Ethics in Leadership – Week 5 Case Study
HBOS
Case
Study 9.3: Groupthink at the Top: The Collapse of HBOS
Analysis
In a 3 page paper, analyze the following case study:
In 2001, Halifax Building Society of Britain and the Bank of
Scotland merged to create HBOS. The merger was deemed as a smart move to unite
the retail mortgage lender and the corporate lending organization. The
companies had over 450 years of combined banking experience. They were
established organizations.
The HBOS executives had an aggressive growth strategy, which
ultimately led to the organization’s demise. They reached out to riskier
borrowers to try to increase their loan volume from 17% to 20% a year. This
move made them extremely vulnerable to financial failure, and in 2007–2008,
when the economy turned, they could not raise enough money to cover their
losses. The British government had to later pour 20.5 billion pounds into HBOS
to keep it alive.
CEOs Peter Crosby and Andy Hornby, bank Chairman Dennis
Stevenson, and commercial lending chief Peter Cummings all seemed delusional to
the level of risk that they assumed in the banking shift. The head member of
risk management spoke out against the risky moves and was ignored or dismissed
based on his warnings. The executive team along with the board definitely
followed the lines of groupthink in their decision making.
1.
How can you tell the difference between optimism
and delusional optimism?
2.
What symptoms of groupthink do you note in the
HBOS top management team and board of directors?
3.
Do you think top management teams are more
vulnerable to groupthink than managers at lower levels of the organization? Why
or why not?
4.
Should top leaders at HBOS be forced to give up
their earnings and pensions?
5.
Should bank officials and other corporate leaders
be jailed if they act recklessly?
6.
Should the accounting firm KPMG be punished for
giving HBOS a clean financial bill of health even as it was near collapse?
