Lessons in the wake of SVB

You hate to see a crisis so widespread that all it takes is three letters to get everyone speaking in hushed tones. But that’s exactly what happened with the collapse of Silicon Valley Bank, or SVB.

As thousands of businesses lost access to the millions of dollars they had inside the bank, CEOs, VCs, and other business leaders scrambled to recover emergency funds before any major issues occurred due to late payment of employees or vendors.

In the past few years, HR leaders have had no shortage of opportunities to maintain order during chaos, particularly in the startup and tech companies that make up a large part of the SVB client base. The SVB debacle offers another look at the opportunities for today’s newly empowered HR.

Risk management for the people. Sanjai Bhagat, a University of Colorado finance professor, pointed out that executive pay and bonuses at SVB were not aligned with the right outcomes for the company or its clients.

According to multiple reports, the company’s most senior leadership did not have a comprehensive view of risk management, and its CEO and multiple senior executives sold millions in company stock weeks before its collapse. Bhagat suggested that restructuring and restricting executive and director compensation to delayed stock and stock options is one factor that could have motivated leadership to be “more cognizant of long-term risks.”

Protect your house. SVB received a warning from the US Federal Reserve in 2019 about its risk management systems, which may have been an early warning sign for companies relying on the bank to meet payroll. Some payroll providers have stronger systems in place than others. Gusto, for example, has what’s known as a redundant system and that, along with other controls, ensured that it did not experience any payroll interruption.

The internal SVB response. The bank’s collapse also created a people management problem. SVB employees are now on 45-day contracts as the bank works through its issues under FDIC leadership, and are reportedly unsurprisingly upset with the CEO and company leadership for what went down.

While some former employees are reportedly selling company swag online, the company will now have to manage the emotional health of employees seeing their company in the news in a negative light , and entering a new, federally-managed company structure.

DE&I initiatives are under attack. Some Republican politicians blamed “wokeness” for causing the bank’s collapse, suggesting that community financing and corporate diversity initiatives were the culprit. Meanwhile, a Wall Street Journal columnist suggested that newly added diversity to the board may have been a cause of the bank’s failure.

However, Italy Goldstein, a finance professor at the University of Pennsylvania, told the New York Times that the bank’s ESG loans “were not an important factor behind the collapse of SVB…There is no immediate indication that these loans precipitated the run by investors.”

The NYT also found that SVB was “about average” on most ESG or diversity measures.—AK