 1913); The Soul of Dickens (Crotch, 1916a); The Pageant
Of Dickens (Crotch, 1916b); The Secret of Dickens (Crotch, 1919); The Touchstone of Dickens
(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
(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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Further reading

Farrow, T. (1895), The Moneylender Unmasked, Roxburghe Press, London.

LRO (n.d.), LRO Misc 1015, Account Book (1917-1920), Leicestershire Record Office, Leicester.

PRO DPP 1/55 (n.d.), Public Record Office, Director of Public Prosecutions: Case Papers for
Farrow’s Bank, The National Archives, Kew.

About the author
Matthew Hollow is a Research Associate on the “Tipping Points” Project in the Institute of
Hazard, Risk and Resilience, Durham University. His work focuses on various aspects of
Twentieth-Century British socio-economic history. He holds a BA and an MA from the
University of Sheffield and a DPhil from Oxford University. At present he is interested in
exploring moments of significant transition and upheaval in the British financial system so as to
understand the causes and implications of such changes and to work out how to better deal with
their effects in the future. Matthew Hollow can be contacted at: matthew.hollow@durham.ac.uk

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