Belatedly, the UK authorities are beginning to recognise the fundamental importance of people management. Lord Turner, in his recent report on banking reform, cited remuneration policies that were ‘counter to sound risk management, in effect undermining systems that had been set up to control risk’.
Section 10.2 of the Report states: ‘The [remuneration] policies in common use during the period leading up to the crisis … tended to reward short-term revenue and profit targets. These gave staff incentives to pursue risky targets, for example by undertaking higher risk investments or strategies which provided higher income in the short run despite exposing the institution to higher potential losses in the long run.’
The FSA has now published a code of guidance on remuneration, covering ways to link incentives to longer-term business and risk management objectives. This was published on 26 February 2009.
What the Turner Report does not say – and it was probably beyond its remit – was anything on the business logic of developing remuneration strategies in a way that is divorced from the business. The illogical separation of human resources policies from business strategy that Turner uncovered passes for business sense in conventional MBA thinking. People-related risk management and due diligence are still a minority consideration during mergers and acquisitions, despite human capital forming the vast bulk of the value.
Just three years ago, the then Chancellor, now Prime Minister Gordon Brown cancelled the Operating & Finance Review, which may have given investors an insight into strategic people management policies (HCF 12 March and 18 February 2009).

• Links between remuneration strategies, people management and business risk – with a particular focus on banking – are explored in a report edited by the Human Capital Forum chair Philip Whiteley, and published by International Financing Review. See:

http://www.ifrmarketintelligence.com/strategy_reports/strategic_risk_and_reward/overview.aspx

The Turner Report
http://www.fsa.gov.uk/pubs/discussion/dp09_02.pdf