The idea that succession planning is only necessary for the top executive is quickly going out of style at leading multifamily firms.
At United Dominion Realty Trust, company leaders know who's in line for the top 50 positions in the company—a dramatic increase from 2003, when the Richmond, Va.-based REIT only developed such plans for the company's top 10 executives. It's certainly a more broad-based approach than one might expect, but it's one that's supported by Tom Toomey, president and CEO of United Dominion, which owns and manages more than 70,000 multifamily units.
“The thing that I think people miss is that they tend to think of a succession plan as, ‘What's the replacement for the CEO?'” Toomey explains. But for a company to successfully grow, a plan needs to go much deeper than the top spot. Management teams and boards are coming to realize that “you have to have stronger, deeper, talented bench strength,” he adds. A deeper plan not only eliminates uncertainties down the road, but it encourages employees to develop their skills toward a specific career path.
In light of tighter corporate regulation, high-level executive departures—such as Michael Eisner of the Walt Disney Co.—and too many high-profile business scandals, many public multifamily companies are reevaluating and strengthening succession plans, going far deeper into the company hierarchy than in the past. It's a change for the apartment industry, which has typically focused more on property-level on-site turnover and retention issues, but it's a change that promises dividends.
“I don't have to worry about a disruption in the operation at any point anywhere,” Toomey explains. “Should something happen you can immediately go to the plan and say, ‘OK, we've got it covered.'”
Depth Chart So just how deep a succession plan do you need? “It's a function of the size of the organization and how many employees [you have],” says Steve Friedman, national director of housing for accounting firm Ernst and Young. “Every well-run company will have a succession plan that will run at least three layers deep into management.”
Some go far beyond that. About two years ago, multifamily powerhouse Equity Residential started a running list of possible successors for its top 250 people, from the CEO down to area vice presidents. “We look at it [succession planning] from an overall company point of view, not just one or two spots in terms of the CEO or the chairman,” says Bruce Duncan, president and CEO of the Chicago-based REIT, which owns more than 200,000 units in 33 states.
And Equity's philosophy is paying off in terms of employee retention and talent growth. “A lot of organizations don't spend the time to talk to employees about their goals, and help them reach the next level,” Duncan says. “To me, it's always paid big dividends.” And now Equity is beginning to take a closer look at possible successors for their regional manager positions. “They really are the next line of defense,” adds Duncan.
Gables Residential, a Boca Raton, Fla.-based REIT with approximately $230 million in 2004 revenue, keeps formal plans for the likely replacements of its top 25 employees but informally goes deeper, to the property manager level. “This is important because we need to be constantly preparing for growth opportunities,” says CEO Chris Wheeler. “Particularly in the client services part of our business, major contracts can hinge on our ability to appropriately staff the opportunity on short notice.”