Inside the Board Room: An Exploration of Advisory Board Best Practices

INTRODUCTION

In the complex and ever-changing world of real estate investment management, Corporate Advisory Boards (Boards)[1] serve a strategic function to guide and navigate the various challenges facing Investment Managers (Managers). By utilizing the insights and expertise of these Boards, Managers can fully leverage their potential. Alliance Global Advisors (Alliance) serves as a resource for Managers seeking expert guidance on optimizing their Board structure. Our blog not only addresses key questions surrounding Board structure, compensation and term limits but also delves into invaluable insights and best practices for optimizing Board composition and fostering diversity.

Boards can be pivotal in steering a firm’s strategic direction and influencing operational excellence. A best-in-class Board should include seasoned professionals who offer invaluable insights, contribute to strategic growth initiatives, evaluate performance and ensure alignment with key stakeholders' interests. Moreover, Boards often act as advocates, guiding Executive and Senior Management teams while reviewing pertinent issues affecting the business. Alliance recognizes the importance of Investment Managers allocating sufficient time and resources to build and improve a Board to contribute to a firm’s success. Our latest blog delves into several key aspects, including the responsibilities, effective composition and evolving dynamics of Boards in the real estate investment sector. We thank Emma Stuart, Senior Client Partner, Global Real Estate and Anthony LoPinto, Global Sector Leader, Real Estate at Korn Ferry and Verna Kuo, active Board member and Founder and Principal of VHK Investments, for contributing to this article.

ADVISORY BOARD RESPONSIBILITIES AND REQUIREMENTS

Board members uphold many responsibilities, each vital in steering the company's trajectory toward success. They offer original inputs, challenge the Executive and Senior Management teams when necessary, influence strategic compositions, identify succession needs and monitor the company's performance against defined objectives. These individuals bring deep real estate knowledge, institutional insights and a profound understanding of effective governance and professional integrity to fulfill these duties.

The Board has no governing authority or operational responsibilities within the organization; therefore, the Board will not have formal voting matters presented for consideration. The scope of work for Board members will vary depending on the Investment Manager. Board roles for established Managers consist of upholding proper governance, maintaining industry best practice standards and focusing on the top-down strategy approach. The members' roles for new Managers will involve a heavier emphasis on advisory work and guidance when helping shape the firm, strategy and processes in place. Newly established or emerging managers will benefit greatly from the Board’s knowledge of the Investor base and capital markets.

Characteristics of Advisory Board Members

To fulfill the aforementioned duties, Board members should:

  • Have a background in real estate or an industry related to the firm’s real estate product

  • Have experience serving as a Limited Partner, Investor, Consultant, General Partner or Placement Agent

  • Have experience developing a long-term strategy

  • Understand the institutional universe and share perspectives with the organization regarding capital markets, capital flows, Investor and Consultant requirements and expectations

  • Understand effective Board operations, investment best practices and strong governance

  • Fully understand the organization's mission, policies, programs and needs

  • Remain attuned to the business and economic environment in which the company operates and understand the various issues it faces or can face

  • Attend all Board meetings and review the materials provided in advance to contribute in a meaningful manner

  • Participate in ad-hoc calls as requested

  • Ensure all reporting to the Board is sufficient, clear and accurate

  • Keep abreast of the company’s activities and related entities

  • Strictly adhere to the conflict-of-interest policies and confidentiality policies

  • Maintain the highest levels of professional and personal ethics

  • Be aware of their capacity to sit on multiple Boards and be cognizant of industry overlap and the type of work each seat demands

  • Be a constructive team player while standing up for their convictions

  • Promote open-minded and diverse perspectives

Meetings, Terms and Compensation

To retain talent and receive the ultimate benefits of an impressive Board, a Manager must follow best practices for terms, compensate the members as appropriate and establish efficient meeting schedules. Board membership is voluntary; the traditional term varies depending on the organization. Members typically have the option for reappointment or extension based on mutual agreement between the Board member and the firm. In conversation with several members of the industry, Alliance determined that there are usually no formal “term limits” established. Our best practice guideline is for Managers to conduct annual check-ins to gauge each Board member’s ability and willingness to continue to serve in the advisory role. The number of Board members will also vary depending on the firm, but from Alliance’s research, it will always have at least five and up to 10 members at a time. 

Regarding compensation, it is important to abide by the industry standard of compensation for these types of roles. Not only does this incentivize Board members to deliver excellent insights, but it also aligns interests with the firm's overall success. There are both paid and unpaid Advisory Boards in existence today. On average, compensation for paid positions includes base pay, cash, stock components and covered travel expenses. The annual range for compensation can be anywhere from $25,000 to $75,000, depending on the size of the firm, number of meetings and requirements. Other ancillary benefits may include networking opportunities, access to proprietary information, connectivity with other industry leaders and the ability to foster growth in an organization poised for future success.

There must be frequent communication between parties to ensure the best results. The dynamic between the Board members and the firm they serve will thrive based on the quantity and quality of meetings each year. There will typically be four meetings per year. Ideally, these meetings will be hosted in person with the optionality of a virtual link as needed to accommodate all Board members. It is vital to schedule these meetings a year in advance to avoid conflicts. These quarterly Board meetings can be hosted in different cities within each property market where the firm’s assets operate. The diversity in location can encourage valuable participation and market-specific insights. To make the most of each meeting, we advise Managers to distribute agendas and materials with enough time before the meeting for Board members to review. We encourage Managers to add a social component to allow Board members to freely discuss without an agenda and bring forth original thoughts and perspectives.

BOARD COMPOSITION BEST PRACTICES

The members of an organization’s Board can act as a transformative force for the organization’s business plan, strategy and position in the institutional landscape. Organizations should choose cycle-tested individuals to help the leadership teams make educated investment decisions. Current market conditions make it advantageous to have Board members who held senior investing positions post-GFC or through multiple market cycles to provide unique insights into long-term growth. Similarly, a diverse Board composition has immense value. Verna Kuo, the Founder and Principal of VHK Investments, serves in several Board positions and expresses her interest in a strong management team that is open to feedback and diverse perspectives. It is important for leadership and the Board to understand the Board’s role in order to have a safe space to discuss different ideas. It is even viewed as a major advantage to have a professional not within the real estate industry but rather in an industry related to the organization’s product or property type to provide insights on macro-trends.

Managers and Board members must align their expectations to form a best-in-class Board. Korn Ferry, a global organizational Consultant, explained that Board members can serve on several Boards as long as the companies are not directly competing. In determining Board member composition, it is important to avoid over-boarding, which is how many paid board seats a member holds. A member should hold a maximum of four to five seats before participation in a new Board becomes concerning. A Board member’s capacity for a Board role will depend on existing commitments (public, private, non-profit, etc.), employment status and frequency of meetings.

Effective Board members possess the necessary experience to support Investment Managers in anticipating and shaping the future. Korn Ferry identified an impactful Board and Manager relationship to be characterized by the alignment of their purpose, their people, their process and structure and their approach to partnership. The Korn Ferry team outlined the items that should be in alignment to form a collaborative relationship:

  • Purpose – what the Board focuses on:

    • Company Mission

    • Board Roles and Responsibilities

    • Strategy and Risk Alignment

    • CEO Succession Planning

    • Sustainability, ESG and Human Capital Management

    • Corporate Governance and Policy Review

  • People – who sits at the table:

    • Board Leadership Roles

    • Longer-Term Board Succession Planning

    • Individual Director Contribution and Peer Review

    • Board Diversity

    • Onboarding and Offboarding

  • Process & Structure – getting work done:

    • In-Person and Virtual Meetings

    • Agendas and Meeting Materials

    • Committee Structure

    • Information Flow

  • Partnership – culture and relationships:

    • A culture founded on trust, transparency, candor and constructive challenges

    • Stakeholder Relationships

In the dynamic landscape of real estate private equity, the recruitment of Board members has evolved to meet the changing needs and challenges of the industry.

Korn Ferry outlined various themes that should exist in an effective Board:

  • Industry Expertise: Companies are seeking individuals who possess a deep knowledge of real estate dynamics

  • Strategic Vision: Companies are looking for Board members who can contribute to long-term growth and success

  • Global Perspective: As real estate markets are interconnected globally, Boards are considering Directors with a global perspective, seeking Individuals with international experience and a broad understanding of different real estate markets

  • Technology Proficiency: Digital transformation has been sweeping through the real estate industry. Companies are recruiting Directors who are tech-savvy and can guide them through the adoption of innovative technologies to enhance operations and decision-making

  • Diversity and Inclusion: The importance of diversity within a Board is widely recognized. Companies are actively seeking Directors from diverse backgrounds, including gender, ethnicity and professional experiences, to bring varied perspectives to the boardroom

  • Risk Management: Given the inherent risks in the real estate industry, Boards are placing a strong emphasis on recruiting Directors with a solid understanding of risk management. This includes individuals who can navigate regulatory challenges and mitigate potential risks effectively

  • Environmental, Social and Governance (ESG) Focus: ESG considerations are becoming increasingly important in the real estate sector. Boards are looking for Directors who can guide the company in incorporating sustainable and socially responsible practices into its operations

CONCLUSION

Boards are crucial in steering real estate investment management firms towards prosperity. Leveraging their varied expertise and strategic acumen, Board members actively shape decision-making processes, governance structures and Investor alignment strategies. By crafting a diverse and well-connected Board, organizations can ignite a culture of innovative thought leadership. When Managers prioritize fostering robust relationships with the Board and facilitating meaningful interactions, they tap into additional insights and perspectives, propelling the organization toward its goals.

ABOUT ALLIANCE GLOBAL ADVISORS

Alliance Global Advisors is a women-owned consulting firm focused on empowering the institutional investment community to elevate best practices. Advising clients with over $520 billion in assets under management, Alliance partners with organizations to provide an independent perspective and innovative approach to critical strategic initiatives. Our partnerships allow senior management teams to focus on what matters most: diligently managing client capital, creating value and delivering exceptional returns in a performance-driven market.

Disclaimer:  This blog was originally published in February 2024 and will be updated periodically to reflect changes in the industry. The content may contain or cite personal and/or professional opinions that differ from the views of Alliance Global Advisors.     

[1] The objectives of a Corporate Board depend on whether it is considered an Independent Board of Directors with fiduciary obligations or a Corporate Advisory Board (Board). For this blog, we will focus on the latter.

Masha Rzoskiadvisory board, alliance global advisors, jennifer stevens, heather border, corporate advisory board