Speech Transcript: March 28, 2003
Presenter:
Forbes Rutherford, President, Rutherford International ESG
Executive
Search/Strategic HR Advisory Group, Toronto, Canada
Venue: PM Property Fest, Toronto Convention Center
Theme: Employment Impact: Predicting the Unpredictable
Subject:
Many real estate
organizations and building owners are frustrated in today’s
marketplace with respect to the difficulty in finding service orientated
and experienced property managers, building operators and
superintendents. And if they find them, their next challenge is how to retain
them.
This presentation
will examine some of the key trends affecting building management staff
and professionals including:
-
Revaluation of the property manager through job enrichment;
-
Motivate by making your values mean something;
-
Compensating Performance by offering clarity, simplicity and
execution;
-
Retaining talent (determinant factors for staying or leaving.);
-
Recruiting talent (when and how, secrets of a corporate
headhunter);
-
Implications of the future labor market (more than the
building’s life cycle should be extended);
-
Effect of mergers on staffing (an age of uncertainty);
-
Warehousing knowledge that’s transient (managing the knowledge
gap between senior and junior employees);
-
Career Management (finding one’s niche in an oligarchic
industry);
Opening Preamble:
This morning, I want to speak about the present and future
– perhaps offer you some assurance that career opportunities within
the Canadian real estate industry are bright. There really isn’t any
need to speak about the past - all of you know where you’ve been, most
of you know where you are, and some of you know where you’re going.
One simply needs to step back from the industry, and take a good look
– it’s a matter of perspective.
I’ve been involved in real estate executive search since
the mid-80’s – and prior to this, I worked in real estate
development in Canada and property investment overseas. I’m perhaps
one of a few headhunters’ specializing in real estate that has
experienced all of the property cycles. Unquestionably, like you, I
understand the concept of living with uncertainty.
We’re in a unique position to observe the changing macro
trends and oncoming challenges facing the Canadian real estate industry
as a whole. We have developed insights essential to understanding
competing businesses, their organizational culture, needs and
weaknesses. This familiarity with industry trends, is resultant from a
consultative relationship with clients, but is due as well to the
summative information we acquire through thorough and candid interviews.
With the ongoing mergers and acquisitions – all indication
would suggest, we are an industry in contraction. Employment retention
levels are currently stable, with large firms experiencing only a
marginal or selective level of churn within their ranks. Under normal
circumstances, employee retention is an indicator of corporate
stability, and a measurement for determining a firm’s underlying
long-term corporate value. However this period of stability is
transitory; and reflects the perceived capital strength and relative
employment security offered by these firms.
Upper middle and senior management have suffered the greatest
in terms of becoming redundant through this consolidation. By and large,
job security is primarily at the line level – the closer you are to
the bricks and mortar – the better off you are.
Employee retention over the medium to long-term will be less
stable, as I predict there will be a shortage of qualified real estate
professionals. These predicted shortages will not be measured in terms
of a shortage of human assets, but rather in the diminishment of knowledge
assets.
The brochure, introducing this session stated, “real estate
organizations and building owners are frustrated in today’s
marketplace with respect to the difficulty in finding service orientated
and experienced property managers, building operators and
superintendents. And if they find them, their next challenge is how to
retain them.” My friends, if you think it’s bad now – I’m here
to tell you that what you’re experiencing now is merely the tip of the
iceberg.
WITHIN five years we will undergo a shortage of trained staff
and management talent. Our most seasoned and socially networked
employees will begin to gear-back or take early retirement.
IT IS NOT MY INTENTION – to stand up here and present
myself as some sort of Pollyanna - or tell you the glass is half empty,
the sky is falling, or that the industry has reached a stage of climax
and no further opportunities exist.
QUITE THE CONTRARY – real estate is cyclical and dynamic,
the business paradigms, which exist today, may not necessarily exist
tomorrow. To understand this assertion, one only needs to review recent
business history and list the iconic names that no longer exist, apart
from a shell company on a receiver’s shelf.
The Canadian commercial real estate industry may best
be described as a complex adaptive system – complex adaptive
systems can appear to move to the brink of chaos before new
patterns emerge and new forms of organizations take shape.
It has become an industry, which is both oligarchic in one
massive sector with a potential to control for supply and face rates –
and yet - we have more public real estate entities today, than we did
during the heady days of the late-eighties.
Even as we witness the merging of traditional firms, and the
acquisition of trophy portfolios and assets – new companies are
emerging – they’re emerging as unique, agile and focused forces
– this is there competitive advantage.
The growth of REIT’s, the creation of small cap development
and acquisition companies, the emergence of fee based corporate services
companies – all are clear examples of our industry’s
adaptability and capability to generate new methods of operating.
HOW CAN THIS BE?
The answer lies within the ethos of the industry, the deal
driven personality of industry executives, and the industry’s
unparalleled capability to leverage capital to create value.
The downsizing of merged and acquired companies has
significantly impacted the management levels, however displaced
management is fertile ground for entrepreneurs and financial backers.
There are many example’s of entrepreneurial personalities resurrecting
themselves at all levels of the spectrum – at the international level
– Paul Reichman assembled a capital pool to buy back Canary Warf;
nationally - Jon Love and Stuart Lazier left their respective companies
and within mere months - launched a multi-million dollar acquisition
fund – and more recently, Bill Minnis with a core of his former
pension fund advisory team announced the creation of real estate money
management firm.
This sub-strata group of companies operates below the radar
of the major players – they are nimble – and quick – and
they’re competing for talent within an industry that has spent the
last thirteen years draining the talent pool.
What are the contributing causes for this talent shortage?
The
answer is simple; the present situation is due to our ten-year inaction
to:
-
Educate internally,
-
Support external educational institutions adequately,
-
Value and mentor the talent we have,
-
Adequately pursue a coordinated on-campus recruitment program.
These
are the contributing causes, however the future cause is daunting – a
rocky shoal, and more difficult to navigate around – it’s “DEMOGRAPHICS.”
Add labor shortage to talent shortage – and I suspect the employers
among you will get a migraine – from my perspective – I’ll get to
raise my fees!
LET’S
CONDUCT AN EXPERIMENT –
would all of you indulge me for a moment and stand up.
Now,
assuming your RRSP didn’t get hammered in the markets – those of
you, planning to gear back or retire by 2008 – sit down.
By
2013 – sit down.
By
2018 – To those whom are sitting, take a hard look at the people that
are standing – for they and their peers are the future of the industry
– the challenge is to ensure that you impart your knowledge upon them.
If
the industry is to close the knowledge gap between young and old, companies
must take an active part in developing training programs based on
mentorship and collaborative systems. Such systems are designed to
archive the expert knowledge, which resides within each firm.
Knowledgeable Labor Supply – Competing Demand
This
knowledge/labor shortage is not exclusive to the real estate industry,
it’s systemic, and will include both upward pressure on both employee
compensation (to attract talent) and taxes (to support a politically
sophisticated and self indulgent gray market) on corporate and
individual earnings.
In
15 to 20 years – the ratio of workers to retirees will be
approximately 3.7 to 1 – in 30 years, 2.7 to 1. The tax implications
are astounding – imagine so few workers supporting one retiree – it
is simply untenable.
We
are already seeing indications of labor shortage impact – consider our
federal government – that bastion of leadership – where
self-interest trumps integrity, historical alliances and the public good
– during the next decade, a significant portion of the public service
will retire.
Rather
than finding efficiencies in process or forcing the assessment of a
programs value through legislated sunset clauses, and thereby reallocate
human resources accordingly –
our government responds to this crisis by hiring seven thousand new
employees annually just to stay even. The stated hope is that existing
employees will rub their experience and knowledge off on the new
employees prior to the full impact of the baby boom bust. It’s kind
of a “Hobson by the water cooler” approach to training.
The
problem is universal - throughout our public and private institutions
– and at both the municipal and provincial levels of government. For
instance, New Brunswick projects some of its government ministries will
lose up to 50% of its managers over the next seven years.
Consider Canada’s Schedule A banks and
their efforts to merge – they have very little choice but to merge –
domestically, short of fees, they’ve reached their limits to growth,
and are cannibalizing market share. Internationally - global competitors
dwarf them.
To
be competitive is clearly, the primary force driving the banks to merge;
however, banking is a knowledge industry with a significant knowledge
based workforce. Even with technological efficiencies, the banks were
quick to recognize the approaching knowledge gap within the financial
services sector is a market force of its own, equally driving their need
to merge.
Imagine
the impact these mergers will have on office space both directly and
indirectly. It is significant, when one considers how many professional
services firms and suppliers on the losing side of these mergers will be
forced to downsize or merge.
So
you see my friends, the watchword in our economy is “demographics”
– for everything in your future – all that you hold important
– family – career – lifestyle – healthcare – wealth –
governance - will be influenced by this single fundamental and
encroaching reality.
Does the property manager feel valued?
In an industry with oligarchic overtones in some
sectors, one should not assume
the lack of turnover is necessarily indicative of a satisfied employee
base. Subject to the financial strength of their firm, people are
staying put hoping for promotions but are settling for lateral
enrichment. For the most part, companies are not providing this
sought after lateral enrichment, and in some instances, we’ve observed
a trend towards functional diminishment.
For example, consider the office property manager responsible for an
urban or edge city asset greater than or equal to 700KK sq. ft. – he/she
has their CPM or RPA – this experienced manager represents the top
tier of your property management class and represents a wealth of
experience, industry knowledge and vocational commitment. Yet - many
in this function feel diminished in their scope of responsibilities,
relative to what they had some years ago.
I recognize that I’m generalizing, for certain company’s
are attempting to enrich the scope of the senior property managers
duties - requiring them to take greater ownership of their budgets,
assuming roles of construction coordination, procurement management and
innovate cost efficiencies.
However, coupled with this desire for managers to take a more integral role in
suggesting or implementing value adding strategies to their portfolio,
is the need for a strong corporate commitment on education and
mentorship. The folly in
this strategy is to enrich the scope of a position without
reciprocal action on increasing the employee’s capacity to meet the
raised benchmarks of performance.
Today – it’s hard to draw a bead – each company has a
different approach – some offer their property managers a great deal
of leeway in the management of their properties, while others won’t
give an RPA or a CPM overseeing 2MM sq. ft. or more - the discretion to
spend $500.00 outside of budget.
In a letter to senior executives within the industry, I
expressed concern about the knowledge gap we would be facing by writing
the following, “I believe the success of ‘brick’s and mortar’
in the twenty first century will be less contingent on ‘location,’
and more so on the performance and competencies of the people that
develop, own and manage them. The essential assets and strengths
of a property reside in the people that nurture its life cycle; ergo the
essential assets and strengths of a property portfolio will be
determined by the ability to integrate best practices and processes
throughout the organization.”
Executive response varied in tone, ranging from the
supportive to pleasantly dismissive.
Representative of one extreme, was a senior asset manager, whom was
strictly interested in “today’s value,” and didn’t
subscribe to the belief that operational staff impacted values or
building life cycle at all; while another executive was quite energetic
in describing his efforts to foster a long term value-based culture that
welcomes initiative from the rank and file.
The Canadian commercial real estate industry is framed around
an austerity business culture, a necessary survival strategy in the
early to mid-nineties but a disadvantage to the industry today. In my
opinion, due to this austerity culture, a number of owners and asset
manager’s have lost their way with respect to the valuation of
their people.
Insulating your firm from this approaching knowledge shortage?
The medium-term human resource challenge for CEO’s
will be developing policies which address career development aspirations
of the company’s existing workforce and foster an organizational
environment which will attract future talent.
Improved information management
technology may mitigate workforce supply pressures by increasing
individual productivity, however the most effective means for
alleviating this approaching pressure is to extend the employee’s life
cycle through qualitative retention measures. The short-term solution is
to delay the attrition by revaluing the role and scope of your key
employee’s contributions.
The industry is concerned about the state of skills
development, however concern doesn’t necessarily translate into
action. Twelve years of under-funding skills development compounded by a
net loss of talent and limited success attracting new recruits from post
secondary and graduate schools over the same period of time leads to one
conclusion – our second string has limited depth to replace what
we’ll eventually lose.
However, I believe this second-string weakness can easily be
rectified through implementation of a variety of external and internal
employee development strategies – the key is to subtly shift the
culture of the firm to one that emphasizes learning, knowledge
management and mentorship.
Cost effective technologies and strategies exist today, that
allow companies to deliver credible academic and internal training
programs to their staff. This can be achieved in unison with a program
for capturing the wealth of knowledge that flows in and out of your
organizations on a daily basis.
Clearly - the motivation to
implement these strategies requires a champion in the executive suite.
Motivate by making your values mean something!
Ladies and Gentlemen: the secret to attracting quality staff
and retaining good people is to live your “core values”, to have
a “core purpose,” and to make them part of it.
Last month, I interviewed a highly competent and committed
accredited property manager that had been laid off – he wasn’t
laid off for cause – he was laid off because they could replace
him for twenty thousand dollars less.
Two months ago, I counseled a manager with exceptional depth
and commitment to the industry that wanted to enroll in an executive
MBA, she needed every second Friday off and a week of classes per annum
over a two year timeline. She also needed financial assistance. The
company responded by offering to subsidize a small portion of the
financial cost, however she was no longer eligible for bonus – she
must use her holidays for the week in class – and oh yes –
she has to sign a five year employment contract with no steps in pay
guaranteed.
Now I ask you – Ladies and Gentleman – have you
ever heard of anything so absurd?
What are the values by which these companies operate – what
are the essential and enduring tenets of their organization – that
which is unalterable even if it becomes a competitive disadvantage –
it’s certainly not their people – I leave it up to you to define
what these companies stand for.
A “core purpose” may shift with market realities, but a
value should be unshakeable. Here is an example of a “core value” and a “core
purpose.”
On 9 11, Cantor Fitzgerald lost in the blink of an eye –
two thirds of its staff – I don’t know what their core values were
prior to 9 11; – however today -
one core value that provides the glue which holds this
company together, which defines what they stand for,
- is “to care for the families of their fallen friends.”
Cantor’s “Core Purpose” is to return to the volumes of
pre-911business. They’ve succeeded in both.
Is tenant service a core value in your organization?
– Ask your employer or the asset manager responsible for your
portfolio this question – “If tenant service becomes a competitive
disadvantage, should we start cutting back?”
If “cutting back” is their answer, then “tenant service”
was never truly a corporate value in the first place.
People will come – and they will go, but where a company
has a strong commitment to core values and purpose, I’ll submit this
company will get full measure of their employee’s worth.
And why?
Because their uncertainty will evaporate - through the
company’s “Core values” they know who they are – and through
“Core Purpose” they know where they’re going – What can be more
certain than that?
How should a firm maintain a supply of talent?
Poaching talent is always a
time-honored tactical and strategic option, however job enrichment and
cross training remains a critical means for retaining and attracting
star performers.
The greatest challenge for an executive search
professional is finding people that are able to recognize
opportunity, to be able to visualize value where others cannot. Highly
motivated people, with strong intuitive skills, who are able to
conceptually perceive the “whole” and lead people to perform –
these are the 20% that out perform the 80% regardless of the industry.
To fly in the face of the behaviorists, these qualities are innate and
are rarely learned after adolescence - no matter how many
remedial Executive MBA courses you put the manager through.
When
hiring a junior to intermediate employee, we should be more
accommodating in our need for experience. Experience can be relative.
There are plenty of people walking around with ten years of experience
– however the problem is, once you interview them – you discover
they have one year of experience – TEN TIMES.
Ask yourself, if the position really needs four years of
experience? - Or is this a stipulation designed to avoid processing a
voluminous response from personnel agencies or job board? When I assess
a person abilities for a junior or intermediate position, it’s not a
question of judging them for who they are, but rather for
“what they will become.”
Judging a manager is an exercise of distinguishing between
their knowledge and skill. Knowledge is an amalgam of experience and technical competence and can
be learned. Quite often, individuals are promoted too quickly to
positions of responsibility over staff but lack the primary management
attribute – interpersonal skills either within his or her business
unit or at the client level. The industry is rife with highly technical
managers that have no business managing staff until they’ve addressed
their interpersonal weaknesses.
If you are planning for succession at your most senior
strategic levels, then you need to determine the quality of your staff
in the context of these innate qualities, however if succession planning
for positions where experience, technical and interpersonal skills are
sufficient then management should implement a policy of development
through courses, mentoring and coaching.
There is more to job enrichment then upgrading the scope or
raising management’s expectations for a given function. You can enrich
an employee’s position by elevating their importance and recognize the
value of their inherent knowledge by giving them responsibility for
mentoring staff or acting as an expert resource.
Each person is different. It’s imperative for a company to understand
which drivers’ impact employee performance, retention and satisfaction,
as this measurement is a strategic tool in the overall human resource
and skills development planning process. This can be done through the
development of a matrix which gauges employees overall sense of job
satisfaction. In such a study, you will often find that employees rank
career and personal development higher in importance than compensation.
Understanding where employees measure their personal rewards or benefits
of work, allow our clients to be creative is meeting employee needs.
At Rutherford International, our matrix is an amalgam of
features, which include direct financial (pay), indirect financial
(benefits), work content (the work itself), career (long term
opportunity for development and advancement) and affiliation (feeling of
belonging).
“Affiliation”
(feeling of belonging) is probably the least understood feature our
matrix, and yet creative management strategies that address this feature
can be both powerful employee motivators and provide significant impact
on adding to shareholder value. Employees with a strong sense of
affiliation to their firm – DON’T LEAVE.
Tenets For Performance Compensation
I don’t wish to convey the impression that compensation
doesn’t play a critical role in an employee’s happiness. After all,
this is the real estate industry, an industry with the highest per
capita ratio of Type A personalities.
The concept of pay for performance is widely accepted in the
real estate community, however the link between incentive pay and
performance is weak and not necessarily connected to measurements
reflecting long-term shareholder value creation.
With the consolidation of ownership, large companies have
developed compensation philosophies and strategies for their front-line
managers and staff, which may be cumbersome relative to more nimble
compensation architectures at smaller competitors. This is a distinct
competitive disadvantage, which more structured firm’s are attempting
to address through the inclusion of variable pay programs based on
performance. In a variety of instances, companies offer a performance
bonus based on the achievement of corporate, divisional and (individual)
goals. In this instance, it’s a question of the percentage of the
weightings – the closer an employee is to the bricks and mortar
– the higher the personal weighting should be relative to
corporate performance.
A number of companies use the bonus to top the employee up to
the mean range of the industry compensation scale – let’s call
this for what it is – a salary deferral. Short and
long-term incentive programs should provide the employee with “direct
line of sight” or clarity in understanding what specific actions
they must take to ensure that expectations are met or exceeded in order
for the company to achieve superior value.
In an industry where the quality of relationships and
transactions often underwrites a successful real estate asset, one must
be careful that the compensation architecture and review programs have
not been designed to simply satisfy legislated equity compliance, or
ease the management burden of employee appraisal and job evaluation.
Alas, for many of you – these comments on compensation
architecture are moot, as it would seem to me that Compensation design
doesn’t seem to be an overriding concern for most companies. The
preference for being market competitive in salaries – seems to trump
performance based architecture. However, I believe you can have both.
Compensation and Corporate Governance
The linkage of compensation to short and long term
performance measures has never been more vital. It’s becoming a
question of governance. There is a potential for abuse when bonuses
are heavily weighted to short-term financial results.
With “corporate governance” having become a top-of-mind
issue, management may want to ensure that their compensation
architecture, and that of their employees provides the Board of
Directors and/or Trustees with some degree of assurance that benefits,
base compensation, perquisites, bonuses and long term incentives are
aligned with corporate goals and market realities. A compensation
program should be designed in a manner, which induces behavior that the
corporation needs to move forward to achieve superior shareholder or
unit holder value.
Compensation design has not caught up with the realties of an
industry where non-corporate officers are able to commit their firms to
significant liability, or influence asset values with tactical rather
than strategically grounded decisions. A majority of the current
structures are overly dependant on short-term financial performance
measurements, and do not adequately contribute to long term
organizational effectiveness.
Rewards based solely on short-term performance foster
tactical decisions. When the tactician supplants the strategist in
decision-making, questions related to “governance” by stakeholders
are sure to follow.
Achieving superior returns over time relative to an industry
index of performance is the ultimate goal for company stakeholders.
Designing a compensation plan that drives superior performance at all
levels of the company is a powerful message to stakeholders and/or
clients about the firm’s aspirations.
Knowledge Gap Impact on Succession and Organizational Design
In summary, the Canadian commercial
real estate industry failed to attract a generation of professionals in
the nineties, and has been remiss at actively developing our existing
middle tier talent. Clearly, we have an aging workforce.
Over the near term, I’m not
convinced that the industry has sufficient time to groom, or locate
enough knowledgeable top tier P&L oriented executives to support the
Strategic Business Unit (SBU) organizational structure, which has become
prevalent within the industry.
In isolation, a firm would be able
to source the necessary strategic talent, however all firms in five plus
years will be looking for the same “innate” leadership skill sets.
Demographics may well dictate a return to a centralized organizational
structure; or at the very least, a hybrid structure where internal
infrastructure services are centralized.
Summary
If one subscribes to current management theory, then you will
agree that the essential assets and strengths of a property reside in
the people that nurture its life cycle, and therefore corporate
investment in education and skills development becomes a priority. To
retain your most valued people, they need to know you value them -
more often then not – mentoring, coaching and recognizing them carries
greater rewards then money.
The baby-boom bust and the ensuing
knowledge gap may well push some companies to the brink of
organizational chaos, however the industry itself with all of its
complexity has proven its resilience in the past. It truly is a complex
adaptive system, which can neither be directed nor controlled – if
you’re an entrepreneur with a proven track record in creating wealth
– if you’re an employee that is adaptive – creative and resilient
- money and/or opportunity will coalesce around you.
Forbes J. Rutherford
© 2003 – All Rights Reserved
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