Northern Rock - the group that thinks together, sinks together

The failure of Northern Rock Bank in late 2007 was sudden, unexpected and, as a result of the unprecedented 'run on the bank', was spectacular. The technical reason for the collapse was a lack of liquidity caused by a 'flight to quality' in the international money markets. But the underlying cause of the problem was a failure of Corporate Governance, arguably because the Board was subject to Groupthink. Emboldened by a decade of success of their 'virtuous circle' strategy for growth, the Board of the bank had come to believe their strategy was invulnerable. But it was not. This paper examines the argument of Groupthink, by analyzing official documents relating to Northern Rock over the previous decade, in particular the firm's Annual Reports. The paper concludes that there is some compelling evidence of Groupthink, although the lack of publicly available information on detailed Board deliberations does not allow for unequivocal conformation, or otherwise, of Janis's original concept. The paper argues however that, although inconclusive, there is a need for banking regulators to consider managerial decision making, especially in "too big to fail" banks, from the perspective of Groupthink and from insights gained from Behavioral Finance.