Welcome to the Workology Podcast, a podcast for the disruptive workplace leader. Join host Jessica Miller-Merrell, founder of Workology.com, as she sits down and gets to the bottom of trends, tools and case studies for the business leader, H.R. and recruiting professional who is tired of the status quo. Now, here’s Jessica with this episode of Workology.
Episode 284: Human Capital Metrics & SEC Reporting with Kristina Flügel (@KristinaFlügel)
Jessica Miller-Merrell: [00:00:26.83] Welcome to the Workology Podcast sponsored by Ace the HR Exam and Upskill HR. The Securities and Exchange Commission, SEC, recently introduced new disclosure requirements that went into effect on November 9th. They now require public companies to disclose the number of employees and a description of human capital resources, along with any human capital measures or objectives. Things like operating models, talent planning, learning and innovation, employee experience and work environment. Today I am speaking with Kristina Flügel. She’s the Global Head of Human Resources at DWS Group and former Managing Director of Human Resources for Deutsche Bank. Kristina believes that effective management and development of human capital is a key driver for organizational success and sustainable people management. It is also a fundamental part of DWS’s commitment to the Social and Governance ESG pillars and strategy to support the global community in achieving the UN’s Sustainable Development Goals. Kristina, welcome to the Workology Podcast.
Kristina Flügel: [00:01:38.32] Thank you very much, Jessica.
Jessica Miller-Merrell: [00:01:41.28] I’m so excited for this interview. We had our prep call and there was so many great conversations and nuggets of wisdom, so let’s get right into it. What made you sign up for the human capital reporting standards? And when deciding what to report, did you use the ISO standards as a guide?
Kristina Flügel: [00:02:03.22] At DWS, we are committed to environmentally sustainable and socially responsible investing. It’s a commitment that runs really deeply through everything we do. It’s our license to operate. We also understand that the performance and the sustainability of our workforce is fundamental to the success of the DWS. That was the trigger for us wanting to become certified. The answer human capital reporting standard is the first globally comprehensive standard that has allowed us to do this. It provides a comparable and transparent means to assess our performance across. These twenty-three called HR metrics, and ensures we are taking the right actions to enable our workforce. We really believe that the ISO standards will help to improve sustainability, investment analysis, investee engagement and stewardship, the understanding of Clines and the management of organizations globally. They will also make employee contributions to the business more transparent for investors. And as part of the corporate governance, we expect our portfolio companies to proactively incorporate a number of these standards themselves, such as gender diversity. And we hold that board members to account where this is not the case. So it’s really vital for us as a company that we live by the same set of rules ourselves. I would like to, to quote at Edison here, “if you can’t measure it, you can’t manage it.” And this is the approach we have adopted in relation to these important standards.
Jessica Miller-Merrell: [00:04:13.96] I was just writing down the Edison quote. I feel like every HR person needs to think and feel this way if we need to be able to measure so we can understand, make better decisions. And human capital historically hasn’t been viewed this way, which is why I’m so excited to have you as part of this interview. You mentioned certification when you were talking about the metrics and ISO standards. What’s included in that and why did you want to be a part of it?
Kristina Flügel: [00:04:45.01] So to be certified requires a rigorous, independent assessment by an external auditor and is evident that our human capital reporting meets the required standards. These cover our core HR areas such as organizational culture, recruitment, leadership, turnover, productivity, health and safety, diversity and inclusion. They serve as a clear sign to our stakeholders of the legitimacy of our reporting, and all are a fundamental part of our commitment to the social and governance ESG pillars and strategy to support the global community in achieving the UN’s sustainable development goals as one of the first, or maybe even the first organizations to be certified in accordance with the standards we aspire to lead in this developing area of disclosure as part of our firm-wide strategy to transform, to grow and to lead as a standalone asset manager.
Jessica Miller-Merrell: [00:06:01.90] I love that you are the first or one of the first to really lead this charge and whether you are in the states or a global organization, human capital metrics are an important part of what I think is the future of for every organization. I wanted to ask you, you talked about the certification process that you mentioned, an audit process. What does the pre-audit process look like for you guys and how did you approach it? Because I can imagine and I’m still imagining, like this was a lot of you said twenty-three different human capital metrics. This was a lot of information that you had to comb through. So what did the pre-audit process look like for you guys?
Kristina Flügel: [00:06:44.58] So this is a very good question, Jessica, and I think everybody, every organization and every HR team that is about thinking to start such a process will be interested to know what’s coming. So our first step was to provide reportable data for the twenty-three metrics and scope to our external consultant or auditor to verify the content. They then evaluated what we had submitted based on the ISO standards. And of course, there were also discussions, deeper discussions to understand which were the definitions behind that we used and which were the details. Once we receive the confirmation that we were compliant across the areas, we were presented with official certification, which is valid for a three years period, and we will regularly monitor and publish the progress we are making across these metrics every 12 months. This will be included in our annual report and was included for the first time in the annual report for the year 2020. Each year then, the, all that will be renewed and we just have a small check-in from our external auditor to verify that we are according still to the standards.
Jessica Miller-Merrell: [00:08:30.80] Can you talk a little bit about the global implications of these new roles? I’m really interested in this area, maybe also because of the different challenges and the different laws and the different countries that you guys operate in and what you can and cannot ask your employees.
Kristina Flügel: [00:08:49.10] That’s a really good question and that applies for every global company to look where they are operating and what that means. We actually found that the majority of the standards required for the disclosure, for the external disclosure, whether we are talking about compliance and ethical or workforce availability, can be applied on a global basis. But the real, real exception we found is related to data protection policies in different regions, jurisdictions and countries. And they are examples mainly in the areas of diversity measurement, such as disability, ethnicity and gender, which are constrained from collecting in many countries. And the employees that do share this information do so on a purely voluntary basis. So I think that’s really the area to closely look into what can be done, what can’t be done. And we all as HR professionals know that, particularly the DNI space is one that has enormous attention at the moment everywhere in the world and also in all different investment relationships and, and with clients.
Break: [00:10:31.67] Let’s take a reset. This is Jessica Miller-Merrell and you were listening to the Workology Podcast sponsored by Upskill HR and Ace the HR Exam. We’re talking about human capital standards with Kristina Flügel, Global Head of Human Resources at DWS Group.
Break: [00:10:49.35] Personal and professional development is essential for successful HR leaders. Join Upskill HR to access life training, community, and over one hundred on-demand courses for that dynamic leader. HR recert credits available. Visit UpskillHR.com for more.
ESG Criteria and How it Applies to HR Metrics
Jessica Miller-Merrell: [00:11:04.95] One of the areas that we touched on in the beginning of the podcast was Environmental, Social and Governance, or ESG. And the criteria, these are a set of standards for a company’s operations that socially conscious investors use to make decisions. Can you talk to us a little bit about your approach to ESG criteria and how it applies to H.R. metrics?
Kristina Flügel: [00:11:29.16] So is the environmental, social and governance is our core license to operate, and this has been the heartbeat of the DWS for the last two decades. Last quarter, I was CEO of local government announced that starting from this year, every new investment product by the firm will be an ESG fund as demand rises for sustainable investing. Sustainability for us, this more than a corporate topic, it has also become a topic of society and of industry in general. Within the social and the governance pillars, we recognize that human capital management, diversity and inclusion, and executive compensation are key HR metrics of importance to ESG, conscious investors in analyzing their investment decisions. Additionally, a bespoke leadership index forms part of our annual BWF People survey to measure the effectiveness of our managers across topics such as performance recognition, development, ethics, integrity and consistent action.
Jessica Miller-Merrell: [00:12:54.48] Thank you for walking us through this, I feel like the ESG conversation is a relatively new one in human capital, which is why I wanted to make sure that you shared with us, because I felt like the work that you and DWS are doing in this area is really the future direction of where all organizations and the HR teams that support them will be going. For those of us who are in HR and we are responsible for metrics, specifically at the HR executive level, I wanted to ask you, what systems and support do you think we need to look for in order to report those human capital metrics?
Kristina Flügel: [00:13:38.86] Now, that’s a very important question. So an effective information system and expertise and people analytics are really, really basic here for thought, for the thought. It’s then important to have the capability to take the data and to present it in a really clear, understandable way to the relevant stakeholders internally and externally. And the most important, from my point of view, is to have the buy-in. And yeah, the, the support, the sponsorship from the top of the House, from the executive board, investor relations and also senior leaders across the business, as they will often be the ones answering questions on these metrics, they need to trust in you, in the process, and in receiving these metrics. Some of them, such as disciplinary and grievance cases, were previously considered to be highly confidential information. So this is really new and it’s, I think, opening a whole new world for, for us that are participating in the ISO standards certification.
Jessica Miller-Merrell: [00:15:09.21] What do you include in your HR audit and how do you choose which metrics to disclose? Who else maybe on your executive team participated in this process? I would be interested in knowing.
Kristina Flügel: [00:15:23.94] So we aim to base our reporting on the twenty-three metrics that are recommended by the ISO Human Capital Management reporting standards to be externally disclosed. And a very small number of these were less relevant to us as an asset manager. I give you an example, such as those relating to a safe office or company based environment, which are, perhaps, much better suited to constructional industry, where you have greater physical risk in deciding to disclose data that was previously considered to be for internal use only. We placed significant importance on gaining the commitment and the agreement of our executive board, and I must say that were very supportive. And to answer the second part of your question, who in particular, so I work very closely here together with our CFO, Claire Peel.
Jessica Miller-Merrell: [00:16:45.71] Kristina, thank you so much for joining us. I wanted to see if you had any final thoughts, maybe wanted to leave us with today.
Kristina Flügel: [00:16:52.43] Yes, of course I have, Jessica. As we look into the future, we are fully committed to the importance of human capital reporting standards, and we really aspire to continue to lead in this developing area of disclosure. And we will continue to evidence our progress externally through our annual report. And we are also accelerating many projects and initiatives across the firm on the regional and on the global basis to leverage these standards as we enter an exciting new era for the firm with a huge focus on ESG. The financial reporting, so the more tangible side of it we all know from many years, but the human capital reporting, so the more non-tangible side of reporting, this is what is really new. And from our point of view, it’s the distinguishing factor for companies progressing into the future and being successful. Thank you very much, Jessica. It was a pleasure to have this conversation with you today.
Jessica Miller-Merrell: [00:18:15.77] I agree. And thank you so much, Kristina. And we have so many great resources that we’re going to share. You can connect with Kristina on LinkedIn. We have the 2019 Human Resources Report and the DWS annual report for 2020. If you want to see, and you should, the human capital metrics in action as part of the larger company report. So thank you again.
Jessica Miller-Merrell: [00:18:38.63] Are you loving the Workology Podcasts? Our Workology community reaches over 600,000 H.R. leaders every single month. Want to be a sponsor? Reach out to us at Workology.com/advertising.
Jessica Miller-Merrell: [00:18:52.34] With the new standards and SEC guidelines and regulations, the spotlight will shine even brighter on H.R. and our ability to perform in the areas of employee development, safety, engagement, attraction and retention. This podcast is our first opportunity we have had to talk to an H.R. leader who’s been involved in human capital metrics since the SEC announced its new guidelines. I’m so pleased to have the opportunity to speak with Kristina today and learn more about the process. We have resources for you, including the 2019 Human Resources Report from Deutsche Bank, along with DWS’s Annual Report for 2020, which includes their human capital metrics. Thank you for joining the Workology Podcast sponsored by Upskill HR and Ace the HR Exam. This podcast is for the disruptive workplace leader who’s tired of the status quo. My name is Jessica Miller-Merrell. Until next time, visit Workology.com to listen to all our previous podcast episodes of the Workology Podcast.
Connect with Kristina Flügel.
RECOMMENDED RESOURCES
– DWS Annual Report for 2020 (includes Human Capital Metrics starting on page 102)
– ISO 30414: Human resource management guidelines for internal and external human capital reporting.
– Best HR Metrics for Human Capital Management
– Episode 266: Making Sense of Human Capital ISO Standards
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