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Getting there C with new chief executives and groups of new directors for that firms that constitute Canada’s $100 billion real estate investment trust industry C within the next few years offers to be rather the ride.
All companies is going to be affected – in large part because most of them are still run by their founders (who’re now older chief executives) and since there has been little turnover within the ranks from the directors. Plus some will be better capable of handling the journey than the others.
That’s the nub of the recent report by Alex Avery, a managing director and real estate analyst at CIBC World Markets. The report, Tending the Flock: REIT Leadership is the second on the same theme Avery has published in the last two weeks. He spent at least a year gathering data for the project.
As REITs approach a general change in leadership, Avery writes in the 25-page report “management of executive succession and board continuity and renewal will introduce new challenges to Canadian REITs not previously encountered on a widespread basis.” Indeed Avery expects the job of replacing founding CEOs could be more difficult and more time intensive than anticipated.
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One particular problem is that some REITs have not had to replace the CEO; another problem is that the board members have, in some cases, existed for a long time – which can “complicate the discussion, development and execution of comprehensive succession processes.”
In another area of the report, Avery notes, “the evolution of board management practices among Canadian REITs might have failed to keep pace with the evolution from the REITs they govern.”
Three measures of not keeping up: 84 percent of the directors are male; 97 percent are white and also the average board tenure is Ten years. (In certain countries, directors lose the authority to be termed independent after being around for that length of time.) Avery uses the word Pale, Male & Stale to explain that situation.
“We expect investors will increasingly prefer more independent, well-composed boards,” he wrote noting, “it seems reasonable to pursue more gender-diverse boards.” Too Avery lends his support towards the concept of term limits for directors because that “reflects the pragmatic reality that board independence can be compromised by the deeper relationships that develop over long periods of service.”
Avery offers some suggestions on replacing chief executives, a task more difficult than for another industries, partly, due to the results of the 1990s recession when not many professionals entered real estate industry. Accordingly real estate executives are under-done with regards to both experience and in building relationships with investors and analysts.
Avery believes that pro-active REITs will have a so-called first mover advantage when they attract and support the next generation’s best and brightest. In general he isn’t a supporter from the chief financial officer becoming the brand new leader – unless the executive has had time for you to gain operational experience. The primary reason is the different skill-sets necessary for the 2 positions.
Avery extends that view arguing the brand new CEO should have different skill-sets than those of the founder in part since the organizations are actually larger and much more complex.
The final point here is that investors need to pay attention given the strong likelihood that the future will change compared to past.
bcritchley@nationalpost.com
