WASHINGTON, DC-Many commercial real estate firms are woefully unprepared for an event that is absolutely sure to happen: the departure, whether planned or not, of the chief executive. Succession planning, in short, is an area that companies in this sector need to improve, according to a survey by the Urban Land Institute and Russell Reynolds Associates.
The survey found that 89% of senior executives queried 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, according to the report, “Avoiding Vacancy: Becoming a Succession Leader in the Real Estate Sector.” There are a number of reasons why this is so but they essentially boil down to two factors, ULI Chairman Peter Rummell tells GlobeSt.com: cultural and timing.
The former refers to the entrepreneurial origins of most commercial real estate firms, he says. “These are firms headed by one man or woman and if, let’s call him Fred, is not concerned about picking a successor then it won’t happen.”
The other reason—timing--is a bit more disconcerting. Many companies would like to at least informally identify an executive that could take the helm if need be, Rummell says. “The problem is, the bench has gotten very shallow in the past few years.” The recession, in short, took out of commission a legion of middle and senior managers who might have been considered for the role of the next CEO. There is change in this area, or at least growing awareness, Rummell adds. “The REIT culture has brought a certain discipline to commercial real estate firms, although that has only been the case for the past 10 years.”
Other findings from the report:
- 48% of respondents said their firms review CEO succession plans at least annually;
- 43% include assessments of potential internal CEO candidates in their plans;
- 28% include in their succession plans some specific capabilities required for future CEO success;
- 22% consider their succession plans to be formal documents; and
- 18% include a transition plan that maps out a transition timetable for a new CEO.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
