‘Male, pale and stale’ – REIT boards and gender diversity

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At the recent REIT week[1] in New York, the corridor chatter mostly centred on shop talk such as the search for talent in US coastal markets, but tempers flared after a prominent figure sought to play down the real estate sector’s male dominance or the need for more gender diversity, giving the industry its very own #MeToo moment.The eminence grise of the US REIT industry, Sam Zell, rippled the pond when he said he had never considered a person’s gender in employing people. He exclaimed, “I don’t think there’s ever been a “We gotta get more p—y on the block, OK?”

The lack of reaction from the real estate industry and trade body NAREIT[2] drew considerable criticism from the fund management community, which increasingly is applying criteria such as good governance when selecting investments.[3] The property industry came under fire for reacting slowly to the outburst rather than strongly advocating the role of women in real estate.

Gender diversity and board membership: “we have one.. already… so we are done”

NAREIT was not the only august institution to be rocked by allegations of indifference towards gender diversity recently. At the end of May, the discussion over women’s role in business leadership came to further prominence after the UK government’s Hampton-Alexander review found that women are woefully underrepresented in the top management of the UK’s largest public companies.

The excuses given by the UK’s top firms ranged from “I don’t think women fit comfortably into the board environment” to “We have one woman already on the board, so we are done”. The most disingenuous claim was that “Shareholders just aren’t interested in the make-up of the board, so why should we be?”

While it is true that shareholders may have varying views about diversity, they do care about good governance, particularly as there is mounting evidence that gender diversity and superior management performance are intertwined.

One? Then you’re really done

Research from MSCI in 2016[4] revealed that the presence of 3 of more women on a corporate board was indicative of a “tipping point” in terms of their influence which can, for instance, be measured in a company’s financial performance.

US companies with at least three women on the board had median gains in return on equity (ROE) of 10 percentage points and earnings per share (EPS) growth of 37% over 2011-2016, the research found. In contrast, companies that began the period with no female directors experienced median changes of -1 percentage point in ROE and -8% in EPS over the study period. However, a causal link was not established.

The researchers suggested the superior performance by companies with more female board members could result from more diverse groups making better decisions and that companies with more diverse boards were more effective in tapping all the available female talent in their organisation.

Women on REIT boards and returns

So how many women sit on the boards of REITs and real estate companies? Looking at the companies globally[5] is instructive, but by no means comprehensive because of missing data. Nonetheless, 20% of companies in the global real estate index have no women on the board, with just 19% having three or more directors, while only 16% had boards where at least a third of the members were women.

Gender diversity* of global real estate companies and REITs

* Gender equality is one of the 17 UN sustainable development goals (SDGs). For more, click here. Source: Bloomberg, BNP Paribas Asset Management, as of 31/03/2018. The value of your investments may fluctuate. Past performance is no guarantee for future returns.

While the evidence from MSCI’s study of the wider business world suggests that the presence of women on boards lends itself to better performance, the data for real estate companies is more nuanced, not least because of incomplete information. Companies with women on their boards were more likely to deliver better returns on equity than those without. Moreover, companies with boards where more than a third of the members are women were more profitable than other companies.

Unwittingly or not, Sam Zell, and the FTSE companies pilloried for their antediluvian attitudes towards women, may spark a welcome debate about the importance of having the right people of both sexes in the boardroom. In fairness to Zell, he subsequently apologised in a letter to NAREIT for his outburst and ironically, he is the president of one of the very few REITs that are led by a female chief executive.

The MSCI research and a cursory analysis of REIT performance suggest that structurally overlooking the qualities of at least 50% of the population does not lend itself to companies outperforming. Rather, the opposite appears to be the case.

Clearly, investors need to press companies to ensure that their boards are staffed such that they can meet the needs of a modern business and that they avoid the insularity and homogeneity which has often been synonymous with underperformance.

For real estate investors, that means their analyses of the impact of the search for talent need to look beyond the markets which REITs invest in, to include the governance of REITs themselves.

For more posts by Shaun Stevens, click here.


[1] REIT – Real Estate Investment Trust

[2] NAREIT – National Association of Real Estate Investment Trusts

[3] ESG criteria (ESG: Environmental, Social and Governance) are used by many asset managers including BNP Paribas Asset Management to assess investments in terms of their environmental, social and  governance aspects. For more on ESG at BNP Paribas Asset Management, go here. Gender equality is one of the 17 UN sustainable development goals (SDGs). For more, go here.

[4] The Tipping Point: Women on boards and financial performance, MSCI 2016

[5] In the FTSE EPRA NAREIT Developed global index

Shaun Stevens

Real Estate Strategist

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