Speaker 1: Hello, and welcome to this micro module on best practices for DEI metrics in corporate governance. I am Joanna Kim Brunetti, Chief Legal Officer and Executive Vice President of Regulatory Affairs for Truze. Thank you for attending today. So for today's discussion, I'm going to cover four topics. First topic, why good DEI governance matters. Second topic, demonstrating DEI commitment and progress. Third, developing DEI disclosures. And fourth, selecting metrics. So let's move on to the first topic, why good DEI governance matters. Now underscoring the rising importance of DEI in corporate governance is this comment made by Larry Fink. And what it really underscores is that our organizations need to operate with both purpose and of course, profitability. But it's not just about short term profitability, but you want to focus on purpose. And what this does is it ultimately drives ethical behavior, guides culture, and provides a framework for consistent corporate decision making. DEI is such a purpose and increasingly so. So why is DEI increasingly becoming more important? Why is it ramping up? Why are we hearing so much about it? What are the trends that have led to this increase? So I'm going to talk about those sort of what the reasons are. And it's really threefold. One is increasing public customer investor pressure. You know, there's increasing trend towards corporate social responsibility, environmental social governance reporting, ESG reporting, and obviously focusing on the S for social. There's increasing movement towards standard standardization of reporting relating to an organization's DEI. And perhaps in the not too distant future, that increased pressure will result in mandatory reporting, particularly for global organizations. There's also movements like Me Too, Time's Up, Black Lives Matter, and even the COVID with its disparate impact on people of color. Women have made pay inequity and DEI all the more important to the public. So these are the kind of public pressures. Now second category is this tight labor market. There are more choices for workers on where to go, where to stay. I'm sure you've all heard about the great resignation. So many workers are making job changes. And this is particularly so in the post COVID zeitgeist, in which remote workers are basically the norm now, particularly in professional workforces, where attracting talent can be the most competitive. And survey after survey, younger workers are finding an increasingly important consideration for DEI. And so this tight labor market, increased public customer investor pressure, those are two key components. And then the third component, why DEI is ramping up, is there is existing and increasingly so regulatory legal pressure towards pay equity, a key component of DEI. There's pay transparency, letting the workforce know what to pay, what you're going to pay. Pay data reporting. There are a number of jurisdictions that are requiring you to report pay data. This was done on a national level a few years ago, but it was halted during the Trump administration. It's not clear whether it's going to come back, but that was that EEO1 Component 2 reporting. When that EEO1 Component 2 reporting got halted, states started to look into whether or not they should do their own. California was the first to do it, and then Illinois. And it's becoming increasingly more relevant consideration for state legislatures. There's also states that are requiring pay equity auditing and compliance, as I had mentioned, Illinois. They're actually requiring employers verify compliance with pay equity laws. And there's the broader umbrella of pay discrimination lawsuits, where the law has increasingly been more employee-friendly, more restrictive towards employers, particularly in the pay discrimination space. So all of these sort of trifecta of factors is making DEI increasingly important. Now, obviously, with those factors being a consideration, treating DEI as a business function also makes sense. I mean, there's this famous study by McKinsey that just recognized that diversity on equity, I'm sorry, on executive teams were 25% more likely to have above-average profitability than those in the fourth quarter, up from 21% in 2017 and 15% in 2014. In other words, with time, having gender diversity, the top, the organizations with the top quartile for gender diversity, those with increasing, increasingly with time, they're showing more profitability. There's another study by BoardReady that looked at board diversity and performance, and they too really supported that DEI increases profitability. We also sponsored a study through Harvard Business Review and in partnership with SHRM last year, which cemented this proposition. DEI is infinitely tied to profitability. The top third of successful DEI organizations, also known as leaders, saw greater revenue increases than those in the bottom third. So let's move on to our second topic, demonstrating DEI commitment and progress. Okay. When you're looking to demonstrate DEI commitment and progress, your DEI metrics should lay the foundation. Without these metrics, you don't know where you are, you don't know where you're going, you don't know how you're getting there, and whether or not you are in fact getting there. So that's sort of the roadmap. And high-performing companies recognize that as part of this increasing requirement for capital disclosures, human capital disclosures, you want to look at the metrics, but you also want to look at creating a narrative to showcase those metrics, to show that the people are the foundation of their business performance. So in the U.S., the disclosed metrics are defined by the organization based on materiality to that business, and that should evolve as the environment changes. Now, this is not a one-size-fits-all, cookie cutter type of thing. Every organization should include the DEI metrics that captures their unique identity. And of course, there are going to be some basic universal metrics that apply to all, just about all organizations, but there are also going to be metrics that are particularly unique to your industry or otherwise. So when you're looking at demonstrating DEI, you want to think about the narrative that you're going to communicate and the metrics that support the story. So there are sort of two elements that come together. Okay, next slide. So on our third topic, developing DEI disclosures, how do we develop them? It's going to be a multi-step process. First, you're going to define your team. Obviously, you want to choose your members who can effectively implement your DEI initiatives to achieve the DEI goals that you set, and frankly, to help identify what those goals are. And you want them to be accountable for progress to achieve those goals. So you're developing your team. You don't want to just relegate it to sort of one person. You want to take a holistic approach. You want to look at senior level people that have the necessary strategic insight to sort of manage the DEI team. You want contribution from the HR functional groups. You're going to want to involve your PR department and communications department, because we're talking about disclosures here. You obviously want to have a sign-off process so that the C-suite has approved of the DEI plan. And finally, you want corporate counsel to be involved, because you're going to want their guidance over DEI planning to manage risk. OK, step two, benchmark against DEI leaders. DEI goals, as I mentioned earlier, they are not a one-size-fits-all. And it's also relative to what you see in the industry that's applicable to you. And it can be shaped by that. And so again, not a cut-and-paste kind of situation, but look at what others are doing, because that's going to give you insight on what you want to do and adopt for your own organization. So both in terms of metrics, also in terms of narrative, here's a place that you could look at. There's this great places to work index. You could look at some of the companies that have very favorable views by their workforce and see what they're doing. There's also, you could talk with others in the industry, see what they're doing. You want to consider what's out there in the marketplace, because as I mentioned in that sort of three-factor, one of the factors that's important is basically attracting and retaining talent. So sort of what is the standard is going to be important, what others are doing are important, and what is going to be measured. You're going to be measured against. Okay, so step three, outline your DEI disclosure strategy. You've sort of done your homework, you have your team, you've looked at sort of what the industry is doing, and you've benchmarked against that. So now you're going to want to outline the DEI disclosure strategy. So that strategy for your disclosures is you want to communicate how your people support your business strategy. So you want to look at determining how you're going to do your disclosures. You're going to want to consider the contributors as part of your team in terms of building that story, soliciting employee feedback to get their voices heard and guide the development of the story and disclosures, and then sort of wrapping that up in terms of how this is consistent with your organization's mission and vision. Okay, the fourth step, defining your metrics. So you're going to have to identify what metrics you're going to use, put in a system in place that is going to measure it on an ongoing basis. You know, data, when you're measuring data, it's sort of a garbage in, garbage out situation. So you want to confirm that your system ensures data quality and integrity, and if not, put the mechanisms in place so that you have reliable data you can look at. And DEI metrics, once shared, they can become auditable. So you want to focus on great data that you can stand behind. And obviously, without having sort of a baseline, there's no way to track progress. So get your DEI metrics identified, start measuring it consistently, and do that over time. Okay, so now that you have your metrics, you're now going to look at the fifth step, which is to formulate your disclosures. So what disclosures are you going to disclose? You're going to take those metrics that you now have, and you want to, you know, it's sort of, you have to consider who your audience is. Is the disclosure for your shareholders, investors? Is it to the general public? Is it to your employees? And transparency is also not a one size fits all. Providing the employee-specific details of pay, for example, for every employee is not what I mean by disclosures. You know, for pay data reporting, you may be providing very detailed information about pay based on, you know, employee job title, race, gender, whatever. But for disclosures with respect to, you know, to investors, they may be, you know, sort of a broader stroke disclosure to your employees. It could be also broad without disclosing, you know, specific individuals' identities in terms of, you know, what their pay is, for example. Or, you know, we're not talking about disclosing personal information, but just sort of looking at it from what kind of information will communicate your DEI metrics. And it's going to depend on who it is you're trying to communicate to. So you want to take that into consideration. Next slide. Okay. And then finally, you know, you're going to communicate, iterate, and improve. So, you know, as I mentioned, you know, DEI is not sort of a static concept. Your progress changes because your workforce changes with time. You don't have the exact same workforce year after year. People get hired, people leave, people get promoted, and so on and so forth. So what you want is to have, you know, your baseline. And once you have your baseline, you want to track that over time because it's going to change over time. And so with that, your, you know, your DEI progress, which is a function of those metrics, including your head counts, demographics, pay, you know, and other metrics, because those things are constantly changing, you know, your progress may or may not change. And hopefully you're actually, you know, your metrics will actually reveal that progress. And so, you know, you're communicating that, you're keeping track of it, and then as you're tracking it, hopefully you're seeing improvements over time, which you can communicate. And a lot of times, you know, sort of these DEI initiatives that you might put in place to make progress, sometimes your metrics will help show how effective they are or how ineffective they are. So those metrics will also, you know, help you, you know, give you insight on how to improve your DEI initiatives. Next slide. Okay, so finally, you know, we've kind of been talking about metrics without really drilling into sort of what metrics are we talking about. So which DEI metrics are measured? On a broad scale, what you want to be measuring are inclusion type metrics, diversity and representation metrics, equity metrics, including pay, you know, pay equity. And, you know, so these are sort of the broad categories of metrics. And this quote from a McKinsey report really kind of underscores the principle that one initiative is not enough. Well, you know, maybe the days of your lip service was sufficient. Today, and increasingly so, it's not, it's not enough. DEI has to be looked at holistically to be effective. So you want to look at holistically what DEI metrics you're going to consider. Okay, so what DEI metrics should you include? You want to prioritize the metrics with respect to what aligns with your story. You want to send a message that demonstrates that you care about your employees and, you know, their future with the organization. And when you do it right, measuring DEI metrics and communicating them clarify the connection between the success of the workforce in your organization with your organization's business success. And adding DEI metrics to your company's, you know, ESG or CSR reporting can seem like a cumbersome sort of compliance requirement if your organization has that, but you can use it as an opportunity to show improvement. So in terms of the sort of metrics you want to measure, there are, you know, certainly variants. When you're looking at diversity, for example, you can, you know, that's really looking at your demographics on whether it's hiring, you know, your demographics of hiring, your demographics of different job positions. And of course, there's, you know, a particular emphasis on senior level positions. You know, for example, while there's some, you know, it's in litigation, but there's board diversity requirements in California, both for gender and for race. There are certain board diversity requirements that are pending in Germany, for example. So, you know, so these kind of diversity representation metrics. The other areas are, you know, employee sentiment, and this is sort of the inclusion survey. Those inclusion surveys will have certain universal questions that are going to be pertinent to all employees, but there's also going to be ones that you want crafted that's unique to your organization. So, you know, you do these, this inclusion survey. So, for example, you can do it year to year. And while the survey is really measuring the perceptions, those perceptions translate into real changes in people leaving, people wanting to come to the company, et cetera. So, you know, while those metrics are about perception, they're very important and very real to your DEI success. And measuring that over time is going to be really revealing as to whether you're making progress in your DEI initiatives. You know, and lastly, when you're looking at the equity component, you know, pay equity is obviously the most sort of data intensive and arguably the most important, but certainly it's the most obvious of the equity elements. But, you know, in doing, to determine pay equity metrics, you're going to want to do a pay equity audit. They don't have to be expensive, but they do provide the necessary and measurable insight into the level of risk that may be inherent in an organization sort of compensation policy. So, it's very important to do, and certainly relative from a liability standpoint, it's a good investment and really an immediate next step that should be taken if you haven't already done so. And so, you know, and additional elements of equity, not just pay, but, you know, your equity in hiring and promotions and retention, in terms of opportunity, you know, over time. I mean, there's a whole panoply of different type of metrics you can measure. And again, there's going to be some universal ones that are going to apply to every organization in their DEI plan, but there's also going to be ones that are specifically, you know, unique to you. So, that's what you're going to want to look at in terms of metrics. And then, finally, if you have any questions, I have provided my phone and email where you can reach me. And let me close with a quote from Alice Stokes Paul, I never doubted that equal rights was the right direction. Most reforms, most problems are complicated, but to me, there's nothing complicated about ordinary equality. And that, you know, equality should be a given. I want to thank you for your time, and I want to leave you with a few final thoughts. And I want to leave you with some thoughts from that author of the Equal Rights Amendment. Equality should be simple. The aim of a DEI partner is to provide guidance that simplifies navigation through diverse regulatory and legal requirements, through the complications of data consistency and quality, through statistical methods and interpretation of statistical results, and the thorough evaluation of options and responses for achieving and maintaining a workforce grounded in diversity and equality. Thank you.