Harnessing the power of human capital

Over the last year, the rate of job quitting in the United States has reached highs not seen since the start of the U.S. Bureau of Labor Statistics Job Openings and Labor Turnover Survey program in December 2000. Banks are combatting high turnover in the face of the continued "Great Resignation." Employee satisfaction today extends beyond a paycheck to company culture. Join our panelists to discuss why it's critical to understand what motivates employees – and how that could impact your bottom line.

Transcription:

Kate Berry (00:12):

Good afternoon. Welcome everyone. This obviously is the panel just before Venus Williams, so we're very excited. Again, I'm Kate Berry. I'm a reporter at American Banker and I'm moderating the panel, which is about how to tap the power of employees. Banks, and many other companies are struggling now because of the tight labor market. We talk about quiet quitting, employees are in the news. Our panelists are going to talk about what motivates employees specific qualities that motivate employees, and in addition, how employee satisfaction can actually translate into a company's bottom line. I'm going to do introduce our panelists again. Charlie McCain is the longtime CEO of Harbor Capital. Many of you may know that Harbor is known for picking elite talent among asset managers. Essentially the best of the best. Rebecca Muse-Orlinoff is the head of marketing at Harbor Capital and <laugh> Tara, now I'm forgetting their last name. Tara Latini is with HSBC and she's head of Wealth and Personal Banking. So Charlie, I want you to start off and talk about employee satisfaction and how we connect employee satisfaction to a company's bottom line.

Charles McCain (01:38):

Sure. Thank you Kate. It's a pleasure to be here. So in today's more fractured political climate, it's difficult for us to find as much common ground as we used to, but I believe that among business leaders, and I think there are many in the audience here today, we would all agree on a core theme which is our coworkers, our colleagues, our people are our business' most important asset. And as leaders, it's our responsibility to create a corporate culture that promotes or encourages the maximization of that asset, our human capital. And I think that makes good conceptual sense when you think about an employee and an employee doing the minimum job they need to do to keep their job in the delta between that employee and someone who is engaged, intrinsically motivated, aligned with the company's mission and the amount of output they have relative to that other employee, what we refer to as the goodwill the company has built up with that employee, that Delta, I believe is significant.

(02:48)

And if you multiply that delta across our entire employee base, you get a significant overtime change in the trajectory of our business path upward. The challenge for us as leaders, Kate, is how do you make the conceptual, the practical? And as you noted as a firm Harbor Capital, our mission is to identify innovative, compelling investment strategies from around the globe and bring those to market in a way that inspires and empowers people to invest better. And in this case, our investment team identified a really interesting innovative approach referred to as human capital and the factor. And they identified a firm that we've since partnered with Irrational Capital that have, we believe found a very good way to quantify corporate culture, to identify those firms that have better promotion of their human capital. And then the kicker is those firms that they've identified that relatively speaking, have better corporate cultures, better promotion of their human capital, they also do better from a financial performance perspective.

(04:05)

And that's really exciting. And of course we're very skeptical. I mean that sounds too absolutely good to be true. So we carefully looked at the data, we engaged with academics in the field to look at the data in the way we're looking at the data or in other ways we looked at third party's review of the data. JP Morgan also looked at the data in depth and we kept coming back to this is a durable, statistically objective way to measure corporate culture and it's meaningful from an investment performance perspective. So let me turn it over to Rebecca to talk about what are the insights that come from that.

Rebecca Muse-Orlinoff (04:42):

Thanks Charlie. Thanks Kate. So I'm going to ask the audience to take a couple of philosophical leaps of faith because while the human capital factor is very much grounded in advanced data science techniques and empirical research, we're going to talk about feelings and we're going to talk about perceptions and experiences of our employee base and specifically as Charlie said, how that experience of the employee base may impact financial outcomes for the company and specifically in this case the stock price appreciation of that company. So what do we mean when we say data and empirical and research? Well, the research that went into identifying the human capital factor, which is what this investment idea is based upon, is predicated on a massive dataset. So 500 million data points collected over more than 17 years of research, both public and private data sources. So for publicly available data, think about what you can glean and scrape from Glass Door or LinkedIn or other publicly available services and sites, but that is enhanced by the access that irrational capital and Harbor have to privately and proprietary available data sets collected through surveys of employees based on the words and the sentiment of the employee base themselves and the importance of that second component, the perceptions and the lived experiences of the employee base is that when you look at publicly available data, and by the way, this data set covers about 90% of the companies in the s and p 500 and the Russell 1000 growth in or what Russell 1000 Index.

(06:41)

When you only look at publicly available sources, you get about 1% of the entire employee base represented. And then if you include the survey data, you multiply that by a factor of 14. So you have 14 times more information to go on based on the employee responses themselves. So again, it's about the employee's experiences and their perceptions, but it is aggregated and evaluated using advanced data science techniques based on a massive, massive pool of big data. This second philosophical leap I'll ask you to take here, and this might be a tougher one for this crowd is that there are no financial metrics involved in this data set. So there's no valuation metrics, there's no price to book, there's no price to earnings, there's no fundamental metrics, there's no operating margins, cash flow measures. This is entirely based on employee information and employee data that is collected and aggregated and evaluated.

(07:39)

And so with this data set, the idea is how can we identify or can we identify whether there are signals that come from the data that indicate or that suggest that a company is going to perform better in the market in the future. And so looking across data types, so compensation data benefits both health and retirement, even down to the physical environment of the workplace. And what was identified is that the things that really matter, the signals that are strongest within this massive data set are our deeply psychological intrinsic felt experiences of the employee base. So I'll give you a couple examples and then turn it back to you, Kate. One of the attributes that is looked at is compensation, which makes sense. You would think that level of compensation would be a pretty big driver of your motivation, your engagement with your company and then extrapolating that out, the financial performance of the company.

(08:46)

Well, it turns out that absolute and easily measurable compensation levels are a weak signal for the human capital factor. But what really matters is the experience or the perception that compensation levels are fair within the organization. And you can only get that if you conduct employee surveys and hear directly from them. The second one is feeling appreciated. So on a scale of one to five, how valued do you feel for your contributions or do you feel you're compensated fairly for those contributions? That's one of the most important signals picked up from this data set. And then lastly psychological safety. So if I'm being asked to innovate, if I'm being asked to ideate and improve, am I going to be punished if something that I dec that I'm trying doesn't work the way I thought it would? And so that feeling of trust in your leadership and safety for taking appropriate is a very strong signal in the data. So...

Kate Berry (09:53):

So Tara, you actually have real world examples of this kind of experience with employees. You've gone through some major changes at hsbc. Tell us about that.

Tara Latini (10:06):

Yeah, I think I can bring some of this to life now. So clearly for me at HSBC, and I'm not sure if everyone would be aware, but we sold part of sold our mass retail business focusing on mass affluent globally minded customers. Now we sold our open market card business and we literally switched from a retail domestic led strategy to a international wealth led strategy. I mean you couldn't go through more change in one year. So for me, and we've been really successful with this, but for me none of it would've happened without a thriving people culture. And as you can imagine when you're going through that much change, people are concerned, attrition started spiking what does this mean for me? What does this mean for my job? So I hadn't even landed in the US yet. I was living in Malaysia. And for me, this is about three things that I started taking my notes.

(11:05)

It's about talent, it's about listening and acting and it's about your people's strategy. So not rocket science, but I sat in Malaysia and I asked my team for our talent list and they fought me on it. Why do you want that? We need to focus on the strategy. I said, we'll get there. I'll talk to the buyers and we'll get there. This is about, I need to know who's with me on this? Who's going to be by my side through this change? Who do we need through the sale? Who is part of the future? And I called almost all of them, I think 90% myself to say, I know this is going to be difficult. Stick with me, change is hard, but it's good at the end and I need you with me through this. And I called them all. So that was really important for me.

(11:45)

The second part was the listening and the acting. I believe in spending a lot of time with the teams, listening to what's happening, listening to what they need, but following up. And that means probably stuff that you all do. I meet with the frontline, I do one-on-ones with our talent, but I needed more platforms for people to speak up. And some of you have may heard me talk this morning about bubbles. And this was a huge program that we implemented just about three months ago where people get to raise issues that they're seeing. It could be on the front line, it could be someone in the back office. And we built a social hub around it. It's almost like a social media platform where you can like things, you can comment. And we use that to understand is it common in the business? If you get a lot of likes and there's a lot of comments on it, we know we need to pick it up.

(12:29)

If it's not, it might be a one off. We still need to address it. If it's something simple, we put the resolution in the hands of the employee. So the autonomy that this creates for our staff has been amazing just in three months time. And then if it's something more complex, one of my executive committee owns it and works with the employee to help solve it. So a lot of them are stepping out of their comfort zone. We just had a frontline relationship manager working with our technology team to solve an issue on the account opening screen. And they were so excited to be able to do this. So it has created more collaboration for us, more job satisfaction. And the last thing for me was just our people agenda. We needed to have the best people agenda to get us through so much change.

(13:17)

We created one called Bold, which stands for brand openness, leadership and development. And these four elements were the four priorities that our teams told us were important to them during the change. So again, spoke, we listened, we acted, and there's tons of initiatives under each of these four pillars that my EXCO owns that the One Downs own. And we all own this together because what was important for me is that all this needs to be people led change. It can't be changed that I'm just driving right? And I'm calling all the shots. I needed the input of the people. And I was telling Kate earlier, just yesterday I'd gotten some of my snapshot scores, which is our internal employee engagement index. I'm sure most of your companies have something similar. And I got the results and I responded to HR saying, these can't be my results.

(14:08)

Can you please send me the right results? Because there's eight indices with a bunch of questions underneath each. And all eight of them increased massive. We had the highest response rate, record breaking response rate that we've ever had. Everything went up people. So career trust and strategy and communication each went up either seven to 10 basis points. I mean massive increases. And the one that warm my heart the most was I see myself working for this bank in five years. Because when you're going through that kind of change and you're becoming smaller, more niche, more unique the worry is where do I go from here? And the fact now that we hit a record breaking number, people that want to stay with us for five years means that it's working. So I was really, and I still have to dig down to the results, but I was really, really proud of that.

Kate Berry (14:59):

That's amazing. So you're basically listening to employees really got you there. So Charlie that's what I want to know is the passion that you have for this idea of looking at it from the employee view and also the qualities that employees care about. Talk about that.

Charles McCain (15:20):

Sure. What's really exciting when you see the focus on human capital as it's worked well for you through significant change at hsbc, it's certainly something that we, and I am very mindful of, it's top of mind in conjunction with our work on the human capital factor. And there's things that we, and the insights we can take from within our companies. But what's also really exciting and different from this thesis for us and for me is by making this human capital factor in a sense investible through harbor corporate culture leaders series of ETFs, we are giving people, we're inspiring and empowering people to get behind those companies like in hssbc that are doing better for their employees, to reward them, to encourage them in an ideal future state. If the index becomes more prominent, I could see companies that are aspiring to remain in the index, improve, get higher ranked in the index, get in the index if they're not in. The idea here would be if there is a movement that brings up corporate culture across the United States, think of our neighbors, our friends, the millions of people who are working in a better environment. And I think this would be great if we make the index essentially irrelevant in the future. If the difference between the top in the middle diminishes dramatically, that would be a wonderful outcome.

Kate Berry (17:00):

And you want people to talk about the index and think about getting on the index because it signifies some better treatment of employees.

Charles McCain (17:08):

That's right. That's right.

Kate Berry (17:10):

So let's talk a little bit about gender. Rebecca, talk about what the data shows about gender.

Rebecca Muse-Orlinoff (17:19):

Thanks Kate. Yeah, so just at a high level, gender equality is a huge important factor in a high human capital factor score. So it is a very strong signal. I don't know if anybody is familiar with concept like SHE index if we have any EY folks here, but there are a number of that's probably the best known. But there are a number of indices or investible products that attempt to quantify and measure issues of diversity and equity and inclusion. And so the sheet index basically takes accounting based, not accounting counting as an approach and says the companies that make it into the index are those that have the highest proportion of women in leadership and board seats within a company. So you're going to stack rank companies based on that proportion, and then the top tier of those companies are reflected in the index. Our research would suggest that that's only part of the story because what the human capital factor research has indicated is that it is the simple counting based approach and that the number of women in leadership roles is not actually a strong signal for future stock price ofor performance.

(18:53)

Now does that mean that it isn't important and noble and good to try to represent all aspect, all people within the world, within the top ranks of the company? Of course it doesn't mean that of course we should strive for that and it's a very important mission for many companies today. But in terms of what actually is a strong signal, the research says it is not absolute levels, it is relative perception of fairness. So it is perception of women within the organization that they are compensated equally, that they are appreciated equally, that they are given the same number of opportunities as men in the organization. And that the gap between those perceptions matters much more than the absolute levels. So the human capital factor research suggests that gender equality is very important, but it's very important what you measure and how you measure it. And the way to get to that comparison point, the way to understand, do women in a company feel feelings? Do women in the company feel valued, appreciated and trusted the same way that men do? That is the signal that stands out within the research on the human capital factor.

Kate Berry (20:14):

I imagine that's hard to measure.

Rebecca Muse-Orlinoff (20:17):

That is only measurable with that survey level data because you're not going to be able to observe that through public sources or through counting based or metrics based that are easily measurable. So I guess the punchline is measure what matters even if it's harder to measure it.

Kate Berry (20:36):

Yeah, I would think Tara, you might see that on the front lines in terms of gender equality, but also I think we've talked about you really need men on board in this area.

Tara Latini (20:51):

Yeah, so Kate and I were talking about what do I see externally and what else are we doing internally? So just when I speak to friends at other organizations, external stakeholders, and I'm sure conversations you all have, the one thing that seriously really moves the dial is having men help drive this. We can't be in a room full of women, women talking about women's issues and women's questions that we need to answer. We need men alongside us driving the importance of the agenda. And that's what really moves it along. And not because it's to check a box, but because it's the right thing to do because of all the stats that we just heard from Rebecca on what it does for the environment, the culture, nevermind the financial results that can come along with that. But I really needed to drive this into action when I landed back in the US because I inherited an executive committee of nine people.

(21:51)

And there was one woman, one woman, and I got on my first call a weekend to say, hi, I'm here. And it was on Zoom in early 2021 and I'm just looking at the zoom and just before we go on and it hit me a ton of bricks and of course questions came up, what am I going to do about this representation? So what I can proudly say is I've taken out the whole team except one person. We are 50 50 split male female and we're actually 60% ethnically diverse now. So brand new executive committee to drive the change that I needed. But the two other things we did, and there's a ton of stuff underneath the people strategy, but two things that have been most meaningful I think from our people, what they've told me is one, we put in a female advisory board about 18 months ago.

(22:44)

So this is a small group of our highest potential females. It's less than 20 people. I just kicked off the second cohort last Friday. We're trying to create this community. They get special access to senior leadership, we bring them into strategic reviews, we do different things with them that we don't do with everyone. And we spend time just with them learning about the issues, the questions that we need to address for our women population. So the satisfaction of this cohort has been off the charts now hopefully it's only the second cohort that we're doing, but now hopefully we see these cohorts of women in more succession plans staying with us longer and all the things that we would expect to see. And the second thing that we did that I brought awareness to, again, I used talent in the first one, but I'm going to say talent again, it was understanding who the female talent was, making sure across the board, they're all on succession plans.

(23:41)

I have quarterly one-on-ones with all of them and ensuring meeting the right people across the bank, not just within my business and talking to them about it. We didn't tell them before, well, you're on this succession plan, you're on this succession plan. So the fact that we're having more of these open transparent communications has been really, really high on their list of what is driving their satisfaction and why they want to stay with us. So I mean those are the two things that Kate, my team told me has been most meaningful. But even with the female advisory board, we have men also in sponsorship, the there's men sponsoring everything that we do along the DNI agenda for us. And that's important.

Kate Berry (24:26):

So we're quickly running out of time, but I want to have each of you talk about key takeaways, especially since we're heading to into a period of economic uncertainty and what it means in terms of companies looking at employees.

Charles McCain (24:43):

Sure. Kate. I would say from my perspective, it's to keep this top of mind. It's very easy as a leadership team to say, this is hard to deal with. It's hard to quantify some of the things that you've put in place, takes significant amount of time and effort and to make sure it rises to the top and it's a consistent part of the dialogue. That to me gets you very far.

Rebecca Muse-Orlinoff (25:07):

And I'll give you a couple of ideas straight from the research and the portfolio companies within the etf. one is showing appreciation. This sounds obvious, it sounds like it makes total sense. It's harder to actually do it consistently. So whether that's big or small, public or private or backward looking for work accomplished or forward looking for work to be done, whether it's a big program or a quick email, just make sure that you take the time to show appreciation for your peers and your team members. And the second is to make sure that you showcase that everybody is in a position to innovate, but that there will not be an outsized penalization or punishment if an innovation fails to materialize or to have an impact. You want to again, have an employee base that is trusting and that has experience of psychological safety and can take risks at the appropriate level to drive outcomes.

Charles McCain (26:12):

We like to say, Rebecca, that we will pay for speeding tickets but not parking tickets.

Rebecca Muse-Orlinoff (26:16):

That's exactly right. And then the last thing I would say is that transparency and Tara, this really goes to a couple of the things that you're talking about. Transparency, access and connectedness are so important. So one of the CEOs of one of the companies in the portfolio company of about 5,000 people in a technology field he started recording very frequent, intermittent just camera, front facing camera videos of himself speaking to his staffers, whether it was about strategy or whether it was about issues that his team might be facing at the time. He jotted down notes, but he didn't prepare a script. He just spoke genuinely and authentically and was able to really connect with the broader and the larger employee base. And the experience of the employees was very much one of connectedness, trust, genuine, authentic communication from the top. And so that, I'd love to get a recording from you every week, Charlie, but it doesn't have to be a CEO initiative. It can be at any level of the organization just communicating, leaning into the ways we've all had to embrace technology in a post pandemic world. So...

Kate Berry (27:23):

Tara, key takeaways.

Tara Latini (27:25):

So Charles stole mine, but I'm going to stick with it because I think you need to put in the time, right It it's very easy. When I tell you about the transformation we just went through this year, it was very easy for me to say I'll do this after. But I know that no matter how much money I got, how much technology we dropped, if we didn't have people believing in what we doing, we would've failed. And I tell my team that if a customer complains, you're going to run around a chicken without a head to fix it, right? You need to do that with your staff and you need to make the time every day. I know who has an ailing child, daughter's getting married on November 5th, how many children, people have their birthdays? I know all of this stuff because I ask and I spend the time I talk to them where they are in succession plans. I meet with all the talent. I mean I probably spend 20 hours a month just on these talent and these exchanges with people. So it's really, really important that we don't lose sight of that because we're all busy every day and our day is never what we plan it to be. I'm sure there's always fire drills, but we have to spend the time doing this because the people part is the most important thing we could be doing.

Kate Berry (28:36):

I'm interested what got you to see it that way?

Tara Latini (28:41):

I am going to say that it was a really good sponsor I had that I worked with for probably half my career at hsbc. And he was customer obsessed and people obsessed. He really taught me about some of the stuff we talked about this morning about putting customer in the center and that always, you have to focus on the people aspect first. And actually, if I'm quite honest, Kate, when I did my first major transformation job in London about eight years ago we didn't do that and I knew better and we made a big mistake and we then had to go backwards and we figured it out and we got it right the first time. But that took me, I did transformation jobs now all the time. I've become a fixer internally, but it took me into my second transformation job. And now here in the US I'd say it's my third major one. But I knew to start with that first if I did not know that from him. And if we didn't make that one mistake, I'm not sure if I would've known as well.

Kate Berry (29:41):

How very quickly, how did you go back and fix it?

Tara Latini (29:45):

Sorry? How did you

Kate Berry (29:45):

Go back and fix that?

Tara Latini (29:47):

Well, we were working with a third party that was already helping us. We sat back, we got the six markets we were working with at the time. We got all of the talent in those six markets. I went country to country. I understood what they were saying, what was concerning them about the transformation program. And we implemented change in implementation teams. These teams were responsible for all the change comms and ensuring that our staff not only were testing everything we were doing, but had first awareness before we launched everything. So the change, the communication piece was integral to that. Kate,

Kate Berry (30:24):

Thank you so much. Thanks for our panel.