To mark the fifth anniversary of the implosion of the financial sector, much has been written about the many causes of the crisis. The role of human nature as a root cause has been noted often.

Time Magazine's "25 People to Blame for the Financial Crisis" points to greed and the lure of lavish bonuses as primary motivations for bad behavior by some of the industry's leaders.

In most banks, the Human Resources function is considered responsible for the quality and ethics of the people who work there. HR is said to be the "keeper of the corporate culture."  Without a doubt, it should be HR's responsibility to ensure safeguards are in place to spot poor leadership qualities, flawed compensation programs and workforces ill equipped to handle a crisis.

How do we ensure that past failures in these areas are not repeated?

We have learned that not acting on managers who exhibit poor leadership qualities or who fail to demonstrate the values extolled by the company can have dire consequences.

Executives and managers who demonstrate less than exemplary leadership qualities, or whose personal agendas drive their actions on behalf of the company, are rarely a secret to the general population of employees.

Providing public recognition, rewards and continuing support to bad leaders brings executives' credibility into question.  Employees observe the behaviors of bad leaders and wonder, "If we can see how dangerous this person is to the bank, why can't the CEO (or executive team)?" Bad leaders are a potentially destructive, high-risk element in a company. In boom times, these leaders are a distraction and/or an obstacle to achieving business objectives that conflict with their self-interest. In a crisis situation, they become an anchor that can pull the bank under.

This leadership situation is difficult to address for two reasons. First, the individual is almost always politically astute and will have cultivated an influential cult-of-personality following, internally and externally. Second, the individual is often a rainmaker, and with the pressures to deliver business and profits, the tendency is to look the other way.

HR typically leads and facilitates an assessment of executive and senior management through an annual process. The process has historically focused on identifying top performers for succession planning purposes and high-potential employees for development opportunities.

Revamping the assessment to be a true inventory of leadership qualities that identifies not only individuals with the highest potential for advancement, but also leaders who exhibit character traits and behaviors that could put the bank at risk would result in clearer insight into the real quality of the leadership team.  A management assessment tool reengineered in this manner and strongly linked with the Risk Management function and governance would act as a safeguard against potentially destructive personalities and behaviors.  

In hindsight, pre-Great Recession practices for incentive compensation were flawed. Present on most incentive design teams were representatives from the line of business for which the incentives were being designed, Finance and HR. Outside compensation consultants were frequently involved. But often missing from the design team was Risk Management representation or any type of objective risk assessment as part of the process. As a result, the potential for unintended consequences did not receive a thorough vetting.

Rewarding individuals for loan growth with few or no countermeasures became a what-were-we-thinking exercise that could have been avoided

Also frequently missing from the HR process was an annual review of all incentive plans to ensure their design features remained aligned with bank strategy and the economic environment. We will never know to what extent the last financial crisis might have been lessened had incentive compensation been modified earlier to counterbalance the risk of human failure.

Including appropriate risk-based countermeasures in incentive design and ensuring a thorough annual review of all incentives is conducted and reviewed with the Compensation Committee of the Board can mitigate the risk of poorly designed incentive plans.

It is generally acknowledged HR's responsibilities include recruitment, training, development and compensation and benefits packages that aid retention.

The strategic viewpoint from which most HR functions operate is usually a year or two into the future.  In an expanding economy, most HR functions will find a way to staff up a company to meet demand.

A key lesson learned from the last financial crisis was that often the workforce was not agile enough to contract efficiently when it became absolutely critical to do so. Large, painful and disruptive employee layoffs resulted.

Missing from companies' workforces were leaders and employees with the skills required to work and lead through an economic downturn. Employees knew well how to expand the loan portfolio rapidly in a growing market.  But, their ability to change course and react in a severe recession had atrophied, if it had ever existed at all.  

Bank executives learned, too late, they could not efficiently contract their workforce without demoralizing it.  

Assessing the agility of the workforce in size and ability to operate in all phases of the economic cycle will provide for better management of people risk.

A key objective for HR teams is preventing a crisis from happening by ensuring that an excellent and properly motivated executive team is in place to lead the company. Identifying and mitigating risks associated with human nature, such as ego and greed, should be incorporated into all HR processes.

Noma Bruton is the chief human resources officer of Pacific Mercantile Bank in Costa Mesa, Calif. She has over 20 years of banking experience and writes the HR Sagacity: Insights in Banking & Finance blog.