CHICAGO—Although the REIT sector excels the broader market in a number of governance areas, the makeup of REIT boards would benefit from greater diversification. That's among the conclusions of a study commissioned by Ferguson Partners Ltd. and issued Wednesday.

The study, which compared 151 non-mortgage REITs with the broader Russell 3000 index, found that demographically, REIT boards are likely to be predominantly male as well as older. Although just 21% of REIT boards are all-male, compared to 25% of all Russell 3000 companies, 73% of REIT boards have no more than one female director. In comparison, 39% of Russell 3000 boards have two or more female directors, compared to 27% for REITs.

Even as most directors of publicly traded companies are in their 50s and 60s, those serving on REIT boards are more likely to skew older. One-quarter of REIT directors are 70 or older, compared to 19% for all Russell 3000 companies. At the other end of the spectrum, REIT directors are slightly less likely to be under age 50.

“We found that there is also a need for REITs to recruit directors outside of their industry,” says Annalisa Barrett, founder and CEO of Board Governance Research LLC, which conducted the study for Ferguson. “Currently, more than 52% of REIT directors are actively employed by a real estate company or a REIT. More forward-thinking boards are now recruiting directors outside of the real estate industry to obtain more diverse views, bring fresh ideas to the table and to avoid possible conflicts of interest issues.”

REITs do earn high marks for separating the roles of CEO and board chair, as governance experts advocate. The study found that 64% of REITs have made this separation, compared to 58% of companies in the broader market.

Furthermore, the study found that the REIT industry is far ahead of the broader market in declassifying the board and holding annual director elections. Eighty-seven percent of the REITs studied require their directors to stand for election annually. That's half again as large as the percentage of Russell 3000 companies that mandate annual elections.

Instant Insights /

REIT Boards Could Use More Diversity

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