Unsure of the reason, I have a theory that effective HR leadership may have stopped the Great Recession. Give me a chance to explain.
A complicated web of interrelated variables that paralyzed the global banking system in 2008 caused the worldwide crisis. The Big Short is an excellent movie to use as a point of comparison. The unethical behavior that pervaded the financial industry was at its core. behavior influenced by poorly designed bonus programs that were solely concerned with the individual’s short-term gain.
A ticking time bomb was created by the irresponsible sale of financial instruments to people who would never be able to pay them back, and this explosion wrecked the world economy. Therefore, how might HR have averted the financial crisis? Simply having a strong Human Resources (HR) department within an organization helps regulate and reduce detrimental behaviors that, at the very least, have the potential to impact entire economies and poor cultural norms or reward decisions. Not yet persuaded? Let’s move past 2008 and quickly examine the historic Enron and Volkswagen crises to illustrate how increased HR influence could have played a critical role in preventing or minimizing the damage.
HR must be crucial to shaping an organization’s culture and attitude toward ethical standards in the contemporary corporate climate. The correct values, beliefs, and codes of conduct are strongly ingrained in the corporate culture thanks to strong HR leadership. As a component of having a seat at the table, it should serve as an ethical steward, building the framework necessary to uphold responsibility, transparency, and ethical conduct at all organizational levels. It must be credible enough to raise objections when something is clearly wrong.
The Enron crisis, which broke out in the early 2000s, is a prime example of corporate wrongdoing and the effects it have on workers, shareholders, and the economy. The management of Enron masterminded a huge accounting fraud, faking financial data to mislead investors. Internal employee warnings remained unheard or were concealed, allowing unethical activities to flourish in a toxic corporate culture. The result might have been different if Enron had a robust HR division with an independent voice, capable of reporting wrongdoing and defending the rights of employees. Executive misbehavior can be prevented by HR specialists who have the authority to report unethical behavior. They can promote an open culture where workers feel free to disclose potential wrongdoings without worrying about repercussions.
The Volkswagen (VW) scandal is the next to come to light, and it started in 2015 when it was discovered that the corporation had installed software in its diesel vehicles with the specific purpose of manipulating emissions tests. This dishonest act had serious repercussions, damaging VW’s brand and incurring significant financial penalties. Once more, a strong HR department may have been essential in stopping such dishonest behaviors. The HR department is in charge of creating, disseminating, and ensuring the organization-wide cascading of ethical standards. It is crucial in developing frameworks for learning and communication that guarantee workers are aware of their ethical obligations and the potential repercussions of breaking them.
Performance Management: The desired performance and behavior expectations are communicated via a well-designed performance framework. Businesses can encourage employees to uphold the company’s ideals by tying performance reviews and rewards to moral behavior.
Whistleblower Mechanisms: Employees can disclose unethical practices without worrying about reprisal thanks to confidential whistleblower channels that HR departments can set up. Employees are more likely to speak up when they see wrongdoing if an environment of trust and confidentiality is fostered.
Back to the 2008 recession, which is where this all began. When the global economy tanked, it became clear what happens when unethical behavior is tolerated in the banking sector. HR has a crucial role in regulating and mitigating such damaging behaviors, and organizations must recognize this.
Organizations can be helped to develop a culture of honesty, openness, and accountability through strong HR leadership that is credible enough to question bad decisions. The Enron and Volkswagen crises serve as sharp reminders of the necessity of proactive HR action to safeguard against misbehavior, protecting both the organization and the economy at large.
Being able to object to unethical behavior or bad pay decisions should not be seen as a formality but rather as a strategic requirement for the long-term profitability and sustainability of the organization.
SOURCE: AL JAZEERA