Real Estate Industry Needs Better Preparation For CEO Succession, Says New Report From Urban Land Institute And Russell Reynolds Associates

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Aug 01, 2012, 03:52 ET

WASHINGTON, Aug. 1, 2012 /PRNewswire-USNewswire/ -- A survey of senior executives at 235 major real estate firms in the U.S. shows that most believe the industry as a whole is ill-prepared for the chief executive officer (CEO) succession process, which could jeopardize a smooth transition of company leadership, according to a report released today by the Urban Land Institute (ULI) and Russell Reynolds Associates.

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Eighty-nine percent of the survey respondents said that real estate firms 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. This suggests "a disturbing lack of preparedness for CEO succession," says Avoiding Vacancy: Becoming a Succession Leader in the Real Estate Sector. "While many firms have succession plans in place, few of these plans contain the necessary ingredients for proven success," the report says.

ULI is a global research and education organization dedicated to responsible land use and sustainable community building; Russell Reynolds Associates is a global executive search and assessment firm. The survey was conducted by Russell Reynolds for ULI in January and February 2012.

Among the key findings:

Less than half of the respondents – 48 percent – said their firms review CEO succession plans at least annually;
Just 43 percent include assessments of potential internal CEO candidates in their plans;
Only 28 percent include in their succession plans some specific capabilities required for future CEO success;
Only 22 percent consider their succession plans to be formal documents; and
Only 18 percent include a transition plan that maps out a transition timetable for a new CEO.

The survey also identified a lack of planning within individual firms for advancement to high-level management positions. Less than half of the respondents said their firms are effective at developing the next generation of "C-suite" executives; and just over half said they maintain plans for senior staff placement.

According to ULI Chairman Peter S. Rummell, the survey results are a "wake-up call" regarding the importance of making executive succession a top priority. "Senior executives need to be implementing and providing the leadership programs necessary to attract, motivate, and retain the best and brightest minds in real estate," Rummell said. "Individual companies and the industry in general can benefit by acting strategically, proactively and decisively to plan for who's next, and to cultivate those with leadership qualities."

"We see this as a huge opportunity for the real estate industry. Not only does effective CEO succession planning reassure investors and employees of the firm's ongoing and uninterrupted success, it drives the engagement, development and retention of top talent and strengthens the overall leadership bench of the firm," said Debra Barbanel, managing director and head of the real estate practice at Russell Reynolds Associates.

The report divided the respondent firms into two groups: succession "leaders" and succession "laggards." Seventeen percent were identified as leaders, meaning that they 1) report high levels of succession planning effectiveness; 2) could name a replacement CEO tomorrow; and 3) report high levels of leadership development effectiveness. Any firm not meeting all three criteria was considered a laggard.

Practices common among the leaders included assigning succession responsibility to the board of directors, rather than solely to the CEO; maintaining a formal, written succession plan with a future-oriented focus and a specific timetable; and directly linking CEO succession planning to succession planning for other executive-level positions to ensure a deeper pool of potential internal CEO candidates.

Constant assessment and development of rising leaders was identified as the practice that most sharply distinguished succession leaders from laggards. All of the firms identified as succession leaders said they regularly conduct assessments of internal candidates for CEO succession, and 61 percent said they conduct them annually. Among the tactics used to groom leaders: offering opportunities for interaction with board members; providing a formal development plan for high-potential employees; helping rising leaders with career development opportunities; offering a structured and rigorous on-boarding process for newly hired executives; and building a human resources team that is effective at building talent.

More than 69 percent of the firms surveyed have portfolios exceeding $1 billion; 46 percent listed the value of their portfolios to be more than $3 billion. Thirty-nine percent are publicly held; 38 percent are privately (non-family) owned. Nearly 20 percent are family owned and led by a family member, while just 2.5 percent are family owned but led by a non-family executive. The largest percentage, more than 35 percent, identified themselves as involved primarily in the office and industrial sector, and more than 27 percent listed themselves as multifamily companies, with the remainder involved in retail, residential, hospitality, healthcare and other business operations. Thirty-eight percent are investment companies, and nearly 32 percent are operating companies, with the rest being service and advisory providers. The largest percentage, more than 41 percent, are national in scope; nearly 33 percent are global and 26 percent are regional operations.

Download the Avoiding Vacancy report at: http://www.uli.org/~/media/Documents/ResearchAndPublications/Reports/2012_Avoiding_Vacancy.ashx

About the Urban Land Institute
The Urban Land Institute (www.uli.org) is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.

About Russell Reynolds Associates
Russell Reynolds Associates (www.russellreynolds.com) is a leading global executive search and assessment firm with more than 300 consultants based in 40 offices worldwide. Russell Reynolds consultants work closely with public and private organizations to assess and recruit senior executives and board members to drive long-term growth and success.

SOURCE Urban Land Institute