Why do so few companies have a property specialist among their directors?
A corporate balance sheet has three components: money (cash, debt and equity), goodwill and assets. Boards tend to have money-savvy accountants and sector specialists, but who is looking after the fixed assets? If most companies’ major fixed assets are the properties they own or lease, why are there so few property experts on the board?
It seems astonishing that there are so few directors with the expertise to influence the strategy for buying, leasing, occupying or investing in properties from which the company trades. Yet this vacuum is common. Why?
Maybe property people are assumed to lack the wider business sense to sit on a board. Alternatively, the assets could be viewed as the sort of detail boards should avoid in favour of a strategic focus. Most likely it is a blend of these factors.
A classic example of the vacuum was an automotive supplies company with around 625 retail outlets. The properties were under the care of the company secretary (not a board member). For this busy individual the properties always slipped to the bottom of the to-do list. His solution was to employ a firm of property specialists to run the portfolio.
Unfortunately, they were not real estate managers. Further, they were paid only for enough time to review each property once a year at best. It later emerged that the company secretary was responsible for more than 1,700 properties and legal property interests across seven European countries.
The implications are far-reaching: no records to rely on, no strategic plan nor budget to buy, sell, manage or enhance the properties, and no cashflow planning either. Without recorded details of rent review
dates, lease expiries or freeholder/ leaseholder duties, problems will emerge. Yet, each property is the visible face of the business to customers. For a company with multiple outlets, it could be disastrous, operationally, financially and from a reputation perspective.
So what can be done? On a broad scale, chairmen, directors and headhunters should wake up to the value of bringing property expertise onto the board. Only when real estate properties are strategically integrated into the business will they perform well. Equally, senior property professionals must show their understanding of the business implications of changes in the economy, legislation and market.
Many property investors and developers may be hidebound by
a lack of financial understanding and more traditional business knowledge. Or perhaps the problem runs even deeper. Is there something in the intellectual make-up of the average real estate professional which allies their thinking more to the technical
issues of a property rather than the broader corporate concepts?
The ability to think strategically and to articulate how a business
can mitigate real estate risks – as well as take advantage of opportunities – are vital skills any board neglects at its peril.
Barry Gilbertson is an international real estate consultant, speaker and lecturer