08/18/2022 | by Sarah Borchersen-Keto

A corporate governance structure that includes board members that are independent, yet work as strong partners to the executive board, has clear long-term benefits for REIT performance, says Bill Ferguson, chairman of global professional services firm Ferguson Partners.

Speaking on the REIT Report, Ferguson said “it’s a fine balance…the board is there to be a fiduciary and represent the shareholders’ interests, but the bottom line is that they also need to be a good partner to the leadership team to make sure that the strategy and the execution of the business makes sense.”

Issues surrounding governance, in addition to a range of other ESG topics, will be explored at Nareit’s upcoming REITworks: 2022 Conference held on Sept. 12-13 in La Quinta, California.

Ferguson recently co-authored a case study published by the Corporate Governance Research Initiative at the Stanford University Graduate School of Business that looks at the unique corporate governance decisions made at VICI Properties Inc. (NYSE: VICI). Ferguson Partners recruited the entire VICI leadership and board ahead of its IPO in early 2018.

“It was incredibly important to the hedge funds to have both a board and a leadership team that the investors would respect and ultimately could build and manage a high quality REIT,” Ferguson said.

In assembling the board, Ferguson noted that “we wanted diversity, for sure. We wanted a mix of active and retired executives . We wanted REIT board experience where we could find it.”

Ferguson noted that for REITs today, board quality is “incredibly important. When you see activists out there in our space, or any space or to be frank, the first thing they look at is the quality of the board.” If the board is long tenured, if the executives are primarily retired, if they don't have prior public company experience, or if they happen to be closely affiliated with the CEO, “none of that augurs well as it relates to good governance.”

Elsewhere in the interview, Ferguson commented on the landscape for senior management recruitment.

“I think it's becoming less of an employee market and a little bit more of an employer market…we're not seeing as much hiring today relative to new business initiatives, as far as geographic expansion, new product expansion. It's just the reality of what happens as interest rates go up and we're dealing with inflation,” Ferguson said.