Reit investors reportedly concerned about succession plans
Investors in the real estate industry ‒ and specifically in real estate investment trusts (Reits) ‒ want more clarity about firms’ CEO succession plans, according to a new white paper.
Ferguson Partners Leadership Consulting Group, Board Governance Research and Henderson Global Investors warn in the paper that succession planning can fall by the wayside due to short-term regulatory and disclosure pressures, which are intensifying as a result of the continued growth of Reits.
The real estate industry has expanded significantly over the last two decades. In recognition of this, the MSCI and S&P Dow Jones indexes reclassified Reits and real estate management companies as a stand-alone sector last year ‒ the first time MSCI had awarded a new industry classification in its 18-year history.
Dominic Cottone, managing director of Ferguson Partners Leadership Consulting Group, cautions that the success of the sector may have created a dearth of leadership talent. ‘You’ve got a lot of individuals in real estate who are dealmakers,’ he tells Corporate Secretary. ‘That’s been a core focus of their careers. Often they’re then thrust into a role with people and organizational responsibilities.’
In the new white paper on real estate succession planning, Cottone writes that it takes an average of three to five years to develop an internal CEO successor. He recommends that companies develop several potential internal successors and provide them with a robust development plan, which includes exposure to the board and investors.
A clearly communicated CEO succession plan ‘helps external stakeholders and shareholders understand what the organization is moving toward,’ Cottone says. ‘It helps to satisfy investors to know the organization is thinking about the short-term and long-term structure of the organization.’
Research from Activist Insight and Nasdaq last year revealed that Reits are one of the industry sectors at risk of targeting from activist shareholders looking to influence a leadership change.
The SEC changed its stance on CEO succession in 2009, effectively recognizing it as a risk-management issue. Accordingly, businesses are supposed to report on succession planning in their proxy statement. But recent research from Equilar shows that only 36.3 percent of S&P 500 companies included mentions of their succession planning in their 2016 proxies, with most simply mentioning that they have a succession plan (CorporateSecretary.com, 12/23). Further, just 3.3 percent include what the authors of the research consider ‘well-disclosed’ plans, including specific details or timelines.