10/30/2017 | By Sarah Borchersen-Keto
Published in the November / December 2017 issue of REIT magazine
Earlier this year, investment firm State Street Global Advisors came to the decision to begin voting against all-male executive boards. Other institutional investors, including BlackRock Inc., are also exerting pressure on boards to improve their gender balance. The actions confirm that diversity is evolving from an attractive quality in a company to a must-have attribute across Corporate America.
REIT market observers are optimistic that the REIT industry will continue to grow and adapt to the enhanced focus on diversity, helping to shake off its traditional image as a business dominated by white males.
Wendy Mann, CEO of Commercial Real Estate Women (CREW) Network and president of the CREW Network Foundation, observes that women are still “woefully underrepresented” in the real estate industry. However, there is “heightened awareness about gender diversity and serious discussion about the lack of women in top leadership roles,” she adds.
Experts predict that the pace of change will likely be uneven, with women gaining executive board representation at a faster pace than on the management side. Building diversity at the board level, however, will be key to ensuring that women make gains across the industry, they say.
Change Must Start at Board Level
“If you are going to create change, it’s got to start at the board level. If it doesn’t come from there, it’s more lip service than substance,” says William Ferguson, chairman and CEO of Ferguson Partners Ltd., an executive search firm specializing in real estate. More than half of the board searches that Ferguson Partners conducts for its REIT clients have diversity mandates, he notes.
Increased investor activism and a growing focus on executive board “refreshment,” or the process of ensuring a board has the right mix of skills and perspectives, are altering the traditional structure of executive boards and creating opportunities for women that didn’t exist before, experts say.
Gemma Burgess, a managing director at Ferguson, underscores that executive boards are keenly aware that diversity is here to stay.
“Investors are asking for it,” Burgess notes. “Change is coming.”
Lynn Thurber, chairman of LaSalle Investment Management and a member of the boards of Duke Realty Corp. (NYSE: DRE) and Acadia Realty Trust (NYSE: AKR), agrees that boards are now looking for younger members, while more specific effort is being made to find women and minority candidates. That contrasts with the past, she says, when “many board seats were filled through relationships of the candidate to the CEO and the other board members.”
Growing Institutional Awareness
Diane Olmstead, chief investment officer at BRIDGE Housing and the only female board member at self-storage REIT Extra Space Storage (NYSE: EXR), also highlights a growing institutional investor awareness of the benefits of diversity.
“A lot of the large pension funds and mutual fund companies are definitely looking at the studies on the positive economic effects of having women on boards. Some are taking those to heart and advocating that boards voluntarily adopt a policy of diversification,” Olmstead says.
In response to the State Street decision, Chris Ailman, CIO at the California State Teachers’ Retirement System (CalSTRS), noted that companies need to “step up and better utilize the talents and leadership of women in their corporate boards, C-suite and throughout their ranks. We all need to lean in and be bold for change now.”
According to Deb Barbanel, global head of real estate at executive search firm Russell Reynolds Associates, companies traditionally seek individuals with prior board experience. However, “strong” governance chairs are now starting to listen to evidence that supports why a first-time board member, female or male, can be effective.
“Companies are being more patient on that topic and are wanting us to do a due diligence on these first-time board members to determine if they are boardroom ready,” she says.
Meanwhile, women appointed to boards have a responsibility to ensure that diversity within the company is a priority and that the right types of support initiatives are in place, Thurber notes. In addition, it is important that female board members make sure senior leadership is “talking the talk and walking the walk” of diversity.
“It really does matter what the CEO is saying and doing about diversity. If they are not taking it seriously, and making it a real part of how the company attracts, retains and develops talent, then no one else in the company can be effective in making change happen,” Thurber says.
Slower Change on the Management Side
As women gain a more solid foothold on REIT executive boards, they will press for diversity at the executive level, Burgess predicts. Yet, the pace of change will still be measured, she says.
“You’re definitely hunting from a smaller pool of candidates. In a lot of instances, we’ve got to wait for women to come up the curve and grow within the organization,” Burgess observes.
A 2015 benchmark study from CREW found that while the percentage of senior positions filled by women has increased during the past five years, the proportion of women at the C-suite level continues to be far lower than men.
Of Nareit’s 262 corporate members, nine have female CEOs, or approximately 3.4 percent. That compares to 5.2 percent for the S&P 500, according to data from nonprofit organization Catalyst.
Diana Scott, chief human resources officer at industrial REIT Prologis (NYSE: PLD), attributes some of the lag to the traditional association between the real estate business and construction.
“Education is important to show that in the real estate industry, and REITs in particular, careers can be as dynamic and even more exciting than, say, investment banking,” she observes.
Dividends Through Diversity
Earlier in 2017, Nareit launched the Dividends Through Diversity Initiative, an effort tasked with promoting the recruitment, inclusion and advancement of women in REITs and the broader real estate industry.
Sheila McGrath, senior managing director at Evercore ISI and a member of the Dividends Through Diversity steering committee, points out that women do not traditionally migrate to real estate. They simply may not be as familiar with the field, she says.
“By trying to elevate the profile of REITs and the opportunities within the industry, I think we’ll hopefully encourage more women to enter the field,” McGrath observes.
Washington REIT’s (NYSE: WRE) vice president for asset management, Mandi Wedin, points out that the companies that don’t embrace diversity are hamstringing themselves.
“We know that if you have more diversity in the decision-making process, you make better returns for your investors,” she says.
“If we have all this talent and opportunity staring us in the face, but we choose not to use it, that makes no sense,” Wedin adds.
In an effort to increase the number of women progressing to senior levels, Prologis launched a program known as Breakthrough in 2014. Scott explains that Prologis found that areas such as finance, accounting, property management, marketing and legal were well-represented by women. Leasing, development and capital deployment, on the other hand, were not.
Mary McCarthy, a managing director at Terra Search Partners, a real estate executive search firm, has seen anecdotal evidence that confirms similar trends. On the development and acquisition side of the real estate business, “we don’t turn up very many women,” according to McCarthy. “They’re not coming in at the junior level and seem to be migrating to other disciplines,” she notes.
Wedin agrees. “There’s a battle for talent, particularly in leadership roles,” she says. “It’s not just between companies, but between industries.” Technology, for one, has drawn women away from real estate.
According to Barbanel of Russell Reynolds, the paucity of women on real estate investment teams is an ongoing focus for the industry. “We’re going to see continued emphasis on wanting to bring a woman in on both investment and key operational positions…we need to continue to do better,” she says.
Scott says Prologis is looking to be a leader in supporting and promoting women, and the company hopes the steps it is taking will help engage the rest of the industry in dialogue. “We’re really making sure we are identifying high-potential women and minorities with skill sets that we think can lead to promotion and development in the real estate field down the line,” Scott says.
Other REITs have also taken steps to foster female talent. Christy Stone, Welltower Inc.’s (NYSE: HCN) senior vice president for human capital, acknowledges that the bench of future female leaders “is not as deep as we’d like it to be.”
To tackle the problem, Welltower created a women’s network, Well+CORE, to provide educational opportunities. The group also hosts events that encourage networking and relationship building.
Benefits of Mentoring & Sponsorship
Experts say that one crucial area where companies can take steps to assist women is in mentoring and sponsorship.
Indeed, the CREW survey highlighted that women respondents view relationships with senior executives as the number one factor supporting future advancement. They listed the lack of a company mentor or sponsor as the main barrier to career success.
CREW’s Mann notes that women are focusing more on finding a sponsor within the C-suite who can help increase their visibility and stature within the company. Companies are also becoming more diligent about putting qualified female candidates on a leadership track. The companies “are beginning to see the tremendous value in retaining and advancing these talented women,” she says.
LaSalle’s Thurber maintains that it makes a “huge difference” for women to have a sponsor who is both a senior leader in the company and willing to speak up on their behalf when it comes to promotions and opportunities for advancement.
“It’s hugely important that senior leaders deliberately think about how they champion women and minorities,” says Thurber.
Meanwhile, although experts say there is no definitive correlation between increased diversity and a company’s performance, all indications suggest that the benefits are there.
“If you have people around the table who have different perspectives and you are willing to entertain those perspectives as you are making major decisions, there’s no downside to that,” Ferguson says. “It really is a question about making more informed and educated decisions about your business. That’s an argument that’s tough to refute.”
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