International Human Resource Management

 International Human Resource Management
1
International Human Resource Management
Name
University
Course
Date
International Human Resource Management
2
Human Resource Issues as a Cause of Global Financial Crisis
The Global Financial Crisis the rocked the world in 2007 through 2009 nearly collapsed the
entire global financial system. According to Gunnigle, Lavelle and Monaghan (2013), the Global
Financial Crisis started in the United States of America following the burst of the housing bubble
in 2007 and through contagion and spillover effects spread to the rest of the world. Studies
conducted to investigate the root cause of financial crisis of 2007 point to financial innovation,
de-regularization of the financial system, greed and excessive leveraging by financial
institutions. Choudhry, Marelli and Signorelli (2010) assert that at the heart of the blame for the
crisis are financial derivative products such as collaterised debt obligations and subprime
mortgage backed securities, which were later branded as toxic assets. Other scholars like
Akinbami (2010) opine that the cause of the Global Financial Crisis was as a result of financial
deregulation. Government and regulators relaxed their regulatory and oversight mandate, leaving
the financial markets to market fundamentalism to correct anomalies. With most of the studies
blaming financial innovation and deregulation as the root cause of the Global Financial Crisis,
few, if any, studies have explored human resource issues that contributed, partly or wholly, to the
crisis. According to Cascio (2010), inability by financial institutions to manage human resource
risks is partly to blame for the Global Financial Crisis.
Management of financial institutions breached risk management policies in order to achieve
above board performance. Consequently, failing to control the risk inherent in people, this from a
human resource management point of view caused the crisis. For instance, performance-based
pay system exerted pressure on employees to improve on their individual performance, and as a
result led to employees to ignore the tenets of prudent risk management in order to achieve better
International Human Resource Management
3
performance by taking outsized risks. Coupled with poor reporting and disclosure structures,
employees disregarded ethics as they pushed risk limits to get better pay. For example, loan
officers who used to work for mortgage lending companies selling mortgage-backed securities
were paid based on the number and size of mortgage loans they sold; therefore, a loan officer
who failed to sell loans would receive no commission. Since the mortgage lender did not
penalize on bad loans, loan officers were tempted to sell loans even to high risky borrowers,
NINA, NINJAs and subprime borrowers. Organizations have adopted lopsided reward systems
that do not value ethics instead putting great emphasis on performance. For example, financial
institutions such as investment banks and stock brokerage review performance of their
employees based on the number and size of the deal closed. Similarly, a ranking of the best
investment banks is based on the number and size of the deals closed, ignoring performance
based on prudent corporate values, although financial institutions have well defined corporate
values. Consequently, loan officers, investment bankers and stockbrokers trample upon corporate
values and effectiveness to achieve successful performance. Cascio (2010) observes that
although Enron believed in respect, integrity, communication and excellence, no performance
measure was developed to measure achievement of these corporate values. It is, therefore,
evident that the human resource management is partly to blame for the financial crisis, although
their intentions were unintended. Target based reward systems commonly referred as
performance based pay systems, individualized incentives and poor people management were the
highlighted HR issues that partly fuelled the Global Financial Crisis, and averting another Global
Financial Crisis would require immediate solutions to these human resource management issues.
Organizations operating in industries characterized by intense competition, particularly financial
institutions need to adopt a performance based system that recognizes financial performance and 
International Human Resource Management
4
non-financial performance that is corporate ethical values and culture. In addition, organizations
need to enhance people management practices and supervision in order to manage prudently
risks stemming from people.
Human Resource Challenges Due to the Global Financial Crisis
The Global Financial Crisis of 2007-2008 did not only threaten the entire global financial system
but also caused the global recession, which started in the United State of America spreading to
other global economies, emerging, developed and developing economies. According to