Sara
Silano:
Some
industries
like
asset
management
and
technology
sector
have
had
a
wave
of
layoffs
recently.
Today
I’m
joined
by
Petra
Daroczi,
ESG
analyst
and
portfolio
manager
at
Comgest,
to
discuss
how
the
layoffs
impact
on
the
ESG
profile
of
the
companies.
Welcome,
Petra.
Do
layoffs
in
many
industries
threaten
the
progress
made
so
far
on
the
social
dimensions
of
ESG?
Petra
Daroczi:
Yes,
thank
you
very
much
for
this
question.
Indeed,
layoffs
have
made
the
headlines,
especially
in,
for
example,
the
technology
sector
in
which
we
are
investors.
My
short
and
quick
answer
is
no.
This
recent
wave
of
layoffs
do
not,
we
believe,
threaten
the
progress
made
so
far
on
the
social
dimension.
And
there
are
two
key
reasons
for
that.
Number
one
is
that
if
you
are
a
people
business
and
if
it’s
part
of
your
culture
and
DNA
that
you
appreciate
human
capital
as
your
greatest
assets,
then
it
doesn’t
matter
what
economic
conditions
you
find
yourself
in,
you
will
not
fiddle
with
your
social
CapEx
and
you
will
want
to
invest
in
your
people.
And
the
second
reason
is
that
layoffs
are
definitely
not
positive,
but
the
question
is
not
whether
layoffs
are
good
or
bad.
The
real
question
is
how
it
is
done.
And
for
some
businesses,
actually,
it’s
incredibly
beneficial
when
they
right-size,
they
make
themselves
leaner
and
they
make
themselves
sort
of
more
flexible
and
agile
to
seize
opportunities
as
soon
as
they
come
back.
Silano:
In
the
analysis
of
the
company,
you
examine
human
CapEx.
Could
you
explain
how
you
measure
it
and
what
results
you
get?
Daroczi:
Yes.
So,
basically
when
we
were
trying
to
figure
out
how
to
analyze
basically
how
the
companies
investing
in
their
human
capital,
it
is
an
incredibly
difficult
exercise
because
while
capital
expenditure,
your
investment
in
your
properties
and
equipment
and
machinery
that
is
shown
on
your
financial
statements
and
the
cash
flow
statement
and
the
P&L,
but
what
do
you
do
about
human
CapEx?
I
mean,
it’s
nicely,
sometimes
disclosed
in
ESG
reports
with
lots
of
pictures,
but
it’s
not
very
tangible.
So,
we
wanted
to
come
up
with
a
methodology
that
allows
us
to
analyze
whether
human
CapEx
is
really
an
important
asset
and
also
whether
it’s
a
competitive
advantage
for
a
company.
So,
we
have
come
up
with
KPIs
that
revolve
around
fair
and
equal
pay
and
that’s
about
minimum
wages
and
living
wages
and
paying
an
adequate
financial
benefit
to
your
employees.
It’s
all
about
non-financial
benefits
like
providing
health
and
well-being
packages,
pensions,
employee
share
schemes,
investment
in
training
your
employees
so
they
can
excel
at
their
job
and
be
promoted
internally.
So
that’s
all
about
internal
education,
skills
development.
Whether
there
is
a
board-level
responsibility
for
workforce
engagement,
what
is
the
internal
promotion
rate,
the
voluntary
turnover
rate,
is
there
a
chief
human
resources
officer
who
understands
the
industry
and
so
on.
Silano:
Yes.
Could
you
do
some
examples
of
companies
with
a
high
human
CapEx?
Daroczi:
Yes,
absolutely.
One
of
our
long-term
investments
is
Costco
(COST),
which
is
a
US
retailer
and
Costco
has
really
made
the
human
capital
core
of
their
corporate
culture.
While
to
some
extent
their
percentage
of
cost
for
paying
employees
is
higher
than
their
competitors,
eventually
Costco’s
retention
of
its
employees
and
therefore
its
customer
service
far
outpaces
its
competitors.
And
why
is
that?
It’s
because
Costco,
historically
for
many
years,
has
always
constantly
raised
the
minimum
wage
paid
above
the
federal
minimum
requirement,
paid
above
the
competitor’s
minimum
wage,
it
pays
a
higher
average
hourly
wage
and
so
on.
So,
while,
yes,
it
is
a
bit
more
expensive
for
them
to
pay
their
employees,
eventually
it
pays
off
because,
again,
employees
stay
with
the
company
for
longer
and
also
provide
a
better
customer
service
because
they
are
happier
at
the
end
of
the
day.
Another
example
that
I
really
love
to
bring
to
people
is
the
airline
industry,
a
Hungarian
airline,
low-cost
airline
called
Wizz
Air
(WIZZ).
Wizz
Air
very
much
sees
itself
as
a
disruptor
in
a
very
difficult
industry,
well,
very
difficult,
very
competitive
industry
and
one
of
the
key
differentiators
against
their
competitor
is
that
they
have
managed
to
keep
a
very
good
relationship
with
their
employees.
The
labor
force
doesn’t
see
the
need
for
unionization
and
that
is
because
Wizz
Air
has
a
very
good
fair
pay,
monetary
incentives,
it
has
a
workforce
engagement
director
who
regularly
meets
with
the
employees
to
make
sure
that
there
is
a
strong
employee-centric
culture
that
stimulates
all
the
way
from
the
top.
Silano:
Petra,
thank
you
for
coming
here
today.
For
Morningstar,
I’m
Sara
Silano.
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