Plans for chief executive officer succession at most real estate firms in the United States are inadequate and could jeopardize a smooth transition of leadership, says a new report conducted for ULI by global search and assessment firm Russell Reynolds Associates.
The recently released survey of senior executives at 235 major real estate firms was conducted in January and February 2012.
Eighty-nine percent of survey respondents said real estate firms do not have adequate CEO succession plans, and nearly one-third do not feel confident that their firm could immediately select a new CEO if necessary. This suggests “a disturbing lack of preparedness for CEO succession,” says the report, Avoiding Vacancy: Becoming a Succession Leader in the Real Estate Sector. “While many firms have succession plans in place, few of these plans contain the necessary ingredients for proven success,” the report says. Among the key findings:
Less than half of the respondents—48 percent—said their firms review CEO succession plans at least annually;
Just 43 percent include assessments of potential internal CEO candidates in their plans;
Only 28 percent include in their succession plans some specific capabilities required for future CEO success;
Only 22 percent consider their succession plans to be formal documents; and
Only 18 percent include a transition plan that maps out a transition timetable for a new CEO.
The survey also identified a lack of planning within individual firms for advancement to high-level management positions. Less than half of respondents said their firms are effective at developing the next generation of “C-suite” executives, and just over half said they maintain plans for senior staff placement.
ULI Chairman Peter S. Rummell said the survey results are a wake-up call regarding the importance of making executive succession a top priority. “Senior executives need to be implementing and providing the leadership programs necessary to attract, motivate, and retain the best and brightest minds in real estate,” he said. “Individual companies and the industry in general can benefit by acting strategically, proactively, and decisively to plan for who’s next, and to cultivate those with leadership qualities.”
Debra Barbanel, managing director and head of the real estate practice at Russell Reynolds, said, “We see this as a huge opportunity for the real estate industry. Not only does effective CEO succession planning reassure investors and employees of the firm’s ongoing and uninterrupted success, it drives the engagement, development, and retention of top talent and strengthens the overall leadership bench of the firm.”
The report divided the respondent firms into two groups: succession “leaders” and succession “laggards.” Seventeen percent were identified as leaders, meaning they reported high levels of succession planning effectiveness, could name a replacement CEO tomorrow, and reported high levels of effective leadership development. Any firm not meeting all three criteria was considered a laggard.
Practices common among the leaders included assigning succession responsibility to the board of directors rather than solely to the CEO; maintaining a formal, written succession plan with a future-oriented focus and a specific timetable; and directly linking CEO succession planning to succession planning for other executive-level positions to ensure a deeper pool of potential internal candidates for the top position.
Constant assessment and development of rising leaders was identified as the practice that most sharply distinguished succession leaders from laggards. All of the firms identified as succession leaders said they regularly conduct assessments of internal candidates for CEO succession, and 61 percent said they conduct them annually. Among the tactics used to groom leaders are offering opportunities for interaction with board members; providing a formal development plan for high-potential employees; helping rising leaders with career development opportunities; offering a structured and rigorous onboarding process for newly hired executives; and building a human resources team that is effective at building talent.
More than 69 percent of the firms surveyed have portfolios exceeding $1 billion; 46 percent listed the value of their portfolios to be more than $3 billion. Thirty-nine percent are publicly held; 38 percent are privately (nonfamily) owned. Nearly 20 percent are family owned and led by a family member, while just 2.5 percent are family owned but led by a nonfamily executive.
The largest percentage—more than 35 percent—identified themselves as involved primarily in the office and industrial sectors, and more than 27 percent listed themselves as multifamily companies, with the remainder involved in retail, residential, hospitality, health care, and other business operations. Thirty-eight percent are investment companies, and nearly 32 percent are operating companies, with the rest being service and advisory providers. The largest percentage—over 41 percent—are national in scope; nearly 33 percent are global, and 26 percent are regional operations.