Are there HR lessons to be learnt from the financial crisis?
Editorial by Alberto Gabbai Chairman of the Board of Cezanne Software
As 2009, the recession year, draws to an end, the debate about the economy still rages on. The crisis, which stemmed from the financial meltdown, has by now touched all the sectors of the global economy. And so it is no surprise that articles about the causes and responsibilities can be found in magazines, newspapers, and on the Internet.
Two of these articles caught my attention, as they were somewhat related to HR issues. One, in Time magazine, dealt with the risks the financial institutions had taken, which brought us to where we are today, and it stated that it was not the risks taken, but the fact that they did not know they were taking risks, that led us into the recession. In other words, they were incompetent. The second article, on the Internet, tried to sort out why, when the banks were going bankrupt, they were still doling out millions in bonuses to their employees.
Competencies (or lack of) and compensation: two very typical HR issues. And the underlying question in the two articles was: where was HR in all this? The conclusion of the articles, one implicit the other not, was: nowhere to be seen. And I started to wonder why.
I came up with some ideas, if not answers, that I’d like to share with you.
One of the issues is the labor market for the banking industry. The financial institutions started a compensation spiral that spun out of control; and, victims of their own game, they had to meet the demand of the pay escalation logic to thwart the risk of losing their best talents to the competition, who were willing to pay ever more.
What is not happening, even with all the layoffs, which supposedly should make talent readily available, is a stop to this trend. Companies are still paying big bonuses and the financial institutions forced by government to curb their compensation are complaining that their people are leaving to work for companies not burdened with capped bonus amounts. As far as I can see, HR does not appear to be stepping into the game to provide an alternative to ever-rising compensation packages, such as: if we lose someone due to pay, let’s promote talent from within and find a way of managing the risks associate with this. And, in the meanwhile let us build a working environment where learning and real competencies are as important as money, because people are compensated adequately and engage with the company for other, more sustainable reasons than just their compensation.
Which brings me to the other reason why HR was all but nonexistent in this entire problem: because HR is not yet considered strategic in most companies, especially in the US. As long as HR reports to Finance or, even worse, to Legal, its voice will not be heard. As long as there is an HR Manager, and not a VP of HR (yes, titles do count, because they reflect the reality) reporting directly to the CEO, HR’s voice will not be heard.
So it is a question of titles, of structure, of organizational weight, of vision and, of course, of tools. The shift from “gatekeeper” and “the guy who makes sure we are compliant with the law” to a member of the top management team that shapes the strategy and the culture of the entire company is difficult, and HR has been struggling to make this change for quite some time now. This shift requires some brave decisions, not least the willingness of the organization to jump in this direction, but it also requires tools for assessing talent and competencies, for understanding what motivates and engages employees, to perform simulations and what-if scenarios, to develop budgets, to devise compensation policies. Too often HR still relies on spreadsheets to do all this. They lack tools that let them model and understand the outcome of different scenarios, put together metrics that help them argue the business case for doing things a different way, or measure the effectiveness of the strategies they do adopt. For sure, the mess we are in was not brought about by the use of spreadsheets, but the use of inadequate tools did not help in keeping us from getting there, either.
