Serena Althaus of global executive search firm Ferguson Partners outlines five steps to overcoming the challenges of improving the bottom line with action on diversity and inclusion in a sustainable way.
If there is one thing the commercial real estate industry agrees on, it is that diversity and inclusion (D&I) efforts are now an operational imperative. Less clear, however, is how commercial real estate firms should set D&I goals and, more importantly, achieve them.
The pressure is on and unlikely to ease any time soon. It seems that everyone, including private equity and other investors in commercial real estate, has read the McKinsey & Company report on the positive impact D&I can have on the bottom line. For those who have not, the report found that firms with more gender diversity in leadership have a 25% greater likelihood of outperforming their less diverse peers, while those with greater ethnic diversity have a 36% greater likelihood of outperformance.
Now that they recognise the benefits of nurturing greater diversity, those investors are pushing for real results and returns on D&I efforts. Some are calling for stricter accountability for achieving D&I goals, including making or denying capital investments based in part on a firm’s measurable D&I achievements.
Not surprisingly, most commercial real estate firms have responded by dedicating more resources to D&I. The 2021 NAREIM-Ferguson Partners Diversity & Inclusion Survey of 74 private real estate investment managers representing more than $2 trn in AUM found that 96% of responding firms have either a D&I programme or specific initiatives to improve D&I and 71% have assigned dedicated staff to manage these programmes. Some have gone further by announcing bold stretch goals for D&I, including BentallGreenOak’s pledge to recruit women and minorities to fill two-thirds of its new positions.
While these are laudable efforts all around, they leave several key challenges unaddressed. First, firms must design, implement and generate momentum for their D&I efforts. Second, commercial real estate firms must implement these programmes and execute on every level of the organisation to ensure they yield a significant and lasting improvement in D&I. Finally, commercial real estate firms must find concrete ways to measure these improvements and their impact on the bottom line.
This is not an easy undertaking. Improving D&I requires a commitment from everyone in the organisation. These five steps can provide a framework for commercial real estate firms ready to take the step to greater diversity and inclusion.
Set achievable goals
Many commercial real estate firms want to increase diversity at all levels of their organisations. The challenge is to identify, set and measure specific diversity targets. With a more than 30% increase in the number of real estate firms dedicating staff to D&I initiatives in 2020, more firms have the resources to follow through on this.
Our research found that men tend to be overrepresented in areas like acquisitions and portfolio management, while women are overrepresented in human resources and administration. Therefore, D&I efforts can focus on identifying the reasons for this imbalance and taking steps to equalise the make up of those groups with regular tracking and reporting of results.
Training and mentoring relationships can also help promising talent develop the skills and attributes necessary to succeed in different areas of a firm. For example, a promising employee who has the networking skills necessary to nurture a strong deal pipeline may need additional training and support in order to develop the skills necessary to negotiate and close those deals and to hone the competitive instincts that often drive people working in this area.
Recruit on ‘what they know’
Referrals and networks are essential recruitment tools. However, they can create very narrow pipelines for talent. “Succeeding in the industry is about being in the right place at the right time and who you know, not necessarily what you know, unlike other industries which are more diverse,” said one participant in our survey.
By partnering with a wider range of schools and universities to offer mentoring and internships, firms are already working to attract a diverse population to commercial real estate careers. Almost all of the firms in our survey are undertaking efforts to expand their talent pipelines organically. This can help ensure that more new hires will be chosen more for their knowledge, skills and potential for growth than based on advantageous personal connections.
Ferguson Partners is working with the Real Estate Executive Council to build leadership networks that can support more inclusive cultures, organizational structures, and equitable pay, while also working to improve and maintain talent diversity at all levels.
Commercial real estate firms excel at recruiting a diverse array of employees who are in the early stages of their careers. However, firms have to make sure a good portion of their diverse employees build careers with them over the long term.
Our survey found that the gender balance at many firms is relatively equal at the junior levels. However, this balance increasingly skews male at the higher levels, until women make up only 30% of senior-level professionals and 15% of executive management. If firms are serious about D&I, they must commit to nurturing and retaining a diverse workforce and creating paths for this talent to move ahead in the organisation.
Setting clear job requirements and expectations is a critical starting point for stronger employee retention. Firms can follow up on that by evaluating job performance using predetermined criteria to minimise the perception of gender or racial bias during performance reviews. Employee sentiment surveys can indicate how well these efforts are working.
Making accommodation for differences in personal circumstances is also important. For example, allowing part-time work from home can make the difference between keeping and losing promising talent. Allowing this flexibility to a valued employee who has family responsibilities or works more effectively in a quiet environment is a small price to pay for loyalty and greater productivity. Firms concerned that working from home makes talent more vulnerable to poaching will have to find the right balance between employee needs and their own need to maintain a cohesive company culture.
CEO becomes Chief Diversity Officer
To ensure a broad perspective and continuous improvement towards D&I goals, firms will need the CEO to take on the mantle of Chief Diversity Officer. Without this leadership, D&I can become too narrowly focused.
Firms that focus D&I efforts largely on gender and ethnicity risk overlooking the potential of job candidates from other walks of life. For example, our research found that only one-third of firms include LGBTQ+ in diversity initiatives and only 10% are investing D&I resources in recruiting those who are neurodiverse (for example, those with autism, ADHD and Aspergers).
If the CEO makes broad D&I investments a priority, the chances of success increase significantly. The need for this CEO/diversity connection is backed up by financial performance data. Peter Braffman, GCM Grosvenor’s managing director and head of real estate who has tracked 264 diverse real estate fund managers, found that diverse managers outperformed the Burgiss industry benchmark on IRR or MOIC six out of seven years.
Chose who you work with
Commercial real estate firms have an opportunity to become leaders in D&I, setting a strong example for others to follow. In fact, if a firm really values D&I, it should emphasize the importance of D&I to others within its sphere of influence, such as suppliers, consultants and other key resources.
While there are limits to how much pressure firms can put on these business partners, regularly discussing D&I efforts and results emphasizes their importance and creates a level of implied accountability. After all, if D&I becomes a focal point for the industry, suppliers and other business partners will want to have good news to share about D&I in their own organisations.
Improving D&I requires commitment and consistency. Denmark is a case in point at a national level. The country ranked 8th in the world in gender inclusion in 2006 only to fall to 29 in 2021, well below the other Nordic countries that regularly lead the world in D&I. Much of the reason seems to be complacency. A 2019 study found that just 3% of Danish men realize that the country has fallen so far from its former position when it comes to gender inclusion.
To avoid similar mistakes, commercial real estate firms must weave D&I initiatives into the fabric of their organizations by regularly measuring and reporting progress and holding management accountable for results. Perhaps someday these efforts will no longer be necessary. Sadly, we are not there yet.
Serena Althaus is senior managing director at global executive search firm Ferguson Partners