EO 2016 Leadership Retreat Report: Leading Through Challenge

Posted on May 25, 2016 in Viewpoints by admin

_L2A4911“Managers develop organizations; Leaders develop people.”

– Robin S. Sharma

For a print version, click here.

The discussion of this year’s NAREIM leadership retreat circled around challenge – how  leaders rise to it, learn from it, and prepare for it. Surrounded by the warm breezes of Biscayne Bay, real estate investment management leaders confronted the questions and challenges they face every day.

To set the tone, the meeting began by considering the example of an historic leader, former U.S. President John F. Kennedy, who learned from challenges in a very public way. An early crisis of his presidency was the failed invasion at the Bay of Pigs in Cuba in April of 1961. Despite having some of the best political, military, and intelligence experts confident that the plan would succeed, it was surprisingly out of sync with the reality on the ground, almost guaranteeing failure. It was a difficult lesson to learn in the first year of his administration. In response, Kennedy adjusted his decision making process, to make sure that there were always people in the room who could and would challenge his and his team’s assumptions, bias, and plan.

When the Cuban Missile Crisis occurred in October of 1962, he was able to rely on advisors tasked to ask the questions, “Why? What can go wrong here? Is there another way to do it?” Thankfully, one of the most perilous events in the Cold War resulted in a peaceful outcome. It is difficult to imagine it working out as well as it did without JFK’s response to the painful lesson learned the year before.

“So how should investment managers challenge their own biases? How can we make sure we are always open to questions and are making decisions – investments – based on the best available knowledge? How do we make sure we are listening to the right questions?” asked Gunnar Branson, President of NAREIM. “How can we be the leadership teams that solve a Cuban Missile Crisis rather than those that blunder a Bay of Pigs?”

What makes a leadership team work?

“If you have a great person and you promote them into an upper management position what do they need to learn?” Asked Chris Merrill, President and CEO of Harrison Street. “They may have been great asset managers or acquisition professionals but as leaders, they don’t really have the experience of leading.”

It is an excellent question to ask. Michael Curran, Drew Suss, and Dori Rubin, the three senior partners of the leadership consulting firm Truebridge Partners, helped participants explore the answer to this question. Curran began with an eye-opening exercise in which he asked everyone to write down 5 qualities exhibited by the most influential leaders in their careers. After sorting all the responses into three different categories of Intelligence, Technical Skills, or Emotional Intelligence, it was clear that the strongest characteristic of influential leaders falls into the category of emotional intelligence or “EQ.” “IQ is important in a person’s individual success in a functional role,” says Rubin, “but as a leader, EQ becomes more and more important; it is the key to creating the kind of culture that gets the best out of other people.” In a study conducted by Johnson & Johnson, teams led by managers with high EQ, consistently outperformed teams led by managers with lower EQ. The stronger a leader’s EQ, the more they can positively influence their team culture.

According to Rubin, “As a leader, your actions can have a profound impact on individuals and on the culture you would like to create for your company.”

Suss referred to the history of Sir Ernest Shackleton, who explored the Antarctic in the early 20th century, Shackleton illustrated the importance of intentional leadership in creating the right culture. “He was quite deliberate about who he took with him to ensure he established a certain kind of culture. He had people with varied skillsets: sailing, navigating, cooking, meteorology, medicine, etc.” Says Suss, “But the most important quality he looked for was flexibility. Once the team was assembled, he consciously worked to build a culture where everyone supported and learned from the others.”

Shackleton’s team was stranded by weather and unable to return from Antarctica for over a year. However, unlike other expeditions, his entire team survived. It was considered an impossible accomplishment at the time and it was achieved through great leadership, flexibility and a disciplined culture of mutual support and trust. The culture allowed them to survive the unanticipated.

How can we be flexible in the face of the unanticipated?

CoverWhat do you do if your business faces fundamental change? Alexandra Villoch, publisher of The Miami Herald and a former executive in banking and the airline industry, has had quite a bit of experience with disruptive industry level change.

During the meeting, she discussed how the U.S. print newspaper business, thanks to the explosion of the Internet, dropped from $65.8 Billion in advertising sales in 2000 to only $17.5 Billion by 2010. “Readers are consuming our content at unprecedented rates,” said Villoch, “unfortunately, the underlying business model isn’t working as well as it did before.” Technology has diminished the value of a hard copy of anything, including a printed newspaper.

So how can one prepare for this kind of disruption? The question might need to be: How dark can your imagination get? “In 2007 we were a little nervous about the exponential real estate growth in the Miami area so we brought in top consultants to brainstorm about the worst possible fallout.” What dire forecast did they come up with as their most extreme scenario? “That real estate advertising would collapse by 15% over 5 years.”

That’s downright rosy compared to the 80% reduction that actually happened over the next 12 months. “No one ever envisioned Lehmann Brother’s folding.” Alexandra’s advice to those looking to prepare themselves for disruption is, “Envision the worst possible situation.” Only then can we begin to see the opportunities afforded to us by it.

“Our revenue stream at The Miami Herald was based on advertising and print,” said Villoch, but now they have to turn a 113 year-old business into a startup. “We view any existing revenue streams as an angel investment to fund our new startup business.”

The implications of these new businesses, though still not as lucrative as the past print business, are impressive. Before, the Miami Herald was only limited to South Florida distribution, but with mobile apps, of which they have over 20 in operation, reach 13 million readers – only 1.6 million of which are local. “We are now a global publication.”

The Herald is diversifying to maintain growth. Readers are consuming news from myriad sources at the same time so Villoch is making sure to be part of every one of them. “We don’t have a 5 year plan. We don’t even have a 3-year plan. We are on a 6-month plan that constantly changes. Because the technology constantly changes.”

Do Strong Cultures Lead to Strong Long-Term Results?

Peter DiCorpo of CBRE Global Investors introduced Manny De Zarraga, Excutive Managing Director at HFF as, “one of the best in our business. This is an organization that has reinvented itself more times than I can count.”

HFF has gone through many changes and has stayed focused throughout. Their culture has always prioritized being client centric, diverse, and nimble – and they have maintained their focus through acquisitions, an IPO and of course the 2008 Recession. According to De Zarraga, “I give a lot of credit to our founding fathers. Their plan was to have the company owned by the entire executive team of 20 people, rather then have the ownership of the firm in the hands of 4 or 5 people.” This changed the executive mindset from employee to owner. “It really helps eliminate the thought that people are always up for sale.”

Curbing the constant turnover of the management team has been essential to maintaining the core principles of the company. The other main structural asset is information sharing. “We are huge on people helping others. If anyone learns something in a meeting or needs help on an issue they send an email out to everyone and people contribute.”

“Life is too short to work with hostile people and bigger is not necessarily better.” Great communication is the real key to growth. “We evaluate people on how ‘partner-like’ they are.” So it’s not just what you produce, it’s how you produce it. How you communicate it.

How is Sustainability Disrupting the Old Ways of Doing Business?

According to Nils Kok, Economist And Founder of GRESB, “If you don’t pay attention to sustainability, you are leaving money on the table and leaving certain risks unaddressed.” According to a recent study conducted by Bentall Kennedy, rental rate premiums for LEED certified buildings are 3.7% in the US and 10.2% in Canada. Occupancy rates also trend 4% higher in LEED certified buildings.

“We spend 90% of our time indoors. Which means that buildings and their occupants account for 81% of all energy consumption in the US.” The impact that buildings have on carbon emissions is therefore drastic. “30% of Miami will be flooded by 2100 and the current drought in California has lead to forced reduction in water consumption of about 25%.” Lawmakers in the UK have responded by making it illegal to trade buildings rated as inefficient. “California has said it will reduce building emissions by 50% by 2030.”

Where LEED and Energy Star focus a building’s energy and water efficiency, GRESB is a rating system that focuses on entire portfolios by encompassing ESG (Environmental, Social, and Governance) measurements. Much like the health department rating on restaurant windows in New York City, “rating systems are meant to be used like carrots on sticks.” GRESB is rating managers as well as buildings in their the portfolio, It makes all its findings visible to investors in funds and REITs in a concerted effort to aid and educate the investor. “Many tenants now prefer, if not demand sustainable buildings.”

To educate is to change behavior, and if investors are more educated on how green a particular REIT is, they may very well choose where to invest based on that. Just like diners choosing an A rated restaurant over a B rated one. And AirBnB users prefer highly rated over low-rated places.

So what does leadership have to do with disruption? They are hopelessly interwoven. If the people we consider to be great leaders were never tested by great disruptors, would we even know of their prowess? If the Bay of Pigs debacle hadn’t disrupted JFK’s swagger would he have been able to successfully deal with the exponentially more serious threat of nuclear missiles aimed at the US?

Green certification is a test. Growth is a test. Disruption is a test. And on any well constructed test there are those few questions that separate out the A+ students for the honor role. Without the disruptors, we would never know who our greatest leaders are, or have the chance to become one.