Reference no: EM133652920

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?