I don't think this is entirely accurate. he doesn't have the reputation for being tiny and ugly at the start. Lord Farquad wants to be perceived as bigger, both literally and figuratively (i.e. "more important") than he really is.
(note: it's been a while since I've seen the movie, so I'm going by memory. some of this information might not be entirely accurate)
I believe his first scene is him torturing the gingerbread man, someone much smaller than him. and it's set up to make him appear big.
Duloc is also notably an extremely artificial place (the mechanical dancers saying how "perfect" it is draw obvious parallels to Disneyland, though that's another issue). everything is fake, including Farquad's self-importance.
even when Shrek is fighting the soldiers, Farquad is far above him, giving an appearance of grandeur. just because this facade is shattered fairly early on in the movie doesn't mean it's not there.
Farquad wants to be seen as something he's not, making him a direct foil to Shrek, who wants to be seen as who he is.
This is my take
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But to you who are listening I say: Love your enemies, do good to those who hate you, bless those who curse you, pray for those who mistreat you.