CHICAGO--(EON: Enhanced Online News)--Ferguson Partners, Ltd., a global professional services firm specializing in executive and director recruitment, leadership consulting, compensation consulting, and organizational, financial & strategic consulting, along with Board Governance Research, a company that provides independent research on corporate governance practices, and Henderson Global Investors, an international investment company, conducted an analysis and are alerting the real estate industry that investors want stronger CEO succession planning, especially for Real Estate Investment Trusts (REITs).
“Succession planning is critical for an organization’s success and investors understand this”
The real estate sector has experienced tremendous growth in the last 16+ years from a market capitalization of approximately $115mm at the beginning of 2000 to just over $800bn today. From this growth, REITs have grown rapidly and are considered a very strong investment option. In fact, there are now 27 REITs in the S&P 500, which has created an even stronger need for real estate organization to adopt a solid CEO succession plan.
This will ensure that if the CEO unexpectedly leaves his/her position, then there is a plan in place that provides timely, efficient, and effective continuity of organization leadership. This is critical for continued profitability, shareholder value and organizational efficiency.
Without a solid CEO succession plan, investors may view this as a negative and think: the company is unable to adapt with a sudden departure of a CEO; the company is experiencing poor performance; there are challenges between the CEO and the board; and/or the company is making poor management talent decisions.
“Succession planning is critical for an organization’s success and investors understand this,” said Dominic Cottone, Managing Director in Ferguson Partners Leadership Consulting group. “Some of the most common pitfalls with succession planning include organizations not starting early enough, lack of planning, not having an official decision body, not choosing the appropriate successor and assuming that succession planning stops once the successor is chosen, which is not the case. This is why we thought it was important to do a deep dive analysis into this issue and provide our perspective and some proven guidelines.”
The experts recommend 5 Pillars for a successful CEO succession strategy, which include:
- Sustainability: The capacity to endure in times of great change, including the ability to remain nimble, flexible and understanding when there is a perceived environmental threat.
- Transparency: A clearly defined way forward, articulated succinctly by the organization and with the opportunity for two-way dialogue and input. In order to establish transparency between organizations and investors, there must be a number of behavioral objectives associated with the engagement.
- Risk Management: A balanced perspective on risk without being too cautious or too careless. To achieve this balance requires a greater understanding for the risk tolerance of organizational leaders and the risk requirements of investors.
- Legacy: Organizational reputation and legacy is an important aspect of the relationship. While many leaders and investors alike are focused on short-term gains, the most successful organizations rely on the impact of their legacy to help transform the future.
- Timing: A structured, ongoing cadence for reviewing and maintaining shared information is a critical aspect of the investor/organization relationship. Although many organization and investors focus upon the annual proxy statement, regular information sharing via formal and informal means is most effective.
The need for the real estate industry to embrace a strong CEO succession plan will only grow as the industry continues to thrive. Real estate organizations need to follow the Pillars mentioned above and ensure that there is full transparency with their investors. This will result in a more culturally healthy organization with stronger security, profitability and future growth.
About FPL Advisory Group:
FPL Advisory Group is a global professional services firm specializing in executive and director recruitment, leadership consulting, compensation consulting, and organizational, financial & strategic consulting. For more than 25 years, FPL’s consultants have acted as trusted advisors to senior leaders at companies throughout the real estate and financial services industries. www.fpladvisorygroup.com