Managing Human Capital Across Borders

Seeking the safety of diversification and lured by higher returns, investors are increasingly allocating assets globally. Over the past decade, European and American investors, developers and service companies have ventured with abandon into each others markets. The survey highlighted that even amidst the current uncertainty, many organizations (42%), expect to enter markets outside their home country within the next two years.

Europe is a focus for much of this expansion, and opinions differ on the best management strategy to achieve it. Some feel the best way to maintain control is to parachute someone in from home to head the new region. The seeds of corporate culture that they bring offset lack of local insight. Yet both the survey and roundtable results suggest that working with local partners or acquiring a local firm remains the preferred solution.

European executives rank market knowledge, cultural awareness and communication skills as most important when employees are based outside their home country. The investment funds, in particular, see these qualities as critical to success. Legal and regulatory issues and lack of transparency are rated as bigger headaches when building a pan-European business. To overcome these problems you need local knowledge.

Differing standards and content of property education across Europe is a concern. The need for an understanding of finance and marketing as well as land-planning and design make for a poor fit for any single curriculum. While a key source of young talent for the industry, many deem property courses of little vocational worth. US executives in particular find European property graduates lacking the financial acumen, ability and soft skills essential when transacting sophisticated deals. This view is most marked in the investment banks and opportunity funds, where financial skills are prized above property knowledge.

Senior executives ranked ongoing professional training as one of the most important means of attracting, developing and retaining the next generation of leadership. They recognize that the opportunity to develop new skills contributes greatly to employees' job satisfaction, but they add that they are discontented with the training offered by their companies. In Europe, funds and service companies tend to outsource training while financial services are more likely to opt for in-house training. Investing in people is not only for the benefit of employees or to create some abstract feel-good sense among management. Generally, there is a sense that training is important but not enough of it happens; the long-term benefits are weighed against short-term profit and the latter usually wins.

A recurring theme in both the survey and roundtables was the need to better manage, develop and reward leadership. Management must recognize that people are motivated not just by money or short-term incentives but by values, team culture, opportunities for personal development and appreciation. The head of private equity at a leading real estate investment bank commented on the expectations of young property-finance professionals facing their first downturn: "At this stage in their careers, they must realize that what is important is what they're learning, not what they're earning."

While it takes longer to develop management talent in house, hiring at senior levels in Europe is challenging. One roundtable participant summed it up: "It's difficult to bring in people at executive levels since there is such a strong culture; we even have our own language." Executives often rely on their own networks to identify talent. Many have discovered that these networks are less reliable when crossing borders but also that the recruiting process can be considerably more complex.

In Europe, after personal networks, executive search is thought of as the most efficient recruiting method. In the US, executives make greater use of advertising, job fairs, alumni networks and their websites. Americans also use the internet as a recruitment tool, particularly for entry and junior positions but even for some senior roles. Conversely, their European counterparts view internet recruitment as largely ineffective, seeing it as particularly limited in developing candidates for senior positions where cultural fit is so critical.

A reliance on recruiting through personal networks is seen as less than ideal. Executives admit that they often hire in their own image, prizing the entrepreneurialism and deal making abilities that built their own careers. However, many property organizations have reached a stage in their evolution where they also need skilled managers. Companies acknowledge that while team building and leadership skills are important, they don't actively seek or screen for them. Unsurprisingly, they report a lack of these skills in their management ranks.

The real estate industry is beginning to acknowledge that good human capital is hard to come by, harder to keep, expensive to lose and overwhelmingly the greatest determinant of success. For further information about the recent surveys in Europe and North America, please visit www.equinoxsearch.com.

Bill Kistler (bkistler@equinoxsearch.com) heads the European search practice of Equinox Partners. Based in London, he has more than 23 years of executive-level experience in the real estate industry.