The folowing article was posted on the People Management blog on March 13, 2012.
Conventional wisdom has it that the subprime crisis was all about the failure of regulations, governance and controls. Presumably, in order to safeguard against the next crisis, the prescription has to be more regulation, more governance and more controls.
The problem is this is exactly what was prescribed after every previous financial storm, such as the LDC (less-developed-country) debt and junk bonds crisis, and the dotcom bubble. This inability to recognise the true causes and remedies of financial crises means they have become like a recurring decimal, seemingly without end.
If we look beyond the confines of convention we will see that the subprime crisis was about human failure arising from poor values. We can specifically relate this to HR by looking at the CEOs involved. They have been accused of megalomania, of having aggressive, oversized egos, and of creating unwieldy, poorly integrated, high risk-taking organisations. The question, therefore, is this: if leadership was a main source of failure, where then was HR?
Every year, HR departments spend millions evaluating employees, performing staff surveys and ensuring that organisations recruit and retain people with the right values. Why were such standards not applied at the very highest, and thus incredibly important, level? Is there any truth to the dictum that HR does not speak truth to power?
For a long time HR has complained, and rightly so, that it did not have appropriate access to executive management. That has now changed in most organisations. Now that HR has that access, it needs to determine how to make best use of it and very clearly articulate its concerns about executive management directly to executive management.
However, that on its own would not be enough. In banking in particular, HR must place itself in a position to assess the impact of executive behaviour on the economic and competitive sustainability of the organisation – as well as what precisely needs to be done when such behaviour is found sadly wanting.
Leadership was not the sole human factor in the subprime crisis – but it’s a great place for HR to start.
Jonathan Ledwidge is conducting a survey on current attitudes to banks, including questions about their values, and invites readers to participate via bit.ly/PMledwidge